How Much Is the VA Loan Funding Fee

By Jackie Lohrey

Veterans Administration (VA) home loans carry with them a number of money-saving benefits. Among these are no down payment requirements, no mortgage insurance requirement and a limit on the amounts lenders can charge for closing costs, origination and appraisal fees. These benefits, however, come with a price tag that dates back to 1982, which the VA calls a funding fee.

The VA loan funding fee is a onetime fee payable at the time you close on your loan. The objective is to reduce costs to taxpayers, who actually fund the program, by requiring most veterans or service members to contribute varying amounts. While all VA loan recipients must pay a finding fee, the amount, a percentage of the amount of your loan, is different depending whether you are a member or veteran of active duty military or the reserves/National Guard, whether this is your first VA loan and whether you choose to provide an optional down payment.

The funding fee for active duty members or veterans taking out a first-time loan with no down payment is 2.15 percent of the loan. So if the amount of your loan is $200,000, the funding fee will be $4,300. With a 5 percent to 10 percent down payment the fee decreases to 1.5 percent, and with a 10-percent or larger down payment the fee is 1.25 percent of the loan. Any further loans require 3.3 percent with no down payment but remain at between 1.5 percent and 1.25 percent with the corresponding down payment. Members of the reserves/National Guard have a higher funding fee requirement, starting at 2.4 percent for a first-time loan and 3.3 percent for any further loans with no down payment. If you have a 5 percent to 10 percent down payment, the funding fee is 1.75 percent, and a 10-percent or higher down payment reduces the fee to 1.5 percent regardless of the number of loans.

You must also pay a funding fee according to the type of loan when refinancing a VA home loan. If you are refinancing to take advantage of lower interest rates, the fee is 0.5 percent whether active duty or reserve/National Guard. If, however, you are doing a first-time cash-out refinance, the fee increases to 2.15 percent for active duty members or veterans and 2.4 percent for members of the reserves/National Guard. Any further cash-out refinance loans require a 3.3-percent funding, regardless of your branch of service.

The VA, under certain circumstances relating to disabilities, will waive the funding fee for veterans. These include a situation where you are receiving VA disability payments for a service-related disability or are currently receiving retirement but, if not, would still qualify for disability payments. In addition, there is an exception if you are the surviving spouse of a veteran who dies while on active duty or from a service-related disability.

Although you must pay the appropriate funding at the time you close on your loan, an option to consider is incorporating the fee into your loan. If you choose this option, however, keep in mind that by spreading the cost of the fee over the term of your loan, you significantly increase its overall price.

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