VA Loan Guide
VA Funding Fee Explained
Mike Starr
Founder, MortgageWizardTools · M.S. Organizational Management
What Is the VA Funding Fee?
The VA funding fee is a one-time fee charged on nearly all VA loans. It serves as the program's substitute for private mortgage insurance — a cost that would otherwise be required on low-down-payment loans. Because the VA loan program requires no PMI, the funding fee helps offset the cost of defaulted loans and keeps the program self-sustaining for future veterans without relying on taxpayer appropriations.
The fee is paid to the U.S. Department of Veterans Affairs, not to the lender. It can be paid upfront at closing or financed into the loan amount.
Current Funding Fee Rates (2024–2025)
Rates vary by loan type, down payment, and whether this is your first or subsequent use of a VA loan.
Purchase Loans & Cash-Out Refinances
| Down Payment | First Use | Subsequent Use |
|---|---|---|
| Less than 5% | 2.15% | 3.30% |
| 5% to less than 10% | 1.50% | 1.50% |
| 10% or more | 1.25% | 1.25% |
IRRRL (VA Streamline Refinance)
| Loan Type | Funding Fee |
|---|---|
| VA IRRRL (Streamline Refinance) | 0.50% |
| Manufactured home loan (not previously on permanent foundation) | 1.00% |
Rates current as of August 2026. Always confirm with your lender, as rates are set by Congress and may change.
Who Is Exempt from the Funding Fee?
Exempt borrowers include:
- •Veterans receiving VA disability compensation for a service-connected disability
- •Veterans rated eligible for compensation but receiving retirement pay instead
- •Surviving spouses of veterans who died in service or from a service-connected disability
- •Surviving spouses who receive Dependency and Indemnity Compensation (DIC)
- •Service members with a proposed or memorandum rating before loan closing
The exemption is significant. A veteran with a 10% or higher disability rating purchasing a $400,000 home with no down payment saves $8,600 (at the 2.15% first-use rate). If you believe you may qualify for an exemption, confirm your status with the VA before closing.
VA Funding Fee vs. PMI: A Real Cost Comparison
The funding fee is often compared unfavorably to PMI, but in most cases the VA loan still wins financially — especially over a longer holding period.
| Factor | VA Loan (2.15% fee) | Conventional (0% down, PMI) |
|---|---|---|
| Loan amount | $400,000 | $400,000 |
| Upfront insurance cost | $8,600 (2.15% financed) | $0 |
| Monthly insurance cost | $0 | ~$200/mo (0.60% PMI) |
| Insurance cost at 5 years | ~$8,600 (no monthly) | ~$12,000 |
| Insurance cost at 10 years | ~$8,600 | ~$24,000 (if not removed) |
| When insurance ends | Never (one-time only) | Removable at 80% LTV |
The VA loan becomes more favorable than the PMI-paying conventional loan at around the 3–4 year mark in this scenario, and dramatically more favorable beyond that. Use our VA Funding Fee Calculator to run the numbers for your specific situation.
Frequently Asked Questions
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