The funding fee is one of the most misunderstood parts of VA financing. Here is what it is, why it exists, and how it fits with the rest of the loan.
Why Does the Funding Fee Exist?
The funding fee helps offset the cost of the VA loan guaranty program to taxpayers.
It is one reason VA can offer benefits such as:
- Low or no down payment
- No conventional PMI
The fee is currently described by VA guidance as a one-time charge that varies with the transaction and the borrower's circumstances, so always verify the current percentage.
Who May Be Exempt?
Certain borrowers may be exempt based on current VA rules, including some veterans receiving qualifying disability compensation and certain surviving spouses.
The lender and COE process should confirm status.
Can the Funding Fee Be Financed?
In many qualifying purchase transactions, the funding fee may be financed into the loan rather than paid fully in cash.
That increases the loan balance.
Financing the fee changes the tradeoff between cash today and the cost of the loan over time, so compare actual lender figures.
Does Down Payment Affect the Fee?
Potentially.
The fee structure can vary by:
- First or subsequent use
- Down-payment level
- Type of VA loan
- Exemption status
Do not hard-code percentages as permanent: current funding-fee percentages and structures are set by VA guidance and change, so verify them against the Department of Veterans Affairs funding fee page and your lender.
Example
Buyer can choose:
Lower down payment, higher financed balance
or
Larger down payment, potentially different funding-fee structure
The buyer should compare actual lender figures.
Is Funding Fee the Same as PMI?
No.
PMI is ongoing private mortgage insurance associated with certain conventional loans.
The VA funding fee is a different program charge.
How Lisa Helps
Lisa handles the real estate side of the VA transaction and can structure the offer around what the lender confirms is usable, including seller contributions that current VA rules allow.
Your lender calculates the actual funding fee for your situation. Lisa does not determine the fee, VA eligibility or loan approval.
For the whole VA library, visit the VA Home Loans hub or start at the Financing a Home resource center.
