Whenever you get a mortgage (including refinancing), you’re on the hook for closing costs. These are fees that various entities charge for the things required to finalize your home loan. 

Your lender will probably charge you an origination fee, which covers their services in making sure you can afford the amount you’re borrowing. And you’ll probably have to pay a title search company to look at all the paperwork behind your home, checking that you can cleanly take over the deed. 

When you get a loan that’s backed by the Department of Veterans Affairs (VA), you have an added cost in the mix: the VA funding fee. This money helps the VA keep its program guaranteeing home loans going. And that gives you and other veterans/service members access to mortgages with perks like 0% down and no mortgage insurance. 

Still, learning that you have an extra amount to pay probably doesn’t feel great. It helps to know exactly what to expect here, so let’s go over the basics of the VA funding fee. 

How much the VA funding fee costs

The VA funding fee isn’t a set dollar amount. Instead, it equals a percentage of the total amount of money you want to borrow. The VA periodically adjusts the percentage, but right now it ranges from 0.05% on the low end up to 3.3%. 

VA funding fee for purchase loans

A purchase loan means you’re getting the mortgage to buy a new house. If that’s your situation, the VA funding fee depends on whether you’ve had a VA loan in the past and how much money you’re putting up for your down payment. 

If you’ve never closed a VA loan before, you’re considered a first-time user. If you’ve had a VA loan, you’re a repeat user. That’s true even if you fully paid off your first VA-backed home loan.

The one major caveat here applies to manufactured homes. If you’ve closed a VA loan to buy a manufactured home in the past, you’re still eligible for the first-timer’s VA funding fee. 

If you’re eligible for a Native American Direct Loan (NADL) straight from the VA, you don’t have to worry about the funding fee fluctuating based on prior use and down payment size. For NADLs, the funding fee is always 1.25%.

VA funding fee for refinances

If you refinance with VA backing, you still have to pay the funding fee. The amount you’ll need to pay depends on what type of refinance product you use, and whether you’ve closed a VA loan in the past.

The first-time/repeat user piece can be a little confusing with a VA refinance. The reason it works in some cases is because you can use a cash-out refinance to refi a non-VA loan into a VA-backed one. So if you currently have a conventional mortgage, for example, you can use your VA entitlement for the first time for your cash-out refinance. And that would make you eligible for the lower 2.15% funding fee. 

Calculating your VA funding fee

You probably want to know how much to budget for this added cost. 

Let’s walk through a few VA funding fee examples. We’ll use a home purchase price of $400,000 since that’s where the national median has been hovering for a while now. 

Here’s an idea of what the VA funding fee would look like in firm dollar amounts:

• 0% down, first-time user: If you take advantage of the VA loan to put 0% down and you’ve never had a VA loan before, your VA funding fee is 2.15%. That means you’ll need to pay $8,600 (400,000 × 0.0215).
• 0% down, repeat user: If you’ve closed a VA loan in the past and don’t put any money down, your funding fee jumps up to 3.3%. That would bring the amount you owe to $13,200 (400,000 × 0.033).
• 5% down: With a $400,000 house, that means saving up $20,000 (400,000 × 0.05). Now, you’re only borrowing $380,000 (400,000 – 20,000). With that down payment, your VA funding fee drops to 1.5%. And your total dollar amount owed there becomes $5,700.
• 10% down: Your down payment would be $40,000 (400,000 × 0.10), so you’d borrow $360,000 (400,000 – 40,000). With the VA funding fee rate of 1.25%, you would pay $4,500.

Any way you slice it, then, if you’re buying a house at today’s prices, you’re probably paying thousands of dollars for the VA funding fee. But some veterans and service members can get around that added cost. 

VA funding fee exemptions and refunds

The VA offers a few workarounds that allow certain borrowers to skip this added loan cost. 

You’re eligible to get an exemption for the VA funding fee if you are:

• Currently receiving compensation from the VA for a service-related disability
• Eligible to receive that compensation but you’re getting active-duty pay or retirement instead
• The surviving spouse of a veteran receiving Dependency and Indemnity Compensation (DIC) 
• An active-duty service member who can provide evidence that you received a Purple Heart
• A service member with a proposed or memorandum rating stating your eligibility for compensation because of a pre-discharge claim (basically, you have in writing from the VA that you’ll get disability compensation once you separate)

In order to be eligible for VA funding fee exemption, things need to be documented before your loan closing date. 

With the proposed/memorandum rating, for example, you need to have that in writing before your loan closes to skip the funding fee upfront. If you can’t get it in time, though, you might still be able to get a refund. 

Getting your VA funding fee refunded

You can potentially request a refund for your VA funding fee if you:

• Didn’t get the paperwork for your disability finalized in time 
• Later get awarded VA compensation for a service-related disability

The VA refunds money when the effective date of your compensation dates back before your loan closing date. 

To see if you’re eligible for a refund, you can call your VA regional loan center. They’re open weekdays between 8 am and 6 pm ET at (877) 827-3702.

Your options for paying the VA funding fee

You don’t have to pay the VA funding fee at the closing table. You have the option to roll it into your loan amount. If you do that, you’ll pay interest on it, which makes it cost more overall. But it can be helpful to avoid handing over this fee — which is usually thousands of dollars — right as you get your keys. 

A good VA lender can help you figure out what VA funding fee will apply and how much it will cost based on your loan amount. To start exploring lenders you might want to work with, check out current VA loan interest rates today.