Can the VA Funding Fee Be Rolled Into the Loan?
Key takeaways:
- The majority of VA loans come with a funding fee that supports this mortgage program.
- You can roll the VA funding fee into your loan, meaning you have to hand over less cash at closing.
- Adding the VA funding fee to your loan amount means paying interest on it, which costs you more overall.
- Some people, like veterans with a service-connected disability, are exempt from the funding fee.
The Department of Veterans Affairs (VA) backs a number of great programs for active-duty military members and veterans. But in terms of money saved and benefits delivered, it’s hard to beat the VA loan program. VA loans give qualifying veterans and military members access to mortgages with 0%, no mortgage insurance, and other perks.
To keep this program alive for future generations, most people who get a VA loan need to pay into the pot, so to speak. Specifically, you’ll probably have to pay a VA funding fee. But you do have the option to roll that fee into your loan. This way, you don’t have to cough over that money at the closing table.
VA funding fee 101
To help frame up this topic, let’s do a quick overview of the VA funding fee.
Unless you’re exempt (usually for a service-connected disability), you have to pay this fee to get a VA loan. It’s equal to a percentage of your loan amount. That percentage depends on if you’ve used a VA loan before, if you’re buying or refinancing, and how much you want to put down.
If it’s your first time buying a house with a VA loan and you want to put 0% down, for example, your funding fee is 2.15%. So if you’re borrowing $400,000, your VA funding fee would be $8,600.
We have two resources you can use to get more information here:
Whatever amount your funding fee may be, you have two options for covering it. You can pay it upfront or you can roll it into your loan.
Rolling the VA funding fee into your loan
When you close on any mortgage (meaning you finalize all the paperwork on it), that process comes with closing costs. Those include fees from the lender and usually third parties, too.
Experts estimate that closing costs are typically 2–6% of the VA loan amount. That means you’re probably going to have to hand over thousands of dollars to get your keys, even with a 0% down payment.
On top of all of the closing costs, you have to figure out the VA funding fee. That means another four- or five-figure sum. But you don’t have to stress.
So the funding fee doesn’t stand between military members and homeownership, the VA lets people roll it into their loan amount. That simply means that you take the funding fee and add it to the amount you’re already borrowing. You then pay your lender back for that new total sum.
With our previous example, for example, your new loan amount would be $408,600 (the $400,000 purchase loan plus the $8,600 funding fee).
If you can get away with not handing over thousands of dollars right away, why wouldn’t you seize the opportunity? For a simple reason. You’ll pay interest on that extra $8,600.
Deciding how to pay your VA funding fee
If you can’t afford to pay the VA funding fee upfront without wiping out your savings, roll it into your loan. As a new homeowner, it’s important to have some cash reserves on hand. You never know when you’ll need to call a plumber or fix a leak in your roof.
But if you have enough cash to comfortably cover the fee at closing, that typically makes financial sense. Looking at some examples can help you understand how much you can save.
Per data from the Federal Reserve, the interest rates on 30-year fixed-rate VA loans have been hovering around 6% for a while now. So we’ll use that for our example. We’re also applying the 2.15% funding fee here.
Clearly, the bigger your loan, the bigger your savings become if you pay the VA funding fee upfront.
The same is also true of your specific funding fee. If you can put 5% down, for example, it drops your funding fee down to 1.5%. That means that rolling the fee into your loan amount will have less of an impact over time.
Doing the math for yourself
Our funding fee calculator includes a down payment field so you can play with your options. Add your theoretical funding fee to the amount you want to borrow, then put that into our amortization calculator. That tells you how much total interest you’ll pay. And that makes it possible to see what a rolled-in VA funding fee could cost you.
Crunch the numbers to see when it might make sense to put upfront money toward a down payment rather than your funding fee. Because a bigger down payment can mean paying a lower funding fee and borrowing less overall, it saves you in interest on two fronts.
Clearly, there’s a lot to consider here. Working with an experienced VA lender can make it easier to explore your options and decide what’s right for you. To find a lender who can answer your questions and help you map out the best path, explore our list of leading VA lenders today.
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