VA Funding Fee: Rates, Exemptions, and How It Works

What the VA Funding Fee Is and Where It Goes

The VA funding fee is a one-time charge assessed on every VA-guaranteed loan transaction — purchase, cash-out refinance, and IRRRL streamline refinance. It is paid directly to the Department of Veterans Affairs, not to the lender. Every dollar goes into the VA Loan Guaranty Revolving Fund, which pays lender claims when VA borrowers default and enables the program to operate without requiring annual Congressional appropriations. The funding fee is how VA loans cost taxpayers essentially nothing while delivering substantial borrower benefits: zero down payment, no PMI, no LLPAs, and competitive base rates.

The lender collects the fee at closing and remits it to VA. The lender earns no portion of the funding fee — their compensation comes separately from origination charges and the rate spread on the loan itself. Understanding this distinction matters because some borrowers assume the funding fee benefits the lender, which affects their perception of its value. It doesn’t. It funds the guarantee that makes every VA loan possible.

Complete 2025 Funding Fee Schedule

Funding fee rates vary by loan type, use (first vs. subsequent), and down payment. For purchase loans:

• First use, 0% down: 2.15%
• First use, 5.00–9.99% down: 1.50%
• First use, 10%+ down: 1.25%
• Subsequent use, 0% down: 3.30%
• Subsequent use, 5.00–9.99% down: 1.50%
• Subsequent use, 10%+ down: 1.25%

For refinance loans:

• IRRRL (VA-to-VA streamline refinance): 0.50%
• Cash-out refinance, first use: 2.15%
• Cash-out refinance, subsequent use: 3.30%

Dollar impact examples at common Texas purchase prices: On a $350,000 first-use purchase at 0% down, the funding fee is $7,525 — typically financed into the loan, adding approximately $49/month to the payment at 7.0% over 30 years. On a $450,000 subsequent-use purchase at 0% down, the fee is $14,850 — adding approximately $98/month. On a $600,000 first-use purchase, $12,900 fee — approximately $85/month financed.

The Subsequent-Use Rate: Understanding 3.30%

The most significant funding fee cost consideration is the 3.30% subsequent-use rate for veterans using VA a second or third time with 0% down. On a $500,000 subsequent-use purchase, that’s $16,500 — a meaningful cost that warrants specific planning. Veterans in this situation have two ways to reduce it: put at least 5% down (dropping the rate to 1.50%, saving $9,000 on $500,000) or put 10% down (dropping to 1.25%, saving $10,250).

The trade-off analysis: putting 5% down on $500,000 means deploying $25,000 to save $9,000 in funding fee. Net capital deployment after fee savings: $16,000. That $16,000 deployed as down payment costs you approximately $1,120/year in foregone investment return at 7% — but saves $9,000 upfront. At $1,120/year opportunity cost, the $9,000 savings pays off in approximately 8 years. For veterans planning to hold the property at least 8 years, the 5% down structure on a subsequent-use loan makes financial sense. For shorter hold periods, the zero-down structure preserves more capital despite the higher funding fee.

Who Is Exempt: The Complete List

The following are permanently exempt from the VA funding fee on all VA loan transactions — purchase, IRRRL, and cash-out refinance — for life:

• Veterans receiving VA disability compensation at any percentage (1%–100%). Any rating qualifies. A 10% service-connected disability rating exempts the veteran from the funding fee permanently and on every future VA transaction.
• Veterans entitled to receive VA disability compensation but for receipt of military retirement pay. Veterans who separated with a disability rating but elected military retirement pay over VA disability compensation (the concurrent receipt waiver situation) are also exempt.
• Active duty servicemembers who have received the Purple Heart.
• Surviving spouses of veterans who died in service or from a service-connected disability, receiving Dependency and Indemnity Compensation (DIC).

The exemption is confirmed on your Certificate of Eligibility (COE). When your lender pulls your COE through VA’s ACE system, the exemption status should appear. If you believe you’re exempt but the COE doesn’t reflect it, provide your VA award letter to your lender — they can submit documentation to VA to confirm the exemption before closing.

Pending Disability Claims: The Refund Opportunity

Veterans who have filed a VA disability claim that is pending at the time of loan closing pay the funding fee at closing but are entitled to a refund if the claim is subsequently approved at any rating. This refund is not automatic — you must take steps to claim it.

Process: at closing, document the pending claim in writing with your loan officer. Ask them to note it in the loan file. When VA approves your disability rating, contact your loan servicer with a copy of the VA award letter. The servicer requests the refund from VA through their established process. The refund amount equals the full funding fee paid. On a $400,000 first-use purchase, that’s $8,600 back in your pocket — worth actively pursuing.

Timeline: VA disability claims currently average 100–150 days to process, though complex claims can take longer. The refund right doesn’t expire with the claim approval — you can request the refund any time after rating is established, even years after closing. Veterans with pending claims who purchased in the past several years and subsequently received ratings should review whether a refund is owed.

Financing vs. Paying the Funding Fee at Closing

The funding fee can be paid in cash at closing or financed into the loan balance. The overwhelming majority of VA borrowers finance it — and for good reason. Financing adds the fee to the loan: on a $400,000 purchase with $8,600 funded fee, the loan becomes $408,600. At 7.0% over 30 years, financing that $8,600 adds approximately $11,850 in total interest if held to maturity, or about $395/year.

The case for paying at closing: if you have the cash available and plan to hold the loan long-term, paying $8,600 at closing saves $11,850 in total interest — a guaranteed $3,250 return on that $8,600 over 30 years. The case for financing: preserving $8,600 in cash at closing for emergency reserves, moving costs, initial home expenses, or investment has real value, especially in the first year of ownership when unexpected costs are most likely. For most VA buyers, particularly those who’ve deployed most savings into the purchase process, financing the fee is the right call. The $57/month payment difference is manageable; losing $8,600 in reserves at closing is riskier.

The Funding Fee vs. No Down Payment: Full Financial Picture

A common comparison: VA at 0% down (with 2.15% funded fee) versus conventional at 20% down (no PMI, smaller loan). On a $400,000 Texas purchase:

VA: Loan $408,600 (fee financed). Rate 6.875%. P&I $2,684/month. No PMI. Texas taxes + insurance (escrow): approximately $967/month. Total PITI: $3,651.

Conventional 20% down: Loan $320,000. Rate 6.875% (minimal LLPA at 720+). P&I $2,101/month. No PMI. Same escrow: $967. Total PITI: $3,068. Monthly difference: $583 less for conventional 20% down.

But conventional deployed $80,000 in down payment. That $80,000 invested at 7% annually for 10 years grows to $157,000 — generating $77,000 in returns. VA’s payment premium over 10 years: $583 × 120 = $69,960. VA buyer is $7,000 ahead financially at 10 years if they invested the $80,000 productively. The math is close — and the outcome depends entirely on whether the buyer actually invests the preserved capital or simply spends it. For veterans who have productive uses for capital, VA’s zero-down structure wins financially even after accounting for the funding fee.