VA Funding Fee: What is it

Home ownership is a priority for many U.S. veterans. VA loans were created to help America’s veterans achieve this goal.
Today, VA loans are one of just two no-down payment loan programs available. Credit and income (parts of the VA loan requirements) are generally more lenient than conventional loans, and the Veterans Administrations caps what veterans pay in costs and fees.
VA home loans are an incredible benefit for service members, and now is a great time to get started on your dream of homeownership.
But there’s one cost unique to this incredible loan program: the VA Funding Fee.
The VA Funding Fee is a set fee applied to every purchase loan or refinance. The proceeds go directly to the VA and help cover losses on the few loans that go into default.
The fee changes depending on several factors, including the nature of the borrower’s service, whether the borrower has a prior VA loan and if there’s a down payment. Borrowers with service-connected disabilities can secure an exemption from the VA Funding Fee.
Regular military members pay slightly lower Funding Fees than Reservists and National Guard members.

Regular military: 

Regular Military Personnel
Down payment Funding Fee (1st use) Funding Fee (2nd use)
None 2.15 percent 3.3 percent
5-10 percent 1.5 percent 1.5 percent
10 percent and up 1.25 percent 1.25 percent

Reserves and the National Guard:

Reserve & National Guard Personnel
Down payment Funding Fee (1st use) Funding Fee (2nd use)
None 2.4 percent 3.3 percent
5 to10 percent 1.75 percent 1.75 percent
10 percent and up 1.5 percent 1.5 percent

Borrowers can combine the Funding Fee with their loan and many borrowers choose this option. This adds a few dollars onto their monthly mortgage payment.
For example, the 2.5 percent funding fee on a $200,000 mortgage comes out to $5,000. On a fixed-rate loan at 30 years and 6 percent, rolling in the Funding Fee adds an additional $30 per month.
Veterans wanting a VA refinance must also pay a Funding Fee. The VA has two major refinancing programs, the Interest Rate Reduction Refinancing Loan, better known as the VA Streamline, and a VA Cash-Out refinancing.
The VA Streamline requires veterans to pay a 0.5 percent Funding Fee.
Veterans who want a Cash-Out refinance pay a slightly higher fee. The current fee for first time use is 2.15 percent of the loan amount for regular military and 2.4 percent for Reserves and National Guard members. The fee jumps to 3.3 percent for both demographics for each subsequent use.