What Is Funding Fee
A funding fee is a one-time mortgage insurance premium charged by the VA on home loans to offset the government's risk of lending without a down payment or traditional credit requirements. The fee ranges from 1.4% to 3.6% of the loan amount, depending on your military service history, down payment size, and whether you're a first-time VA loan user. Veterans with a service-connected disability rating of 0% or higher are automatically exempt from this fee.
How It Works
The VA doesn't collect the funding fee directly. Instead, it's typically rolled into your loan amount, meaning you pay it over the life of the mortgage rather than upfront. Here's how the fee structure breaks down:
- First-time users with no down payment: 2.3% of the loan amount
- First-time users with 5% or more down: 1.63% of the loan amount
- First-time users with 10% or more down: 1.4% of the loan amount
- Subsequent users (already used VA loan benefit): 3.6% of the loan amount
- Active duty personnel: 2.3% of the loan amount
The funding fee applies at closing and becomes part of your financed balance. On a $300,000 home with 2.3% funding fee, you'd be financing an additional $6,900 in fees over 30 years.
Disability Rating and Exemptions
If you have a VA disability rating of 0% or higher, you're completely exempt from the funding fee. This exemption applies whether you're at 0% non-compensable, 10%, or 100%. You'll need your Certificate of Eligibility to document your service and your VA Rating Decision to prove your disability status to your lender.
The disability exemption doesn't require a C&P exam or nexus letter. Your rating is already established in VA records. If you're in the appeals process and don't yet have a final rating decision, you may still pay the fee initially, though you can request a refund once your rating is approved.
Planning Your VA Loan
When deciding whether to use your VA Home Loan benefit, factor the funding fee into your total borrowing cost if you're not disability-rated. A $5,000 funding fee on a 30-year mortgage at 6.5% interest adds roughly $32 to your monthly payment. For veterans without a disability rating, this cost still compares favorably against conventional loans requiring 3% to 5% down payments plus private mortgage insurance.
If you believe you have service-connected disabilities that warrant a VA rating, filing a claim before using your VA loan benefit can save you thousands in funding fees. A VSO representative can review your military service records and medical evidence to determine whether you have a basis for a disability claim.
Common Questions
- Can I get a funding fee refund if I later get a disability rating? Yes. If you paid a funding fee and later receive a service-connected disability rating, contact your lender about a refund or loan modification. The VA typically processes these requests within 30 to 60 days of receiving documentation of your new rating.
- Does a 0% disability rating still waive the funding fee? Yes. A 0% non-compensable rating still exempts you from the funding fee. This rating means you have a service-connected condition, but it's not severe enough to warrant monthly compensation.
- What if I'm appealing my disability rating? The funding fee exemption applies only after your rating is final. During the appeals process, you'll typically pay the fee upfront, though you can request a refund once your appeal is approved and your new rating becomes effective.