The VA funding fee is a one-time payment required on most VA-backed home loans, calculated as a percentage of the loan amount. It exists to help sustain the VA loan program for future borrowers, since VA loans don’t require mortgage insurance the way conventional or FHA loans do. The fee can be paid upfront at closing or rolled into the total loan amount, which most borrowers choose to do rather than paying it out of pocket.
The exact percentage depends on a few factors: whether it’s your first time using the VA loan benefit versus a subsequent use, and how much (if any) down payment you’re making. First-time use with no down payment carries a higher percentage than subsequent use, and any down payment amount reduces the fee percentage on a sliding scale.
Certain borrowers are exempt from the funding fee entirely. The most common exemption applies to veterans receiving VA disability compensation for a service-connected condition. Other exemptions can apply to Purple Heart recipients on active duty and certain surviving spouses eligible for VA loan benefits. Exemption status is determined by the VA based on your disability rating and documentation, not something a lender decides independently.
Because funding fee amounts and exemptions can change and depend on individual circumstances, it’s worth having your lender pull your Certificate of Eligibility (COE) early in the process, since this document will typically indicate your funding fee status. If you believe you may qualify for an exemption but it’s not reflected on your COE, working with the VA or your lender to update it before closing can save a meaningful amount of money, since retroactive refunds for missed exemptions, while possible, add an extra layer of paperwork after the fact.