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VA Funding Fee: What It Is And How Much You’ll Pay In 2021

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Published on March 25, 2021
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VA loans offer a great mortgage option for eligible veterans, servicemembers and surviving spouses because they help borrowers get into a home while keeping costs down.

A typical mortgage loan will come with a variety of costs that can make getting a home difficult for buyers on a budget. A VA loan lets you sidestep some of these costs by allowing you to get a loan with no down payment and no mortgage insurance and limits the amount you’ll pay in closing costs.

The VA funding fee, a common cost associated with VA loans, can cause a lot of confusion for borrowers. Not sure what it is, how much it costs or if you’ll have to pay this VA funding fee? We’ve made it easy for you. Let’s take a closer look.

What Is A VA Funding Fee?

Borrowers must pay the one-time VA funding fee with a VA purchase or loan refinance. Borrowers pay the fee directly to the Department of Veteran Affairs. The government uses the money collected to continue funding home purchases for active military members, retired veterans and surviving spouses.

Do all VA loans have a funding fee? Yes, most VA loan borrowers must pay a VA loan funding fee as part of the process of receiving their home loan. However, the cost of the funding fee varies from borrower to borrower. You pay a percentage of your loan amount, and the exact percentage you pay depends on a few different factors.

The funding fee exists to help offset the cost of the VA loan program and helps ensure that borrowers continue to get all the great benefits associated with VA loans, including 0% down payment options with no mortgage insurance.

VA Funding Fee Chart For 2021

So, if the fee varies, how much will you end up paying? Let’s take a look at this year’s guidelines in the VA funding fee chart set by the U.S. Department of Veterans Affairs.

Down Payment

First-Time VA Borrower

Subsequent VA Borrower

<5%

2.3%

3.6%

5% or more

1.65%

1.65%

10% or more

1.4%

1.4%

As of January 1, 2021, eligible VA loan borrowers won’t receive varying percentages depending on whether they are active or reserve duty. The above guidelines apply to all borrowers.

If you plan to get a VA loan as a cash-out refinance, the funding fee requirements are 2.3% for first-time borrowers and 3.6% for subsequent borrowers. For an Interest Rate Reduction Refinance Loan, also known as a VA Streamline refinance, the funding fee is 0.5% across the board.

VA Funding Fee Exemptions

You may qualify for a VA funding fee exemption, which means some borrowers may not have to pay the VA funding fee.

The types of borrowers exempt from paying a funding fee, according to the VA, include:

  • Veterans and servicemembers either eligible for compensation for a service-connected disability or who currently receive service-connected disability compensation.
  • Surviving spouses who meet the eligibility requirements for a VA loan.
  • Active-duty servicemembers who have been awarded the Purple Heart.

To get a VA home loan, you’ll first apply for a Certificate of Eligibility, which will state whether you’re exempt or nonexempt from paying the funding fee. Be sure your lender knows your exemption status.

If you don’t yet have a COE, the VA website has information on how to apply and what documentation you’ll need to provide.

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VA Loan Funding Fee Refund

What if you had a disability claim pending as you went through the process of getting your loan and buying your home, only to have it approved after you’d already closed and paid the funding fee? Though perhaps inconvenient, the good news is that you may qualify for a refund of the fee if you're found to be eligible for an exemption after closing.

You must have been entitled to compensation prior to the date of closing. If the effective date of your compensation occurs after the date you closed on your home, you may not get a refund.

If you believe you’re entitled to a refund, reach out to your lender or call your VA Regional Loan Center at (877) 827-3702.

VA Funding Fee FAQs

Take a look at some common questions you may have about the VA funding fee as a VA loan borrower.

How Do You Pay A VA Funding Fee?

You pay your VA funding fee when you close your VA-backed or VA direct home loan.

You can pay the VA funding fee in two ways:

  • You can roll the funding fee in your loan and pay it off over time (which means you finance it).
  • You can pay the full fee all at once at closing.

Is A VA Funding Fee Part Of Your Closing Costs?

You have the option to include the funding fee in your loan and pay it off over time or pay the full fee as part of closing costs. As a buyer, you may not have to pay the VA funding fee at all if you negotiate for the seller to pay it through closing costs.

Do All VA Loans Have A Funding Fee?

Yes, all VA loans have a funding fee. If you use a VA home loan to buy, build, repair a home or refinance a mortgage, you must pay the VA funding fee unless you meet certain exemptions, such as if you have become eligible for compensation for a service-connected disability or you 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.

How Do You Calculate The VA Funding Fee?

How much you pay depends on the type of loan you get and your total loan amount. Your funding fee is based on a percentage of your total loan amount. The amount also depends on whether it’s your first time using a VA-backed or VA direct home loan or whether you've already taken out a VA loan before. The amount you pay also depends on your down payment amount.

Learn more about how to calculate the VA funding fee amount: You can multiply your interest rate by your mortgage amount. For example, let's say you plan to purchase a home for $200,000 at 4% with 0% down. Your monthly payment would be about $955 for just principal and interest – not including taxes or insurance. Your interest rate would total $4,600 (at 2.3%) if you paid the fee out of pocket.

Rolling the $4,600 into your loan amount adds over $6,000 in total costs over the life of the loan and would increase your monthly payment.

Is The VA Funding Fee Tax Deductible?

You can deduct the amount of money that you pay toward the funding fee each year. Even if you pay the whole funding fee upfront, you can deduct the entire fee from your taxes that year. If you roll the fee into your loan amount, you can only deduct the portion of the fee that you pay during that year.

The Bottom Line: Leave Room In Your Budget For Funding Fees

Depending on the price of your new house, the funding fee adds to the overall cost for VA borrowers.

Though many prospective home buyers worry about saving enough for the down payment, keep in mind that other costs go into closing on a home. In addition to a funding fee, you’ll also want to budget for closing costs, which could end up being 1% – 5% of the total loan amount.

Ready to begin the home buying process? You can get started online with Rocket Mortgage® by Quicken Loans® and view today’s mortgage rates.

Apply for a Mortgage with Quicken Loans®

Call our Home Loans Experts at (800) 251-9080 to begin your mortgage application, or apply online to review your loan options.

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