VA loans have appealing features that don’t come with regular loans. With a VA-backed mortgage or refinance loan, you don’t have to make a down payment or pay mortgage insurance.
Most buyers, however, will have to pay a VA Funding Fee in order to take out one of these loans. While the fee was reduced as of April 7, 2023—it’s now capped at 2.15% instead of 2.3%—it can still be a significant expense for a homebuyer.
2024 VA Funding Fee Chart
The VA Funding Fee may seem low, but it can add a significant cost to the price of homebuying. For a $300,000 mortgage, a fee of 2.15% would come out to $6,450.
For some homebuyers the fee may be lower, and you can potentially reduce it by increasing your down payment, too. Here’s a look at how your down payment amount can affect your VA Funding Fee for loans closed on or after April 7, 2023.
VA Funding Fee Chart 2024
(Rates for VA-Backed purchase and construction loans for veterans, active-duty service members, National Guard and Reserve members)
| Down payment amount | VA funding fee | |
|---|---|---|
| First loan | Under 5% | 2.15% |
| 5% or more | 1.5% | |
| 10% or more | 1.25% | |
| Additional loans | Less than 5% | 3.3% |
| 5% or more | 1.5% | |
| 10% or more | 1.25% |
*Source: U.S. Department of Veterans Affairs
Can the Funding Fee Be Included in Closing Costs?
You have two choices when it comes to how you pay the VA Funding Fee. If you have the money available, you can pay as a lump sum when you close on the loan.
The other option is potentially more convenient, but also more expensive: you can add the fee to your loan amount and pay it off over time.
The benefit of adding the VA Finding Fee to your loans is that you don’t need to fork over the extra money up-front, but the drawback is that it turns the fee into a debt that accrues interest. As a result, this option makes your monthly payments higher, increases your overall interest charges and can extend your loan payoff date.
Is the Fee Tax Deductible?
Like mortgage interest, you can claim your VA Funding Fee on your taxes. But you can only claim the amount you paid in the tax year you’re filing for. So if you opt to add the fee to your loan amount, you can just claim the portion of the fee you paid during that tax year.
Why Is There a Funding Fee for VA Loans?
According to the Veterans Benefits Administration, “Congress instituted the VA funding fee to help reduce the government’s cost associated with administering the VA home loan benefit.”
In other words, the fee helps the government cover the costs involved with these loans, since buyers don’t have to make a down payment or pay monthly mortgage insurance on VA-backed or VA direct home loans.
Who Is Required to Pay the VA Funding Fee?
Most buyers who use a VA home loan for the following purposes will be required to pay the VA Funding Fee:
- Home purchase
- Home construction
- Improving/repairing a home
- Mortgage refinancing
Are There Any VA Funding Fee Exemptions?
There are a handful of reasons you could be exempt from paying the VA Funding Fee on your loan. If you fit any one of the following descriptions, the VA says you may be exempt:
- You receive VA compensation for a service-connected disability.
- You’re eligible for VA compensation for a service-connected disability, but you’re receiving retirement or active-duty pay instead.
- You receive Dependency and Indemnity Compensation (DIC) as the surviving spouse of a Veteran.
- You’re a service member who has a proposed or memorandum rating that shows your eligibility to get compensation because of a pre-discharge claim.
- You’re an active-duty service member who can provide evidence of receiving the Purple Heart.
Can Anyone Get a VA Funding Fee Refund?
In most cases, you’ll need to work with the lender before you close, if you want to dismiss the VA Funding Fee. But for some people, a refund might be available after the loan closes.
As a homeowner, you may be eligible for a VA Funding Fee refund if you meet both of the following requirements:
- You’re awarded VA compensation for a service-connected disability.
- The effective date of your VA compensation is retroactive to before your loan closing date.
You can call your VA Regional Loan Center at 877-827-3702 to find out if your VA award makes you eligible for a refund of the funding Fee.
Be Prepared for Fees
When you buy a home, the sale price isn’t the only cost to consider. Most homebuyers will have to pay a funding fee when they take out a VA Loan, as well as other significant fees.
For example, your lender will determine the interest rate on your VA loan and your closing costs, the latter of which range anywhere from 3% -6% of your loan amount. On a $300,000 mortgage, that adds another $9,000 to $18,000 in sunk costs to your homebuyer expenses. You can save big money, however, by negotiating a lower closing cost with the lender.
4 MINUTE READ
Sources:
- N.A. (2023, April 7) VA funding fee and loan closing costs. Retrieved from https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/#about-the-va-funding-fee
- N.A.(2023, February 14) Loan Fee Rates for Loans Closing On or After January 1, 2020 and prior to April 7, 2023. Retrieved from https://www.benefits.va.gov/HOMELOANS/documents/circulars/26-23-06-exhibita.pdf
- N.A. (2023, February 14) Funding Fee Charge Update. Retrieved from https://www.benefits.va.gov/homeloans/documents/circulars/26-23-06.pdf