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Let me be straight with you about VA funding fees. I've worked with thousands of military buyers over my career at AmeriSave, and this one-time cost confuses more veterans than any other aspect of VA loans. People see that 2.15% number and panic, thinking it's some kind of penalty for using their hard-earned military benefit. It's not.
The truth is, the VA funding fee is what keeps the entire VA loan program running for future generations of service members. Unlike FHA loans that require both upfront mortgage insurance premiums and monthly mortgage insurance payments, VA loans charge this single fee and nothing monthly. No private mortgage insurance. No ongoing premiums eating into your budget year after year.
Here's what I tell every borrower: yes, the funding fee adds to your closing costs, but the benefits of VA financing typically outweigh this expense by a significant margin. We're talking zero down payment requirements, competitive interest rates that often beat conventional loans, and no monthly mortgage insurance premiums that would cost you hundreds of dollars every month for years.
The funding fee structure changed effective April 7, 2023, and those rates remain in effect through 2026. Understanding exactly what you'll pay based on your specific situation helps you budget accurately and make informed decisions about down payments, loan types, and whether to finance the fee or pay it upfront.
This guide breaks down the complete 2026 VA funding fee rate charts, explains who qualifies for exemptions, details how to calculate your exact costs, and provides strategies to minimize your overall expense. After working with military families since I started in this business at 18, I've seen every scenario, and I know what actually works in real-world situations versus what sounds good on paper.
The VA funding fee is a one-time payment required by the U.S. Department of Veterans Affairs on most VA-backed home loans. This fee goes directly to the VA to offset the cost of the loan program, allowing the department to offer favorable terms like zero down payment options without imposing the financial burden on taxpayers.
Unlike FHA loans that charge both an upfront mortgage insurance premium (currently 1.75% of the loan amount) and monthly mortgage insurance premiums (0.55% to 1.05% annually), VA loans charge only this single funding fee with no monthly insurance requirements. For a $300,000 loan, FHA charges $5,250 upfront plus approximately $200 to $260 monthly for mortgage insurance. VA funding fees range from $1,500 to $9,900 on that same loan amount depending on your circumstances, but you'll never pay a monthly premium.
The fee varies based on several factors including the type of loan you're obtaining, whether you've used VA loan benefits previously, and how much down payment you're making if any. These variables create a rate structure designed to balance program sustainability with accessibility for veterans at different financial capability levels.
The VA guaranteed 525,759 loans in fiscal year 2025 according to VA statistics. A significant portion of these borrowers either paid reduced fees due to down payments or received complete exemptions based on disability compensation. Understanding where you fit in this fee structure allows you to plan your finances accordingly and potentially reduce your costs through strategic decisions.
For veterans purchasing homes or financing construction, the funding fee depends on down payment amount and whether this represents your first use of VA loan benefits or a subsequent use. The term first use applies even if you've used a VA loan before, as long as your prior VA loan was solely for purchasing a manufactured home.
First-time users with zero down payment pay 2.15% of the loan amount. On a $300,000 purchase, this equals $6,450. Veterans who previously used VA benefits for a traditional home purchase pay 3.3% with zero down, totaling $9,900 on that same $300,000 loan.
Making a down payment of 5% to 9.99% reduces the funding fee to 1.5% regardless of whether you're a first-time or subsequent user. That's $4,500 on a $300,000 loan, representing $1,950 in savings for first-time users or $5,400 in savings for subsequent users compared to zero-down scenarios.
Down payments of 10% or higher drop the funding fee to 1.25% for all users. On a $300,000 loan, you'd pay $3,750 in funding fees. This rate represents the lowest available funding fee for purchase transactions and creates a compelling case for veterans who can afford larger down payments to seriously consider making them.
The fee applies only to the financed amount, not the purchase price. If you buy a $350,000 home with $50,000 down, your loan amount is $300,000, and the funding fee calculates on that $300,000 figure. This distinction matters because down payments serve double duty, reducing both the loan amount on which the fee calculates and the fee percentage itself when down payments reach the 5% and 10% thresholds.
Cash-out refinances allow you to tap your home's equity by replacing your existing mortgage with a larger VA loan and taking the difference in cash. The funding fee structure for cash-out refinances mirrors the first-time versus subsequent-use distinction from purchase loans but does not vary based on equity or down payment amounts.
First-time users of VA benefits pay 2.15% of the new loan amount on cash-out refinances. Subsequent users pay 3.3%. There are no rate reductions available through larger equity retention or lower loan-to-value ratios. The fee calculates purely on usage history.
For example, if you're refinancing a $250,000 existing mortgage into a $300,000 loan to extract $50,000 in cash, the funding fee applies to the entire $300,000 new loan amount. First-time users would pay $6,450 while subsequent users would pay $9,900.
This fee structure creates situations where veterans might consider alternative refinancing approaches. If you need cash but don't want to pay the higher subsequent-use funding fee, a regular IRRRL refinance combined with a separate home equity loan or HELOC might provide the funds you need at lower overall cost depending on interest rates and your specific circumstances.
The VA IRRRL, also called a VA streamline refinance, carries the lowest funding fee in the entire VA loan program at just 0.5% of the loan amount. This rate applies to all borrowers regardless of prior VA loan usage, down payment history, or equity levels.
On a $300,000 IRRRL, you'd pay $1,500 in funding fees. This low fee recognizes that IRRRLs benefit both veterans through lower interest rates and the VA through reduced default risk as borrowers lower their monthly obligations.
The IRRRL exists specifically to help veterans reduce their interest rates with minimal documentation and streamlined processing. The low funding fee removes one potential barrier to refinancing when rates drop. Veterans should calculate whether their interest savings over the time they plan to keep the loan exceed the $1,500 funding fee plus any other closing costs to determine if refinancing makes financial sense.
IRRRLs generally require no appraisal, no income verification, and no credit underwriting beyond basic certificate of eligibility confirmation. This speed and simplicity combined with the low funding fee makes IRRRLs one of the most valuable tools available to veterans when interest rates decline.
When someone assumes an existing VA loan, the funding fee is 0.5% of the outstanding loan balance at assumption. This low fee encourages loan assumptions, which can provide significant benefits to both sellers and buyers when existing VA loans carry interest rates below current market rates.
Manufactured home purchases and refinances carry a flat 1% funding fee regardless of prior VA loan usage or down payment amounts. This reduced fee recognizes the generally lower costs and values associated with manufactured housing compared to site-built homes.
The truth is, any veteran receiving VA disability compensation for service-connected disabilities is completely exempt from paying VA funding fees regardless of their disability rating percentage. Whether you're rated at 10% or 100%, you pay zero funding fee. This exemption applies to all VA loan types including purchases, cash-out refinances, and IRRRLs.
Approximately 6 million veterans receive disability compensation out of roughly 18 million total veterans nationwide according to VA population data. This means about one in three veterans who generally qualify for VA loans also qualify for funding fee exemptions. The financial impact is substantial. On a typical $300,000 purchase with zero down, the exemption saves $6,450 for first-time users or $9,900 for subsequent users.
The exemption status should appear on your Certificate of Eligibility (COE). Lenders verify exemption status directly through the COE rather than requiring separate documentation of your disability rating. If your COE doesn't reflect your exemption status despite your disability compensation, contact the VA to update your records before closing to avoid paying the fee unnecessarily.
Veterans receiving retirement pay while being eligible for disability compensation also qualify for the exemption even if they haven't officially applied for or started receiving the disability benefits. The key factor is eligibility for compensation based on service-connected disabilities, not whether you're actively collecting those benefits.
Active-duty service members and veterans who have received the Purple Heart are automatically exempt from VA funding fees. This exemption recognizes the sacrifice made by those wounded in combat and provides enhanced benefits beyond the standard VA loan program.
The Purple Heart exemption applies regardless of whether you're also receiving disability compensation for the injury that earned you the Purple Heart. The award itself qualifies you for the exemption. Your COE should indicate this exemption status, and lenders will not charge the funding fee once they verify the Purple Heart recipient designation.
Surviving spouses of veterans who died in service or from service-connected disabilities qualify for VA loan benefits including funding fee exemptions. Specifically, spouses receiving Dependency and Indemnity Compensation (DIC) from the VA are exempt from funding fees on VA-backed loans.
This exemption helps surviving spouses maintain housing stability after losing their veteran spouse. The VA loan program extends to eligible surviving spouses as recognition of the shared sacrifice military families make during service. DIC recipients should have their exemption status indicated on their COE.
Veterans with pending disability compensation claims at the time of loan closing face a more complex situation. You may need to pay the funding fee at closing if your claim hasn't been adjudicated, but you can request a refund if the VA later approves your claim with a rating date that precedes your loan closing date.
The retroactive nature of many VA disability ratings creates opportunities for refunds. If your disability rating is dated back to a point before you closed on your loan, you were technically eligible for the exemption at closing even though the official determination came later. The VA will refund the funding fee you paid once you submit appropriate documentation showing the retroactive rating.
This refund process requires action on your part. The VA doesn't automatically issue refunds when disability ratings are granted. You must contact your lender or the VA to initiate the refund process. A 2025 VA Office of Inspector General report found that 250 veterans between October 2021 and September 2024 were entitled to funding fee refunds totaling significant amounts but hadn't received them, highlighting the importance of proactive follow-up on retroactive disability ratings.
Calculating your exact VA funding fee requires knowing four key pieces of information: your loan amount, loan type, whether you've used VA benefits before (excluding manufactured home-only purchases), and your down payment percentage if any.
Start by determining your loan amount. For purchases, this equals your purchase price minus your down payment. For refinances, this equals your new loan amount. The funding fee always applies to the loan amount, never the purchase price or property value.
Next, identify your loan type. Purchase loans, cash-out refinances, IRRRLs, assumptions, and manufactured home loans all have different fee structures. Your loan officer should clearly identify which loan type you're using.
Determine whether this is your first use of VA benefits or a subsequent use. Remember that prior manufactured home-only purchases don't count as first use for traditional home purchases. If you previously bought only a manufactured home with a VA loan, you'll still pay first-use rates when buying a site-built home.
Calculate your down payment percentage if you're making one. Divide your down payment by the purchase price and multiply by 100. A $15,000 down payment on a $300,000 purchase equals 5% down. This percentage determines whether you qualify for reduced funding fee rates.
Apply the appropriate rate from the charts to your loan amount. For a first-time user purchasing with 5% down on a $300,000 loan (loan amount of $285,000 after the $15,000 down payment), multiply $285,000 by 1.5% to get a funding fee of $4,275.
Example 1: First-time home buyer making zero down payment
Purchase price: $350,000
Down payment: $0
Loan amount: $350,000
Funding fee rate: 2.15%
Funding fee: $7,525
Example 2: Subsequent user with 10% down payment
Purchase price: $400,000
Down payment: $40,000 (10%)
Loan amount: $360,000
Funding fee rate: 1.25%
Funding fee: $4,500
Example 3: First-time user doing IRRRL
Current loan balance: $280,000
New loan amount: $280,000
Funding fee rate: 0.5%
Funding fee: $1,400
Example 4: Subsequent user cash-out refinance
Current loan balance: $200,000
New loan amount: $275,000 (extracting $75,000 cash)
Funding fee rate: 3.3%
Funding fee: $9,075
Example 5: Disabled veteran purchase
Purchase price: $325,000
Down payment: $0
Loan amount: $325,000
Funding fee rate: 0% (exempt due to disability)
Funding fee: $0
These examples demonstrate how dramatically funding fees can vary based on your specific circumstances. The difference between first-time and subsequent use with zero down represents $3,300 on a $100,000 loan, scaling proportionally with loan size. Down payments create even larger savings for subsequent users, with the 10% down threshold reducing a $300,000 subsequent user's fee from $9,900 to $3,750, a savings of $6,150.
You have two options for paying the VA funding fee: paying cash at closing or financing it into your loan amount. Most veterans choose to finance the fee, and the VA loan program specifically allows this approach unlike some other closing costs that must be paid in cash.
When you finance the funding fee, it gets added to your loan amount, increasing both your monthly payment and the total interest you'll pay over the loan term. However, financing preserves your cash reserves for other needs like emergency funds, furniture, or home improvements.
The mathematics of financing versus paying cash depends on your interest rate and how long you keep the loan. At 6.5% interest on a 30-year loan, financing a $6,450 funding fee costs you an additional $8,150 in interest over the full 30-year term, bringing your total cost to $14,600 instead of $6,450. However, that assumes you keep the loan for the full term, which most homeowners don't.
Most people refinance or move within 7 to 10 years. If you finance the $6,450 fee and refinance after 7 years, you've paid approximately $3,800 in interest on that fee, bringing your total cost to $10,250. That's still significantly more than paying cash, but it spreads the cost over years rather than requiring a lump sum at closing.
The monthly payment impact of financing the fee remains relatively modest. A $6,450 financed funding fee at 6.5% interest adds approximately $41 to your monthly payment. For many veterans, that $41 monthly increase proves easier to manage than coming up with an additional $6,450 cash at closing.
Veterans should consider their complete financial picture when deciding whether to finance or pay the funding fee in cash. If paying cash would deplete your emergency fund or prevent you from having adequate cash reserves after closing, financing makes sense despite the higher long-term cost. Financial stability and flexibility often outweigh the mathematical optimization of minimizing interest costs.
Down payments reduce funding fees in two ways: they lower your loan amount on which the fee calculates, and they trigger lower fee percentages when you reach the 5% and 10% thresholds. The combination creates substantial savings for veterans who can afford down payments.
A first-time user buying a $300,000 home with zero down pays a $6,450 funding fee on the $300,000 loan. Making a 5% down payment ($15,000) reduces the loan to $285,000 and drops the rate to 1.5%, creating a fee of $4,275. The net cash difference at closing is $4,275 funding fee minus the $15,000 down payment versus $6,450 funding fee with zero down, a net increase of only $12,825 for having $15,000 less financed.
The 10% down threshold creates even better value for subsequent users. Going from zero down to 10% down on a $300,000 purchase drops the fee from $9,900 to $3,750 on the $270,000 loan, a $6,150 savings that partially offsets the $30,000 down payment.
Veterans should calculate the breakeven point where down payment savings offset the cash outlay. Factor in both the reduced funding fee and the lower loan amount producing lower monthly payments and interest costs over time. In many cases, the combined benefits make down payments financially attractive even for veterans who could qualify with zero down.
VA loan rules allow sellers to contribute up to 4% of the home's reasonable value toward closing costs including the funding fee. In a competitive market where sellers receive multiple offers, asking for seller concessions might weaken your offer. However, in balanced or buyer-favorable markets, seller concessions represent a legitimate negotiating tool that can dramatically reduce your out-of-pocket costs.
On a $300,000 purchase, 4% seller concessions equal $12,000 - more than enough to cover typical funding fees plus other closing costs. Veterans purchasing with zero down and a 2.15% funding fee ($6,450 on $300,000) could have the seller cover that entire fee plus additional closing costs through a 4% concession.
The catch is that seller concessions come from somewhere. Sellers typically increase the purchase price when agreeing to concessions to maintain their net proceeds. A seller who wanted $300,000 net might list at $312,000 and agree to 4% concessions, delivering their target net while appearing to help the buyer. Veterans should ensure any price increase associated with concessions doesn't push them beyond the property's appraised value, as VA loans can't exceed appraisal amounts.
Seller concessions prove most valuable when they allow you to preserve cash reserves while staying within appraisal value. If a property appraises at or above a price that includes seller concessions, you've effectively converted equity you would have had immediately into cash you keep in your bank account by having the seller fund your closing costs.
If you previously used a VA loan and paid it off, you might have the option to restore your entitlement and qualify for first-use rates again in some circumstances. The VA's entitlement restoration process allows veterans who have paid off VA loans in full to regain their full entitlement, potentially qualifying for first-use funding fee rates on future purchases.
However, entitlement restoration rules contain nuances that affect funding fee rates. Generally, the VA considers your first use of a VA loan for a non-manufactured home to establish subsequent-use status for all future non-manufactured home purchases regardless of entitlement restoration. This means many veterans will pay subsequent-use rates even after restoring entitlement if they previously used VA benefits for a traditional home purchase.
Veterans considering selling their current home purchased with a VA loan to buy another should understand this funding fee implication. You'll likely pay the higher subsequent-use rate on the new purchase unless you've only previously purchased a manufactured home with VA benefits.
Subsequent users needing to tap home equity face a 3.3% funding fee on VA cash-out refinances. Depending on interest rates and the amount of cash needed, a home equity line of credit (HELOC) or traditional home equity loan might provide funds at lower overall cost.
A veteran with a $250,000 existing VA loan at 3.5% interest who wants to extract $50,000 in cash could do a cash-out refinance to a $300,000 loan. At 6.5% interest, they'd pay $9,900 in funding fees plus approximately $82,500 more in interest over 30 years by refinancing their low-rate existing loan to current higher rates.
Alternatively, they could keep their 3.5% VA loan and take a $50,000 HELOC or home equity loan at 8% interest. The HELOC costs no funding fee and only charges interest on the $50,000 at the higher rate while their $250,000 first mortgage maintains the favorable 3.5% rate. Over 10 years, the HELOC interest totals approximately $22,000 compared to the $92,400 cost of the cash-out refinance approach (funding fee plus extra interest on the larger refinanced loan).
Each situation requires individual analysis based on current interest rates, existing loan rates, cash needs, and loan timeline. The key insight is that cash-out refinances aren't the only way to access equity, and alternatives might deliver better financial outcomes depending on circumstances.
AmeriSave understands the nuances of VA funding fees, disability exemptions, and strategies to minimize your overall costs while maximizing the benefits of VA financing.
We guide veterans through funding fee calculations before you commit to loan terms, ensuring you understand exactly what you'll owe at closing. Our loan officers discuss whether making a down payment makes sense for your specific situation, considering both funding fee savings and your need to maintain cash reserves. We don't pressure veterans into down payments just to earn slightly lower fees - we prioritize your financial stability and long-term success in homeownership.
For veterans with pending disability claims, we monitor status and coordinate refund requests when retroactive ratings are approved after closing. Too many veterans pay funding fees they shouldn't have paid or that should be refunded, and we work to prevent that situation through proactive communication with the VA.
Our digital mortgage platform allows you to submit documents, track your loan progress, and communicate with your loan team without requiring in-person meetings. This convenience matters for active-duty military who may be stationed far from our offices or deploying during the transaction. We've closed loans for service members deployed overseas, coordinating signatures and funding across time zones and continents.
The VA loan program represents one of the most valuable benefits earned through military service. Our commitment involves helping veterans maximize these benefits through expert guidance, transparent communication, and advocacy throughout the mortgage process. Whether you're a first-time home buyer using VA benefits or a veteran on your third VA loan purchase, we provide the same dedicated service focused on your best interests.
VA funding fees represent the price of keeping one of the military's most valuable benefits sustainable for future generations of service members. These one-time fees range from 0.5% to 3.3% of loan amounts depending on loan type, down payment, and usage history, with most veterans paying 2.15% on first-use purchases with zero down.
The fees might seem substantial at face value, but they replace the monthly mortgage insurance premiums that other loan programs charge for years or decades. Over typical holding periods, VA funding fees cost less than half of what FHA mortgage insurance totals, and they're one-time charges rather than ongoing monthly expenses that compound over time.
Approximately one-third of veterans nationwide qualify for complete funding fee exemptions through disability compensation, Purple Heart status, or surviving spouse DIC eligibility. These exemptions save thousands of dollars and represent significant additional benefits beyond the standard VA loan advantages of zero down payment and no monthly mortgage insurance.
Veterans without exemptions can reduce fees through strategic down payments, with 5% and 10% thresholds triggering lower fee rates. Subsequent users particularly benefit from down payments, with a 10% down payment reducing fees by more than $6,000 on typical $300,000 purchases compared to zero down scenarios. Seller concessions up to 4% of home value can cover funding fees entirely when sellers agree to contribute toward closing costs.
The choice between financing funding fees or paying cash depends on individual financial circumstances, expected holding periods, and the opportunity cost of capital. Most veterans finance fees to preserve cash reserves, accepting modest monthly payment increases in exchange for maintaining emergency funds and financial flexibility after closing.
Understanding funding fee structures, exemption qualifications, and cost-reduction strategies empowers veterans to make informed decisions about how to approach VA financing. The fees are mandatory for most borrowers, but strategic planning minimizes their impact while maximizing the substantial benefits VA loans provide through zero down payment requirements, competitive rates, and elimination of monthly mortgage insurance costs that burden other loan types for years.
Yes, veterans who get VA disability payments with ratings that go back to before their loan closing date can ask for full funding fee refunds. The most important thing is that the date your disability rating goes into effect must come before the date your loan closes. If you closed on June 1, 2025, and later got a disability rating dated May 15, 2025, or earlier, you can get your money back because you technically qualified for the exemption at closing, even though the official decision came later. To get your money back, you need to send proof of your retroactive disability rating to your lender or the VA. You will need your disability award letter, which shows the date it went into effect, and copies of your closing documents, which show the funding fee you paid. The VA will give you back the full amount you paid. You have to start this process by calling your lender or the VA after you get your disability rating. It doesn't happen on its own. A lot of veterans don't get the refunds they should because they don't know that retroactive ratings make them eligible for refunds. A report from the VA Office of Inspector General in 2025 found millions of dollars in refunds that veterans didn't claim because they paid fees but later found out they were eligible for exemptions. The report found that some lenders charged fees to veterans who were exempt from paying them at closing, and others involved veterans whose disability ratings were given to them after closing. Veterans were entitled to refunds in both cases, but many never got them because they didn't know to ask.
The VA funding fee and FHA mortgage insurance both help pay for government loan programs, but they are set up in very different ways, which usually makes VA loans better. FHA charges an upfront mortgage insurance premium of 1.75% and monthly premiums that range from 0.55% to 1.05% of the loan amount. For a $300,000 loan, FHA costs $5,250 up front and about $200 to $260 a month for mortgage insurance. Over the course of five years, FHA mortgage insurance costs between $17,250 and $20,850, which includes both the upfront and monthly payments. Depending on the situation, VA funding fees on that same $300,000 loan can be anywhere from $1,500 to $9,900, and there are no monthly premiums. The worst-case VA scenario (a new user with no money down who pays 3.3% or $9,900) still costs less than half of what FHA does over five years. FHA monthly mortgage insurance also usually lasts for the whole loan term, but if you put down 10% or more, it ends after 11 years. There are no ongoing monthly costs for VA funding fees. FHA is cheaper than VA only when you get a short-term loan and refinance or move within a year or two. This is because the lower FHA upfront premium hasn't been offset by monthly premiums yet. VA funding fees are almost always much lower than FHA mortgage insurance for veterans who plan to stay in their homes for five years or more.
No, members of the National Guard and Reserve pay the same funding fees as active-duty service members and veterans. The fee structure does not separate active duty service from reserve duty service. If you served in the military, the National Guard, or the Reserves, you'll pay 2.15% for your first use with no down payment, 1.5% with a down payment of 5% to 9.99%, or 1.25% with a down payment of 10% or more. The same rates of 3.3%, 1.5%, and 1.25% also apply to all service categories for subsequent use. The only thing that matters for National Guard and Reserve members is that they have to meet certain service requirements in order to qualify for a VA loan. These requirements are a little different for active duty and reserve members. Once you meet those requirements and get your Certificate of Eligibility, all eligible service members will be treated the same when it comes to funding fees. This consistency shows that VA loan benefits are earned pay for service, no matter which branch you served in. Disability exemptions also apply equally: a National Guard member with a 10% disability rating gets the same funding fee exemption as an active-duty veteran with a 10% rating.
Not unless you have one of the qualifying exemptions. If you don't have a disability rating, the only ways to avoid paying VA funding fees are to get the Purple Heart or be a surviving spouse who gets Dependency and Indemnity Compensation. All other veterans who are eligible must pay the funding fee based on the type of loan they have and their situation. The fee is required for all VA-backed loans, but some loans may be exempt from it. Some veterans think that first-time home buyers or low-income borrowers might be able to get their fees waived, but there are no such exemptions based on income or being a first-time buyer. The VA funding fee structure is what it is. If you have a disability, are a Purple Heart recipient, or are a surviving spouse, you may be able to get an exemption. If not, you have to pay the fee according to the published rates. However, sellers can help with your closing costs, including the funding fee, by giving you up to 4% of the home's value. You can also always add the fee to your loan amount so you don't have to pay cash at closing. These choices lessen the immediate cash effect, even if you can't avoid the fee altogether. Veterans who don't qualify for any exemptions should focus on ways to lower the fee through down payments or raise the fee's value by realizing that the one-time payment replaces years of monthly mortgage insurance payments that you would have to make with other types of loans.
The funding fee is a one-time cost that you can't get back no matter how long you own the property. If you sell after one year or 30 years, you've already paid the funding fee, and it won't come back unless you qualified for an exemption you didn't know about when you closed. Some other closing costs, on the other hand, may be negotiable or refundable in certain situations. No matter what happens to the property, the funding fee or the money you borrowed to pay it off is a sunk cost. But if you pay for the funding fee and sell quickly, you'll have paid very little interest on that amount. If you took out a 30-year loan at 6.5% interest to pay for a $6,450 fee and then sold it after three years, you would have only paid about $1,200 in interest on the fee part of the loan instead of the $8,150 you would have paid over 30 years. So, even though you don't get the fee back, selling or refinancing early lowers the interest cost of paying for the fee. When deciding whether to pay the funding fee in cash or finance it, veterans should think about how long they plan to hold the property. If you know you'll sell or refinance within a few years because of a military move, a job change, or something else, the interest cost of financing the fee will be very low. Paying cash for the fee saves a lot of money on interest over the long term if you plan to keep the loan for a long time.
It depends on what kind of refinance it is. VA Interest Rate Reduction Refinance Loans (IRRRLs or streamline refinances) have a flat 0.5% funding fee, no matter if this is your first VA loan or if you've used VA benefits before. No matter how many times you use the IRRRL, the funding fee is always 0.5%. But VA cash-out refinances do make a difference between first-time and repeat users. If your first VA purchase was your first time using VA benefits, a cash-out refinance later on would pay 3.3% on subsequent uses with standard equity positions. If you've used VA benefits more than once, including for a previous cash-out refinance, you will also get 3.3% on any future cash-out refinances. The distinction matters because IRRRL rates remain low regardless of how many VA loans you've had, while cash-out refinances follow the first-use versus subsequent-use structure. A lot of veterans don't know that a cash-out refinance gives all future VA purchases and refinances "subsequent-use" status. If you didn't make a big down payment, your next purchase with a VA loan will be at 3.3% instead of 2.15% like your first one. This progression leads to situations where the order in which you use different VA loan types affects the lifetime costs of your funding fees. Veterans who are thinking about cash-out refinances should know what this means and think about whether other ways to get equity might better protect first-use rates for future purchases.
No, you can't negotiate VA funding fees because the U.S. government sets these rates. The Department of Veterans Affairs sets them by law. According to the official VA rate charts, every lender in the country charges the same funding fee percentages. You can't change your mind, look for better funding fee rates, or get special deals or promotional periods. The rates are the same. But this standardization is good for veterans because it makes things clearer and less confusing. You know exactly how much the fee will be before you agree to anything, and you can compare lenders based on interest rates and other closing costs without having to worry about changes in funding fees. The only ways to lower your funding fee are the legal ones that this guide talks about: making a down payment to get into a lower fee tier, qualifying for an exemption because of a disability or other eligible status, asking the seller to cover the fee, or choosing loan types with lower fee structures, like IRRRLs instead of cash-out refinances. Some mortgage brokers or lenders may advertise "no closing cost" VA loans, but this usually means that all costs, including the funding fee, are rolled into your interest rate through lender credits. You're still paying the costs, but instead of paying them all at once, you'll pay them over time with a higher interest rate. Read the fine print on any "no cost" offer to find out how they are handling the VA funding fee that is required.
The amount of money you save depends on how much you borrow and whether this is your first time using the service. A 5% down payment lowers the funding fee from 2.15% to 1.5% for first-time users, which is a savings of 0.65 percentage points. If you put down 5% on a $300,000 loan, you would save about $1,853 compared to not putting anything down. The fee drops to 1.25% when the down payment is 10%, which is a savings of 0.9 percentage points. If you buy a house for $300,000 and put down 10% ($270,000), you would save about $2,430 compared to putting nothing down. For people who use it later, the down payment savings are even bigger because the starting rate is 3.3%. A 5% down payment lowers the fee from 3.3% to 1.5%, which is 1.8 percentage points less. In the same situation where you buy a house for $300,000 (with a loan amount of $285,000 after 5% down), people who put down no money save about $5,130. The 10% down threshold saves 2.05 percentage points, which means you save about $5,535 on the $270,000 loan amount. These numbers show that people who make down payments save a lot more on funding fees than people who don't. A later buyer who makes a 5% down payment ($15,000 on a $300,000 purchase) saves $5,130. This means that they get back about 34% of their down payment just from fee savings, not counting the lower loan amount and interest savings. First-time users who only get back $1,853 with the same down payment see about 12% of their down payment offset by savings on fees. Both situations benefit from down payments, but later users get bigger benefits.
It depends on whether or not they are eligible. The VA does not charge funding fees to surviving spouses of veterans who died while serving or from service-related disabilities while receiving Dependency and Indemnity Compensation (DIC). This is the same as how they do not charge disabled veterans. The exemption should be on the surviving spouse's Certificate of Eligibility, and lenders won't charge the fee once they confirm this. But surviving spouses of veterans who died from causes not related to their service and were not getting disability payments do not qualify for the funding fee exemption. However, they may still be able to get VA loan benefits in some situations. The most important thing is whether the surviving spouse gets DIC, which is money for spouses of veterans who died because of their service. The VA loan program knows that surviving spouses have special financial problems after their veteran spouse dies, especially if the death was related to military service. The funding fee exemption for DIC recipients makes it easier for surviving spouses to buy a home during tough times. These surviving spouses get all the usual VA loan benefits, such as no down payment options, no monthly mortgage insurance, and low interest rates. They also don't have to pay the funding fee. Surviving spouses should get their Certificate of Eligibility from the VA early in their home search to make sure they know exactly what benefits they are eligible for and if they qualify for the funding fee exemption. Lenders who know about VA benefits can help surviving spouses fill out the paperwork they need to do to get all the benefits they've earned.
If your disability compensation effective date is before your loan closing date, you can ask for a full refund. When veterans get retroactive disability ratings that show they were exempt from paying funding fees as of a date before they closed on their loan, the VA will give them back the money. This happens a lot because VA disability claims can take months or even years to process, and a lot of veterans apply for disability benefits after they've already bought a home. The approval could take six months, a year, or even longer after closing, but the effective date of the rating is often set back to the date of the claim or even earlier based on medical evidence. You technically qualified for the exemption at closing if that backdated effective date was before your closing date, even though neither you nor your lender knew it at the time. To get your refund, you need to call your lender or the VA and give them proof of your disability rating and its effective date, as well as your closing documents that show the funding fee you paid. The VA will handle the refund and give you back the whole fee you paid. You are getting this refund because you were eligible for an exemption and paid a fee you shouldn't have. The problem is that the VA doesn't automatically find these cases and give out refunds. You have to ask for the refund yourself. A lot of veterans don't know about this chance to get their money back, so they never do. If you're waiting for a decision on your disability claim and you're about to close on a VA loan, think about whether it would be better to wait until after the claim is decided to close. This way, you won't have to pay the fee and then ask for a refund later. But don't miss out on homes or low interest rates just to avoid the paperwork for a refund. You can always get your money back later if you are owed it.
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