What Is the VA Funding Fee, and Who Doesn't Pay It?

The VA funding fee is a one-time fee on a VA-backed home loan, and on a first purchase with less than 5% down it's 2.15% of the loan amount. You don't pay it at all if you receive VA compensation for a service-connected disability, along with a few other groups VA lists, and if you do owe it, you can roll it into the loan instead of paying it at closing.

I'm Dennis Mark Interdonato with The Dennis Mark Group. I work with VA buyers across Monmouth and Ocean County, and the funding fee is the line on the Loan Estimate that gets the most questions. Here's what VA says about it.

Why does VA charge a funding fee?

According to VA.gov, the fee helps lower the cost of the loan program for U.S. taxpayers, because VA home loans don't require a down payment or monthly mortgage insurance. That's the trade. The program carries no monthly mortgage insurance premium, and the funding fee is a one-time charge in its place.

How much is the VA funding fee?

It's a percentage of the loan amount, and it depends on your down payment and whether you've used the benefit before. Here are VA's rates for purchase and construction loans, effective April 7, 2023:

• First use, less than 5% down: 2.15%
• First use, 5% or more down: 1.5%
• First use, 10% or more down: 1.25%
• After first use, less than 5% down: 3.3%
• After first use, 5% or more down: 1.5%
• After first use, 10% or more down: 1.25%

Two details people miss. First, the fee applies to the loan amount, not the purchase price. VA's own example: a first-time user buys a $200,000 home with $10,000 down, borrows $190,000, and pays 1.5%, or $2,850. Second, if your only past VA loan was for a manufactured home alone, VA still charges you the first-time rate.

On a $500,000 loan with no down payment and first-time use, 2.15% works out to $10,750. Other VA loan types have their own flat rates. An assumption, where a buyer takes over an existing VA loan, is 0.5%.

Who doesn't pay the VA funding fee?

VA lists five groups who are exempt:

• You receive VA compensation for a service-connected disability.
• You're eligible for that compensation but receive retirement or active-duty pay instead.
• You receive Dependency and Indemnity Compensation (D.I.C.) as the surviving spouse of a Veteran.
• You're a service member with a proposed or memorandum rating, issued before closing, saying you're eligible for compensation from a pre-discharge claim.
• You're on active duty and, on or before closing, you give your lender evidence that you received a Purple Heart.

VA's Buyer's Guide says your Certificate of Eligibility states your funding fee percentage or your exemption, and if the exemption isn't noted there, your VA disability award letter can verify it. One more reason to get the COE early. Here's how to request your COE.

Can you get the VA funding fee refunded?

Sometimes. VA says you may be eligible for a refund if you're later awarded compensation for a service-connected disability and the effective date is retroactive to before your loan closed. A proposed or memorandum rating that comes after closing doesn't qualify for a refund. If you think you're owed one, VA tells you to call your VA regional loan center.

If you have a disability claim in process while you're buying, tell your lender at the start. The timing of the rating against the closing date matters.

Do you pay the funding fee at closing or finance it?

Your choice. VA lets you include it in the loan and pay it over time, or pay it in full at closing. On a purchase loan, it's the only cost VA lets you finance. Everything else gets paid when the loan closes.

Financing it means less cash at the table and a slightly larger loan. Paying it means the opposite. That's a lending decision, so run both versions with your lender before you decide.

Can the seller pay your VA funding fee?

Yes. VA's Buyer's Guide says any party can pay the funding fee if you're not exempt, including the seller, your lender, or family through gift funds. When the seller pays it, VA counts it as a seller concession, and VA limits seller concessions to 4% of the home's reasonable value. That limit is its own article: the 4% rule for VA loans.

When a buyer asks me to have the seller cover it, it goes in the offer in writing, with a number. A vague "seller to assist" line is how deals stall at the closing table.

Are VA funding fees changing in 2026?

As of today, VA.gov shows the rate chart effective April 7, 2023, on a page updated October 5, 2026. I don't guess at future rates. Check the chart on VA.gov, and your lender's Loan Estimate, on the day you lock your rate.

Frequently Asked Questions

Do disabled veterans pay the VA funding fee?

Not if they receive VA compensation for a service-connected disability, or are eligible for it but receive retirement or active-duty pay instead. VA lists both as exemptions.

Is the funding fee based on the price or the loan?

The loan amount. VA calculates it as a percentage of what you borrow, so a down payment lowers both the loan and, at 5% or more, the rate.

Is the VA funding fee worth it?

That depends on your numbers. VA says the fee exists because the loan doesn't require a down payment or monthly mortgage insurance. Ask your lender for Loan Estimates on each loan type and compare them line by line.

Do Purple Heart recipients pay the funding fee?

Not if they're on active duty and give the lender evidence of the Purple Heart on or before the closing date, according to VA.

Is there a funding fee on a VA loan assumption?

Yes, unless the person assuming the loan is exempt. VA lists the funding fee for a loan assumption at 0.5%, no matter the down payment or prior use.

This is general information, not legal, tax or lending advice. Your lender and VA confirm your fee and exemption status.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. See how I handle military and VA home purchases and sales.

Keep reading

• The free Military Home Guide
• Home buying benefits for military buyers in New Jersey
• How much you actually need for a down payment in New Jersey
• Selling a home first? Find out what it's worth
• Have a question this didn't answer? Send it to Dennis Mark.