The VA loan is the most powerful mortgage benefit available to veterans — zero down payment, no PMI, competitive rates. But there’s one cost that catches most veterans off guard.
The VA loan funding fee.
It’s a one-time charge added to your loan at closing, and depending on your situation it can cost thousands of dollars. But here’s what most veterans don’t know — there are legitimate ways to reduce it or eliminate it entirely.
Here’s everything you need to know.
What Is the VA Loan Funding Fee?
The VA loan funding fee is a one-time payment made to the Department of Veterans Affairs at closing. It helps fund the VA loan program so it can continue offering zero-down mortgages to future veterans without requiring mortgage insurance.
Think of it as the cost of not paying PMI. On a conventional loan you’d pay private mortgage insurance every month if you put less than 20% down. With a VA loan there’s no monthly PMI — but the funding fee is how the VA offsets that risk.
The fee is typically rolled into your loan balance so you don’t pay it out of pocket at closing. But it does increase the total amount you’re financing.
How Much Is the Funding Fee?
The amount depends on three factors — your down payment, whether it’s your first time using a VA loan, and your military status.
First-time VA loan use with zero down: 2.15% of the loan amount
Subsequent VA loan use with zero down: 3.3% of the loan amount
With 5% or more down: 1.5%
With 10% or more down: 1.25%
On a $400,000 home with zero down and first-time use, that’s $8,600 added to your loan. On a subsequent use it jumps to $13,200.
That’s real money. And it’s why understanding this fee matters before you start house hunting.
Who Is Exempt from the Funding Fee?
This is the part most veterans miss — and it can save you thousands.
You are exempt from the VA loan funding fee if you:
Have a service-connected disability rating from the VA — any percentage qualifies, even 0% if it’s service-connected.
Are a surviving spouse of a veteran who died in service or from a service-connected disability.
Are a Purple Heart recipient currently serving on active duty.
Are receiving VA disability compensation.
Are eligible to receive VA disability compensation but are receiving retirement or active duty pay instead.
If any of these apply to you, your funding fee is waived completely. On a $400,000 loan that’s $8,600 to $13,200 you keep in your pocket.
This is one of the most valuable financial benefits tied to a VA disability rating — and one more reason to make sure you’ve filed your VA disability claim. If you haven’t yet, read our guide on the 10 financial moves every veteran should make after separation.
How to Reduce the Funding Fee If You’re Not Exempt
If you don’t qualify for an exemption, you can still reduce the fee significantly by putting money down.
Putting 5% down drops the fee from 2.15% to 1.5%. On a $400,000 home that’s a difference of $2,600. Putting 10% down drops it further to 1.25%.
Whether that trade-off makes sense depends on your situation. If you’re house hacking with a VA loan and the rental income covers your mortgage, keeping your cash and rolling the fee into the loan might be the smarter move. If you’re buying a single-family home to live in long-term, putting money down to reduce the fee could save you thousands over the life of the loan.
Run the numbers for your specific deal before deciding.
Funding Fee on Second and Subsequent VA Loans
If you’ve used your VA loan before, the funding fee goes up on subsequent uses — from 2.15% to 3.3% with zero down.
This is one reason real estate investors using the VA loan strategically should understand how entitlement works. If you’re planning to buy a fourplex with zero down or use the VA loan for multiple properties, factor the higher funding fee into your deal analysis on the second purchase.
That said, even with the higher fee, the VA loan is still often the best option because there’s no PMI and rates are typically lower than conventional loans. For a full comparison, see our breakdown of VA loan vs conventional loans.
Can You Get the Funding Fee Refunded?
Yes — in certain situations.
If you had a VA disability claim pending when you closed on your loan and the claim was later approved, you may be entitled to a refund of the funding fee. This applies if the effective date of your disability rating is before the closing date of your loan.
Contact the VA Regional Loan Center to request a refund. It’s not automatic — you have to ask for it.
This is another reason to file your disability claim as early as possible. The financial benefits extend far beyond the monthly compensation check.
Should You Roll the Funding Fee into Your Loan?
Most veterans roll the funding fee into their loan balance rather than paying it at closing. This means you don’t need cash for it upfront, but you will pay interest on it over the life of the loan.
On a 30-year mortgage at 6.5%, rolling an $8,600 funding fee into the loan costs you roughly $11,000 in additional interest over the full term. If you plan to sell or refinance within 5-10 years — which is common for veterans using the BRRRR strategy — the actual cost is much lower.
If you have the cash and plan to hold the property long-term, paying the fee at closing saves you money. If you’d rather keep your cash for reserves, repairs, or your next investment, rolling it in makes sense.
The Bottom Line
The VA loan funding fee is a real cost — but it’s still a better deal than paying PMI on a conventional loan every month. And if you have a disability rating, you skip it entirely.
Before you start your home search, know where you stand. Check your credit for free through Credit Karma to make sure your score is in good shape, pull your Certificate of Eligibility through eBenefits, and confirm whether you’re exempt from the funding fee.
One informed decision here can save you $8,000 to $13,000 — and that money compounds when you put it to work.
That’s how veterans build wealth. One smart move at a time.
For a comprehensive guide to the entire VA loan process, VA Loans for Dummies breaks it down step by step.