VA Loan Funding Fee Explained

The VA loan has no down payment requirement and no mortgage insurance. The funding fee is what stands in place of both: a one-time charge, usually rolled into the loan rather than paid at closing.

First use, on a VA-backed purchase loan:

  • Less than 5% down — 2.15%
  • 5% or more down — 1.5%
  • 10% or more down — 1.25%

Subsequent use:

  • Less than 5% down — 3.3%
  • 5% or more down — 1.5%
  • 10% or more down — 1.25%

Two things fall out of that table. The jump on subsequent use is steep — 2.15% to 3.3% — but putting 5% down collapses it to 1.5% either way, which is often the cheapest version of a second VA loan by a wide margin.

And the fee is waived entirely for a substantial group. On a $300,000 loan at 2.15% that is about $6,450 not borrowed.

Who is eligible?

For the exemption, any of:

  • You are receiving VA compensation for a service-connected disability.
  • You are eligible for VA compensation but receive retirement or active-duty pay instead.
  • You are a surviving spouse receiving Dependency and Indemnity Compensation.
  • You are a service member with a proposed or memorandum rating showing entitlement to pre-discharge compensation.
  • You are on active duty and have evidenced a Purple Heart on or before your loan closing date.

The second and fourth are the ones people miss. Being eligible for compensation while drawing retired pay still exempts you, and a pre-discharge memorandum rating counts before the final decision lands.

This is the strongest financial argument for filing a disability claim even at a low rating: any compensable rating removes the fee.

How do I apply?

  • Tell your lender if you have a rating, and check it was applied: Lenders do not always ask, and the fee is easy to miss on a closing statement.
  • Check the exemption if you are drawing retired pay: Being eligible for compensation but receiving retirement pay instead still exempts you.
  • Use a memorandum rating pre-discharge: A proposed or memorandum rating can exempt you before your final decision.
  • Model 5% down on a second use: It cuts the fee from 3.3% to 1.5%, which usually beats borrowing the larger fee.
  • Remember the fee is financed, not free: Rolling it in means paying interest on it for the loan's life.
  • Ask about entitlement restoration: If you have used a VA loan before, restored entitlement affects both the fee tier and how much you can borrow.

Common questions

How much is the VA funding fee?

On first use, 2.15% with less than 5% down, 1.5% at 5% or more, and 1.25% at 10% or more. On subsequent use, 3.3% under 5% down, with the same 1.5% and 1.25% tiers above that.

Who is exempt from the VA funding fee?

Anyone receiving VA compensation for a service-connected disability, anyone eligible for it but receiving retirement or active-duty pay instead, surviving spouses receiving DIC, service members with a proposed or memorandum rating, and active-duty Purple Heart recipients.

How much is the exemption worth?

On a $300,000 first-use loan at 2.15%, about $6,450 not added to your balance.

Can you avoid the higher subsequent-use fee?

Putting 5% down drops it from 3.3% to 1.5%, which is usually cheaper than financing the larger fee.

Is the funding fee paid at closing?

It is usually financed into the loan, which means paying interest on it across the term.

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