VA Funding Fee: Everything You Need To Know For 2023

VA loans are an attractive mortgage option for eligible veterans, active duty service members and eligible surviving spouses. These loans come with competitive interest rates and no down payment or mortgage insurance requirements.

But most first-time and repeat VA borrowers are required to pay a VA funding fee. This one-time fee helps offset some of the costs of the VA loan program, assuring these mortgages stay affordable for service members and their families.

What Is A VA Funding Fee?

A VA funding fee is a one-time that fee veterans, active-duty service members or surviving spouses are required to pay when applying for a VA home loan. The fee is designed to keep taxpayer costs for the loan low so these mortgages can remain available without requiring a down payment or mortgage insurance.

VA Home Loan Overview

The VA loan program provides affordable mortgages to qualifying borrowers. You’ll apply through a mortgage lender, and the loan is backed by the Department of Veteran Affairs (VA).

Since the VA backs a portion of the loan, the lender can provide more favorable loan terms. Because of this, VA loans offer flexibility with no down payment or mortgage insurance requirements.

However, the VA determines who qualifies for a VA loan. If you believe you’re eligible, the first step is to obtain a Certificate of Eligibility (COE). This document is issued by the VA and shows your lender that you qualify to take out a VA loan.

How Much Is The VA Funding Fee?

The VA funding fee varies slightly depending on the size of your down payment and whether you’re a first-time VA borrower or not.

2023 VA Funding Fee Chart

Here’s how much you can expect to pay for the VA funding fee in 2023:

If you plan to do a VA cash-out refinance, the funding fee requirements are 2.15% for first-time borrowers and 3.3% for repeat borrowers. For a VA IRRRL, the funding fee is 0.5% across the board.

Why Do You Have To Pay A Funding Fee For A VA Loan?

According to the VA, the funding fee reduces the cost for U.S. taxpayers. VA loans don’t require down payments or monthly mortgage insurance, so the funding fee helps reduce the burden on taxpayers.

VA Funding Fee Exemption

If you qualify for an exemption, you won’t have to pay the funding fee at all. The following borrowers are exempt from paying the VA funding fee:

• Veterans and service members receiving compensation for a service-connected disability
• Anyone eligible to receive compensation for a service-connected disability but is receiving retirement or active duty pay instead
• Surviving spouses who are receiving Dependency and Indemnity Compensation (DIC)
• A service member who has received a proposed or memorandum rating before the loan closing date stating they’re eligible to get compensation because of a pre-discharge claim
• Active-duty service members who have been awarded the Purple Heart

VA Funding Fee Refund

In some cases, borrowers may qualify for a refund on the VA funding fee after closing. For example, you may receive a refund if you had a pending disability claim that was approved after you’d already closed and paid the funding fee. If you believe you’re entitled to a refund, you can reach out to your VA Regional Loan Center.

How To Calculate The VA Funding Fee

Your VA funding fee is based on your loan amount, down payment size and whether you’re a first-time or repeat VA borrower. Review the chart above and multiply the percentage by the home’s sale price.

For example, let’s say you’re a first-time VA borrower purchasing a $300,000 home with no down payment. Your VA funding fee will be 2.15% of the total purchase price, or $6,450. To get that number, you’d multiply 0.0215 x 300,000.

You can either pay the full fee upfront or roll the costs into your loan amount and pay it off over time.

VA Funding Fee FAQs

The VA funding fee often causes confusion for first-time home buyers who are new to VA loans. The following frequently asked questions contain more information about VA funding fees.

Do all VA loans have a funding fee?

Yes, all VA loans come with a funding fee. If you use a VA home loan to buy, build, repair a home or refinance a mortgage loan, you must pay the VA funding fee unless you meet the exemptions mentioned above.

Exempt individuals are those who have become eligible for compensation for a service-connected disability or who currently receive service-connected disability compensation. You may also be exempt if you received the Purple Heart as an active duty military member or if you qualify as a surviving spouse receiving DIC.

Is the VA loan funding fee tax-deductible?

Yes, you can exempt the amount you paid for the VA funding fee along with your mortgage interest on your taxes. However, if you roll the funding fee into your mortgage, you can only deduct the amount you paid that year. If you paid the entire amount upfront, you can deduct the entire amount for that same tax year. 

Can the VA funding fee be added to my closing costs?

You have the option to either roll the funding fee into your loan and pay it off over time or pay the fee out-of-pocket at closing. As a buyer, you may not have to pay the VA funding fee at all if the seller agrees to cover part of the closing costs.

The Bottom Line: Be Prepared For VA Funding Fees With VA Loans

Most borrowers will have to pay a funding fee when they take out a VA loan, adding to the overall cost of the loan. However, the VA funding fee reduces the burden on taxpayers and allows VA loans to continue to offer excellent benefits like no down payment requirements.

Keep in mind that you will have to pay other fees when you’re closing on a home, even with a VA loan. If the time is right for you, you can get started on your home buying journey with Rocket Mortgage^® today.