By Team Loandrone
Let’s try and understand a topic that often comes up while discussing VA loans. Each VA loan, refinance or purchase, has something called the VA funding fee. This fee is collected at closing and is paid to the Department of Veterans Affairs. This fee is not paid to the lender.
The question arises — why do we have this fee for VA loans? The funding fee can be compared to mortgage insurance that is common in conventional or FHA loans. It acts as an assurance and helps the Department of Veterans Affairs run the home loan benefits program for veterans on a self-sustained basis
FAQs
Who pays the Funding Fees?
The fee is paid by veterans, active-duty service members, and reservists — basically everyone who is eligible to take advantage of the home loan benefits program run by the Department of Veterans Affairs.
However, there are a few exemptions to this rule:
Active-duty service members who have received a Purple Hear
Veterans receiving VA disability compensation
Surviving spouses of veterans who died in service or from a service-related disability
When is the funding fee paid?
It is paid at the time of closing, or it can be rolled into the loan amount.
Example:
Say there is a fee of $4,000 with a loan amount of $400,000. There are two ways to take care of this fee — either the closing costs will show the funding fee amount, or we can increase the loan amount to $404,000 to absorb the funding fee.
What is the fee structure?
The fee structure varies by loan type (for example, refinance vs. purchase), by usage (first-time or subsequent), and may vary with the down payment in the case of purchase loans.
Here is the breakdown of the current fee structure for 2025:
As of 2025 (current structure):
- First-time use (no down payment): 2.15%
- Subsequent use (no down payment): 3.3%
- With 5% down: 1.5%
- With 10% down: 1.25%
- IRRRL (refinance): 0.5%
- Cash-out refinance: 2.15% (first use) or 3.3% (subsequent use)
- * Source – US Department of Veterans Affairs
Let’s take an example to understand better:
Say you want to purchase a home for $300,000 with a 10% down payment ($30,000). The loan amount would be $270,000. The funding fee would be 1.25% of $270,000 = $3,375.
Lets take an exmaple to understand better :
Can we deduct the funding fee for tax purposes?
You may be able to take advantage of the funding fee for tax purposes, but it’s best to seek the advice of a tax professional on this matter.
Does the funding fee make the VA loan expensive?
Not really. Looking at funding fees as the sole data point for VA loans is not the right starting point. VA loans have tremendous benefits such as the ability to put zero down to buy a home, and no appraisal requirement for refinances. There is no continued MIP as is the case in FHA or conventional loans.
VA loans also tend to have competitive pricing compared to conventional loans. Hence, in the long term, the one-time funding fee is more than offset by the overall benefits of choosing this option.
This content has been verified by team member who is an underwriter with extensive knowledge in underwriting VA loans
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