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VA loan | What is the VA funding fee for 2023?
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The VA funding fee is a one-time charge that most military veterans, service members, and survivors pay to use a VA loan to finance the purchase or refinance of a home.
The VA funding fee is a percentage of the loan you pay at closing. It goes to the VA to help cover the costs of the VA home loan program.
The exact percentage varies depending on a few factors, including:
- Loan purpose - purchase or refinance
- First-time using a VA loan
- Down payment
After reading this article, you'll know who pays the VA funding fee and who's exempt, how much it costs, and how to pay it. Then, look over the examples to see how it works so you know what to expect when buying a home with a VA loan.
VA funding fee exemption
Some veterans may be eligible for a waiver of the VA funding fee, such as disabled veterans and surviving spouses of veterans who died in service.
You're exempt from paying the VA funding fee if:
- You receive VA compensation for a service-connected disability,
- You would receive VA compensation for a service-connected disability but receive retirement or active-duty pay instead.
- You're eligible to receive compensation based on a pre-discharge exam or review
- You can but aren't receiving payment because you're on active duty
- You received Purple Heart
- You're an eligible surviving spouse.
Check your Certificate of Eligibility or the Verification of VA Benefits to see if you're exempt from paying the VA funding fee. If you're uncertain, visit the VA's website for more information. Or talk to a mortgage expert at NewCastle Home Loan for guidance.
How much is the VA funding fee when buying a home?
The lender calculates the VA funding fee as a percentage of the loan amount. The exact rate varies depending on a few factors, including the type of VA loan, whether you're a first-time or repeat borrower, and your down payment amount.
"First use" is your first time using a VA loan. "After first use" means you've used a VA loan before.
Purchase, First-time use
- 2.3%, if your down payment is less than 5%
- 1.65%, if your down payment is at least 5%, but less than 10%
- 1.4%, if your down payment is more than 10%
Purchase, After the first use
- 3.6%, if your down payment is less than 5%
- 1.65%, if your down payment is at least 5%, but less than 10%
- 1.4%, if your down payment is more than 10%
VA funding fees table for purchases
| First use | Down payment | VA funding fee |
| Less than 5% | 2.3% | |
| 5% to less than 10% | 1.65% | |
| 10% or more | 1.4% |
| After first use | Down payment | VA funding fee |
| Less than 5% | 3.6% | |
| 5% to less than 10% | 1.65% | |
| 10% or more | 1.4% |
Visit the VA's website for more information about the VA funding fee.
How to calculate the VA funding fee
To calculate the VA funding fee, use the following formula:
- VA funding fee = loan amount x funding fee percentage
For example, let's say you're a first-time homebuyer, the house is $400,000, the VA loan is $400,000, and your down payment is $0. Calculate the VA funding fee as follows:
- VA funding fee = $400,000 x 2.3% = $9,200.
The VA funding fee is one of the costs associated with a VA loan. However, it would help to know all the closing costs, including title company fees and taxes. We made it much easier for you to estimate your closing costs with our VA Loan Calculator.
- View closing costs, including the funding fee. Get accurate information so you know what to expect when buying a house.
How Do I Pay the VA Funding Fee?
You pay the VA funding fee at closing, which is the final step in the VA loan process. The lender collects the closing funding fee and sends it to the VA.
You can pay it in one of three ways:
- Finance it by rolling it into the loan amount.
- Pay it out of pocket in cash.
- Ask the seller to pay it for you as a "seller credit."
To learn how the seller can pay your closing costs, including your VA funding fee: Seller Credit | Can the seller pay the homebuyer's closing costs?
Can I roll the VA funding fee into my mortgage?
Most VA home buyers choose the finance the VA funding fee. By rolling it into your VA loan, you add it to the loan balance and pay it off over time as part of regular mortgage payments.
The following example shows how the lender calculates the VA funding when you roll it into the loan amount.
Assuming you're using a VA loan for the first time and buying a home for $400,000 with no down payment:
- Loan amount: $400,000
- VA funding fee percentage: 2.3% (for a first-time VA borrower with no down payment)
- VA funding fee: $400,000 x 2.3% = $9,200
- Loan amount with VA funding fee rolled in: $400,000 + $9,200 = $409,200
In this example, add the VA funding fee of $9,200 to the loan amount of $400,000 to get a total loan of $409,200. This means you would be responsible for paying back a total of $409,200 over the life of the loan, including the VA funding fee.
Financing the funding fee is convenient if you don't have the cash to pay it upfront. However, rolling it into the loan increases the overall cost of owning a home because you pay interest on the fee over the life of the loan.
Consider your options when it comes to paying the VA funding fee. Talk to a mortgage expert at NewCastle Home Loans to ensure you understand all the costs associated with your VA loan.
Do I have to pay VA funding fee for refinancing?
When refinancing a home using a VA loan, veterans pay the one-time VA funding fee, except for disabled veterans and surviving spouses of veterans who died in service.
When taking out a new VA loan or refinancing an existing VA mortgage. VA offers two refinance loan programs:
- Interest Rate Reduction Refinancing Loans (IRRRLs)
- VA-backed cash-out refinance
Interest Rate Reduction Refinancing Loans (IRRRLs)
With the IRRRL, you replace your current VA loan with a new one to reduce your monthly mortgage payments. The process is easy because it only requires a little documentation to get approved.
The VA funding fee for the IRRRL is as follows:
- 0.50% of the loan amount
VA-backed cash-out refinance
The VA cash-out refinance you to replace your current loan with a new VA loan. You can pay off a non-VA or VA loan and take extra cash out. Use your home's equity for any reason, like paying off credit card debt and improving your home.
For First use, the VA funding fee for a cash-out refinance is:
- 2.3% of the loan amount
After first use, the VA funding fee for a cash-out refinance is:
- 3.6% of the loan amount
What is the VA funding fee for?
The VA funding fee is generally lower than the mortgage insurance fees you'd pay for either an FHA loan or a conventional mortgage making VA loans an attractive option for military borrowers.
The VA charges the funding fee for VA home loans to help fund the VA home loan program, which assists military veterans, active-duty service members, and their families by offering them the opportunity to purchase a home with no down payment and favorable terms.
The VA funding fee helps cover the costs of the VA home loan program, including providing these benefits to military borrowers. In addition, it ensures that the VA home loan program remains self-sustaining to continue to help military borrowers in the future.
The VA funding fee is just one of the costs associated with a VA loan. In addition, it would be best if you were prepared to pay closing costs. Feel free to use our VA Loan Calculator to get the details on rates, payments, and closing costs, including the VA funding fee online, 24/7, so you know what to expect.
Visit our VA loan page for more information. Feel free to comment below.
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