VA Home Loans, which are backed by the Department of Veterans Affairs, are among the best options for veterans looking to purchase or refinance a home. They offer several advantages over conventional mortgages, including lower interest rates and 0% down payments. But most buyers have to pay a funding fee in order to use this benefit. Those who pay it typically just add it to their loan balance.
Key Takeaways:
- Purpose and Requirement: The VA funding fee is a one-time payment required for most VA home loans, with certain exemptions available.
- Fee Calculation and Payment Options: The funding fee varies based on several factors, and borrowers have multiple payment options.
- Reducing and Exempting the Fee: Under specific conditions, the VA funding fee can be reduced or exempted.
- Refinancing Fees: Different types of VA refinance loans have varying funding fees.
- Tax Deductibility and Refunds: The VA funding fee may be tax-deductible, and refunds are possible under certain circumstances.
Table of Contents
- Key Takeaways:
- VA Funding Fee Calculator
- What is a VA funding fee?
- How much is the VA funding fee?
- Calculating the VA Funding Fee
- How can I reduce my VA funding fee?
- VA Funding Fee for Refinance Loans
- VA Funding Fee for VA Loan Assumptions
- How do I pay for the VA funding fee?
- VA Loan Funding Fee Exemptions
- Can you get a refund on the VA funding fee?
- Can you write off the VA funding fee?
- More Reading
VA Funding Fee Calculator
What is a VA funding fee?
The VA funding fee is a one-time payment to the Department of Veterans Affairs (VA) to support the continued operation of the VA loan program for veterans. This fee is relatively low compared to the fees and additional costs, like private mortgage insurance (PMI), associated with other loan types. Although the borrower usually pays this fee, they can negotiate for the seller to cover it.
How much is the VA funding fee?
Some veterans may be exempt, and while most veterans pay a 2.15% funding fee, the actual fee can range from 0.5% to 3.3% of your loan amount, depending on the following factors:
- Loan type: The type of VA loan you choose, such as a home purchase or refinance, affects the funding fee percentage.
- Down payment: The size of your down payment can lower the funding fee; larger down payments typically result in a reduced fee.
- First-time or subsequent user: First-time VA loan users generally pay a lower funding fee than those using the benefit for subsequent loans.
VA Loan Funding Fee Charts 2024
Here are the funding fees for purchasing a property with a VA loan:
| Down Payment is | First-Time VA Loan use | Subsequent VA Loan use |
|---|---|---|
| Less than 5% | 2.15% | 3.3% |
| 5% or more | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
Calculating the VA Funding Fee
To calculate your VA loan funding fee, multiply the loan amount by the applicable funding fee percentage.
VA Funding Fee = Loan Amount x Funding Fee Percentage
For example, suppose you are a first-time homebuyer purchasing a home for $350,000 with no down payment. The 2024 VA funding fee percentage for first-time homebuyers with 0% down is 2.15%.
The VA funding fee calculation would be $350,000 x 0.0215 (2.15 as a decimal), which equals $7,525. If the borrower chooses to roll the one-time fee into the loan amount, the total loan would equal $357,525.
$7,525 = $350,000 x 0.0215
The VA funding fee can be paid in cash at closing or wrapped into the loan to avoid spending several thousand dollars upfront. Your lender will send the paid fee to the VA on your behalf.
How can I reduce my VA funding fee?
First-time and subsequent borrowers can decrease the VA funding fee with a down payment of 5% or more. Increasing that down payment to 10% reduces the funding fee even further.
Remember, down payments aren’t required for VA loans; that’s one of their biggest benefits. However, putting money down can offer multiple advantages besides reducing the VA funding fee. Making a down payment on your house also earns you instant equity, enhancing your financial stability and potentially lowering your monthly mortgage payments.
Furthermore, refinancing your existing VA loan through the VA Interest Rate Reduction Refinance Loan (IRRRL) program typically results in a lower funding fee. Be sure to consult with your lender to explore all available options and ensure you’re taking full advantage of any potential reductions.
VA Funding Fee for Refinance Loans
The VA provides two notable refinancing options: the Interest Rate Reduction Refinance Loan (IRRRL) and the VA Cash-Out refinance. The funding fee for each type of VA refinance varies since they have different objectives.
An IRRRL, also known as a streamline refinance, serves as a tool for current VA homeowners to obtain a lower mortgage rate or aim to transition from an adjustable rate to a fixed-rate VA loan. The VA IRRRL funding fee is 0.5%, regardless of subsequent use or service history.
A VA Cash-Out refinance offers qualified veterans the opportunity to refinance their homes while tapping into their equity and accessing additional funds. Eligibility for a VA Cash-Out refinance extends to eligible veterans with VA loans and those with non-VA loans.
The Cash-Out refinance loan VA funding fee is 2.15% for first-time users and 3.3% for subsequent users.
VA Funding Fee for VA Loan Assumptions
When a VA loan is assumed, the funding fee is typically 0.5% of the loan balance. This fee is required regardless of whether the new borrower is a veteran or civilian. Like other loans, the fee can be paid in cash at the time of assumption or rolled into the loan amount, subject to lender approval.
It’s important to consult with your lender to understand all the costs and requirements of assuming a VA loan.
How do I pay for the VA funding fee?
VA buyers have several options for paying the VA funding fee, including paying it out of pocket at closing, financing it over the life of the loan or requesting that the seller cover the fee on their behalf. Your lender will send the money to the VA on your behalf.
VA Loan Funding Fee Exemptions
Suppose you are hoping to waive the VA funding fee. In that case, you may be eligible for an exemption under the following circumstances:
- You receive compensation for a service-connected disability
- You received a Purple Heart
- You are the surviving spouse of a veteran who died in service or from a service-connected disability
These exemptions are designed to cater to veterans who have experienced significant service-related challenges, ensuring their financial burden is lessened when taking out a VA loan. The list above is not exhaustive, either.
If you don’t know if you are exempt, you can check your Certificate of Eligibility (COE). It will say if you are exempt. If you don’t have a COE, check out our article on How to Get a VA Loan Certificate of Eligibility.
Can you get a refund on the VA funding fee?
Yes, you may be able to get a refund on the VA funding fee if you are found eligible for an exemption after you have already paid the fee. For instance, if your disability claim is approved after closing on the loan and retroactive to a date prior to your loan closing, then you might be able to obtain a refund.
To be eligible for a refund of the VA funding fee, borrowers must either have been awarded VA disability compensation before the loan’s closing date or have a pending VA disability claim that is later approved with an effective date prior to the loan’s closing date.
To claim your refund, contact your VA lender. You will need to provide documentation proving your exemption status. Once the VA processes the information, they will distribute your refund.
Can you write off the VA funding fee?
You may be able to deduct the VA funding fee from your taxable income if you claim it in the same tax year you paid it. Generally, if you financed the fee into your mortgage, only the amount paid during the tax year can be written off.
Be sure to talk to a tax professional for further guidance.
More Reading
VA Loan Closing Costs – What to Expect
The VA Loan Process: Explained
VA Loan Benefits: VA Non-Allowable Fees Explained
Equal Housing Opportunity. The Department of Veterans Affairs affirmatively administers the VA Home Loan Program by assuring that all Veterans are given an equal opportunity to buy homes with VA assistance. Federal law requires all VA Home Loan Program participants – builders, brokers, and lenders offering housing for sale with VA financing – must comply with Fair Housing Laws and may not discriminate based on the race, color, religion, sex, handicap, familial status, or national origin of the Veteran.
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