The VA Funding Fee, How Much It Costs and Who Is Exempt

A VA-backed home loan is one of the few ways to buy a home with no down payment and no monthly mortgage insurance. That does not make it free. Most borrowers pay a one-time charge called the VA funding fee, and on a typical first home it can run several thousand dollars. Here is how the fee is set, who does not have to pay it, and what it costs in real numbers.

1. What the funding fee is

The Department of Veterans Affairs describes the funding fee as a one-time payment that the Veteran, service member, or survivor pays on a VA-backed or VA direct home loan. Its purpose, according to VA, is to lower the cost of the loan program for U.S. taxpayers, since VA home loans do not require down payments or monthly mortgage insurance.

VA lists the benefits of a VA-backed purchase loan as including no down payment (as long as the sales price is not higher than the appraised value), no private mortgage insurance or FHA mortgage insurance premiums, and no penalty for paying the loan off early. The funding fee is the trade-off for those features.

2. Who does not pay it

According to VA, you will not have to pay the funding fee if any of these is true:

• You receive VA compensation for a service-connected disability.
• You are eligible for that compensation but receive retirement or active-duty pay instead.
• You receive Dependency and Indemnity Compensation (DIC) as the surviving spouse of a Veteran.
• You are a service member who received a proposed or memorandum rating before closing saying you are eligible for compensation because of a pre-discharge claim.
• You are on active duty and, on or before closing, provide evidence that you received a Purple Heart.

2.1. Refunds

If you are later awarded compensation for a service-connected disability, you may be eligible for a refund, but VA says the effective date of the compensation must be retroactive to before your closing date. A proposed or memorandum rating that arrives after closing does not qualify you for a refund.

3. The current rates for buying a home

VA says the rates below took effect April 7, 2023, and its page still showed them when checked on October 14, 2026. The fee is a percentage of the loan amount, not the purchase price, and it depends on your down payment and whether you have used the benefit before.

Two details stand out. A down payment of 5% or more removes the difference between first and later use. And VA notes that if your only past use was to buy a manufactured home, you still pay the first-time rate.

For other loan types, VA lists separate flat rates, including 2.15% (first use) or 3.3% (after first use) on cash-out refinances, and 0.5% on an interest rate reduction refinance loan.

4. What it costs on a $300,000 home

VA's own example: a first-time user buys a $200,000 home with $10,000 down (5%), so the loan is $190,000 and the fee is 1.5%, or $2,850.

Here is the same math on a $300,000 home for a first-time user:

A borrower using the benefit for a second time with no down payment would pay 3.3%, or $9,900, on the same $300,000 loan.

Notice that putting 5% down does two things at once. It shrinks the loan, and it drops the rate from 2.15% to 1.5%. In this example, a $15,000 down payment cuts the fee by $2,175.

5. Paying it up front or financing it

VA says you can either pay the full fee at closing or include it in the loan and pay it off over time. The fee is the only charge you are allowed to roll in: on a purchase loan, VA says you can finance only the funding fee, and all other fees and charges must be paid at closing.

Financing is convenient, but it adds interest. Assume the $6,450 fee is added to a 30-year loan at 6.5% (an illustrative rate). That adds about $40.77 to the monthly payment, and over the full 30 years you would pay about $8,227 in interest on the fee itself, on top of the $6,450. Paying the fee in cash at closing avoids that interest, if you have the cash to spare.

6. Can the seller cover it?

VA allows sellers or builders to give credits toward a buyer's closing costs. VA does not cap credits for normal closing costs, but it limits seller's concessions to no more than 4% of the home's reasonable value, which appears on the VA Notice of Value your lender provides. VA lists a credit for the funding fee as one example of a concession, along with paying off the buyer's debts or prepaying hazard insurance.

So if you negotiate for the seller to pay your funding fee, that amount counts toward the 4% concession limit.

7. Where you will see it

Your lender, not VA, sets the interest rate, discount points, and other closing costs. Your Loan Estimate should show the funding fee along with every other estimated cost. Check it against the rate table above, and if you believe you are exempt, make sure your lender has the documents that show it before closing.

8. Key takeaways

• The VA funding fee is a one-time charge that helps cover the cost of a loan program with no required down payment or monthly mortgage insurance.
• Veterans receiving disability compensation, eligible surviving spouses, and some others are exempt.
• For a home purchase, first-time rates are 2.15% with under 5% down, 1.5% with 5% or more, and 1.25% with 10% or more.
• On a $300,000 loan with no down payment, a first-time user pays $6,450.
• You can finance the fee, but it then accrues interest; seller-paid fees count toward the 4% concession limit.