What is the VA funding fee, and who doesn't pay it?

The VA funding fee is a one-time payment most VA buyers make, figured as a percentage of the loan amount. If you get VA compensation for a service-connected disability, you don't pay it at all.

That second sentence is the one to check first. I'd hate to see you pay a fee you never owed.

Why does the VA funding fee exist?

The funding fee exists to lower what the loan program costs taxpayers. That's VA's own explanation.

Look at what the program skips. It doesn't require a down payment. It doesn't require monthly mortgage insurance. The funding fee is how a chunk of that cost gets covered, and it's paid once instead of every month.

It isn't a fee your lender made up, and it doesn't go toward your agent. It's part of how the program works. If you're new to the VA loan, my VA buyer page covers the bigger picture.

How much is the VA funding fee?

The fee depends on your down payment and whether you've used the benefit before. Here are the purchase loan rates on VA's current chart, which took effect April 7, 2023:

• Less than 5% down: 2.15% on first use, 3.3% after first use
• 5% or more down: 1.5%, first use or not
• 10% or more down: 1.25%, first use or not

Those rates cover Veterans, active-duty service members, and National Guard and Reserve members. Refinances and other loan types run on different charts.

Two things trip people up here.

It's based on the loan amount. Not the purchase price. A bigger down payment can lower the rate and shrink the loan it applies to.

"First use" means your first VA loan. If you've had one before, ask your lender which rate applies to you. Don't guess.

Your lender will give you the dollar figure on your Loan Estimate. That's the number to plan around, not one you worked out on a napkin.

Who doesn't have to pay the funding fee?

You're exempt if any of these fit you, according to VA:

• You receive VA compensation for a service-connected disability
• You're eligible for that compensation but get retirement or active-duty pay instead
• You're a surviving spouse receiving Dependency and Indemnity Compensation
• You're a service member with a proposed or memorandum rating, issued before closing, that finds you eligible for compensation based on a pre-discharge claim
• You're on active duty and provide evidence of a Purple Heart on or before closing

Watch the fine print on those last two. Both turn on timing, and the deadline is your closing date.

The surviving spouse exemption is tied to receiving that compensation. If you're a surviving spouse and you're not sure where you stand, ask before you assume either way.

If any of this might apply to you, tell your lender up front. Don't wait for someone to ask.

Can you get the funding fee refunded?

Sometimes, yes. If you're later awarded VA compensation with an effective date before your closing date, you may be eligible for a refund. To check, call your VA regional loan center.

There's a limit. A proposed or memorandum rating that shows up after closing doesn't get you out of the fee, and you can't get a refund based on that rating.

So if you have a claim in process, bring it up with your lender before you close. The order of events matters here.

How do you pay the funding fee?

You can pay it at closing or add it to your loan and pay it over time. On a purchase, the funding fee is the only charge you can finance. Every other fee gets paid when the loan closes.

Rolling it in means less cash at the table. It also means you'll pay interest on it for as long as you carry the loan. Neither choice is always right. Ask your lender to show you both side by side.

There's a third path that gets missed: the other side of the deal can help.

VA lets sellers and builders offer credits toward your closing costs. Those concessions can go toward the funding fee, and VA caps them at 4% of the home's reasonable value. A seller doesn't have to agree, but you can ask.

That's where I come in. I can't quote you a loan, because I'm not a lender. What I can do is write the request into your offer. On a new build, I can push for it when we talk incentives. If you're building with your benefit, here's how VA and new construction fit together.

The funding fee is only one line in your closing costs. North Carolina's due diligence fee and earnest money are separate money, and this guide to NC closing costs walks through them.

What should you ask your lender first?

Start with three questions:

• Am I exempt, and how did you confirm it?
• If I'm not exempt, which rate applies to me, and what's the dollar amount?
• What does my payment look like if I finance the fee, and what's my cash at closing if I don't?

Get those answers before you write an offer. They'll tell you how much to ask for in seller credits, or whether you need to ask at all.

Talk it through with me

If you're using your VA benefit in the Charlotte area, call or text me at 980-307-5558, or reach me through the contact page. I'll walk through how the fee fits into your offer. Your lender handles the numbers, and I handle the deal.

I don't work for the VA, and nothing here speaks for it. Your lender and VA have the final word on your fee.