The Basics

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Unless you are exempt, you will pay a one-time fee to use a VA loan. This fee can be paid in full upfront, or can be rolled into the loan.

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How much is the funding fee?

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The VA Funding Fee depends on several factors:

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1. First-Use versus After First Use 

2. Amount of Down Payment

3. Exemptions

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First Time Use

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If you are using a VA loan for the first time, your base rate will be 2.3% of the amount financed. 

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After First Use

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If you have used a VA loan previously, your base rate will be 3.6%.

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Reducing Base Rate with Down Payment

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the Funding Fee may be reduced by making a down payment.

 

Putting 5% of the purchase price down on the home will reduce the Funding Fee down to 1.65%, regardless of whether it's your first time using a VA loan, or your hundredth.

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Putting 10% or more down will reduce the Funding Fee down to 1.4%, again, regardless of how many times you've used a VA loan.

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How is the Funding Fee Calculated?

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The Funding Fee is calculated based on the Loan Amount, not the price of the home. So if you put 5% down, you will not only have a reduced funding fee percentage, but the percentage will be applied to a lower amount. For example:​

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• First Time Use; $0 down

  • A $500,000 home, with $0 down, will result in a Funding Fee of $11,500 (2.3% of $500,000)​

• First Time Use, 5% down​

  • Same $500,000 home, but with 5% ($25,000) down. Funding Fee will be $7,837.50 (1.65% of $475,000)​

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Putting 5% down results in $3,662.50 of savings. 

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For subsequent uses, the effect of putting 5% or more down is even more dramatic:

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• Subsequent Use, $0 down​

  • 3.6% of $500,000 = ​$18,000

• Subsequent Use, 5% down

  • 1.65% of $500,000 = $7,837.50 (Savings of over $10k!)​

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Who's Exempt from Paying a Funding Fee?

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According to the VA.gov website, you don't have to pay a funding fee if you're:

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• Receiving VA compensation for a service-connected disability; or

• Eligible to receive VA compensation for a service-connected disability, but you're receiving retirement or active-duty pay instead; or

• The surviving spouse of a Veteran who died in service or from a service-connected disability, or who was totally disabled, and you're receiving Dependency and Indemnity Compensation (DIC); or

• A service member with a proposed or memorandum rating, before the closing date, saying you're eligible to get compensation because of a pre-discharge claim; or

• A service member on active duty who before or on the loan closing date provides evidence having received the Purple Heart.

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This exemption most often applies to service members who have left active duty, either getting out completely or transferring to the reserves, who have a service-connected disability for which they are receiving compensation. 

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If you are still on active duty, you may be exempt if you have received or will be receiving the Purple Heart. Essentially, this means that the paperwork has already gone through, and you're just waiting on the award.

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Refund of VA Funding Fee

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Some service members may not be exempt, from the funding fee, but may be eligible for a refund if they are "later awarded VA compensation for a service-connected disability." The key to this refund eligibility, however, is that the effective date of the VA compensation must be "retroactive to before the date of [their] loan closing."

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What this means is that the service member must have been eligible to receive the VA compensation before the closing date. "Eligible to receive" means that they were not collecting active duty pay on that day, and "closing date" means the day the loan closes.

 

So closing date is pretty obvious and is generally self-explanatory, but the thing to keep in mind is that it is not the date the offer on a home was entered into. You can enter into a contract before you're eligible to receive compensation, and may be entitled to a refund if the closing occurs after you become eligible. 

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The "eligible to receive" prong of the refund guidelines is a little trickier. Generally, service members are not able to receive VA compensation while still on active duty. So if you're on terminal leave, you're not eligible. But if a claim is pending as of the date of separation, and you close after that date, you should* be eligible for a refund if the claim later is approved, retroactive to your EAS date.

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A common scenario is when transitioning service members purchase a home prior to their EAS date. While any injuries or potential claims for VA disability compensation already exist, the service member is not "eligible" to receive the compensation until after their EAS date. The easiest way to determine if you are eligible for a refund is if you have a claim pending when you EAS date that is later approved, and compensation is paid retroactive to your EAS date. 

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Example:

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• Service Member A has a bad back from years of flying Marines Helicopters while on Active Duty. Before he gets out, he submits a VA compensation claim. He goes on terminal leave on September 1st, and EAS's on September 30th. The compensation claim is later approved on December 1st, with backpay from October 1st. He enters a contract to buy a house on September 2nd.

  • If he closes on a house on September 30th, he would not be eligible for a refund

  • If he closes on a house on October 1, he would not be eligible for a refund (Compensation was not retroactive to before the closing date)

  • If he closes on a house on October 2nd or later, he would be eligible for a refund

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Related: VA Loan Limits

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More Resources: VA funding fee and loan closing costs

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DISCLAIMER: The information presented here is for informational purposes only. Before making any decisions regarding VA loan entitlement, loan options, or other real estate related decisions, it is best to speak with a qualified professional who can look at your specific situation and advise accordingly. 

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