What the funding fee is — and why it exists
Because a VA loan requires no down payment and carries no monthly mortgage insurance, the program needs some way to cover its own costs without burdening taxpayers. That is the job of the funding fee: a one-time charge that goes back into the VA loan program so it can keep serving the next generation of veterans. Think of it as the trade for the two biggest benefits — zero down and no monthly insurance.
It is charged once, at closing, on most VA purchase and refinance loans. It is not an ongoing cost like FHA's annual MIP or conventional PMI, which is part of why a VA payment often comes in lower than a comparable low-down-payment loan on another program.
How the tiers work: first use, down payment, and refinances
Two things set your fee on a purchase: whether it is your first use of the VA benefit, and how much you put down. Putting some money down actually lowers the fee — 5% down drops it, and 10% or more lowers it further, as the schedule above shows. The fee is higher on a subsequent use when you put less than 5% down.
Refinances have their own rates. A cash-out refinance uses the same first-use and subsequent-use structure as a low-down-payment purchase, while the streamline Interest Rate Reduction Refinance Loan (IRRRL) carries a much smaller fee. Always confirm the current figures against the VA's published schedule, linked above, since the VA sets them.
Financing the fee into the loan
You do not have to bring the funding fee to closing in cash. In most cases it can be rolled into the loan amount and paid over the life of the loan along with the rest of your balance. That keeps your out-of-pocket cash at closing lower, at the cost of financing a slightly larger balance.
As a rough illustration only: on a $300,000 VA purchase with no down payment at first use, a 2.15% funding fee is about $6,450. Rolled into the loan, that is added to the balance rather than paid in cash up front. This is an illustrative figure, not a quote — your real fee depends on your loan amount, down payment, use, and any exemption, which we confirm before quoting costs.
For local context, the median list price across the 16,101 active homes in our Tennessee listings is $499,000 — a live housing-supply figure, not an appraisal or a statement of what you qualify for.
Who is exempt from the funding fee
A significant number of borrowers pay no funding fee at all. You are generally exempt if you are:
- A veteran receiving (or eligible to receive) VA compensation for a service-connected disability;
- A veteran who would be entitled to that compensation but is receiving retirement or active-duty pay instead;
- A surviving spouse of a veteran who died in service or from a service-connected disability;
- A service member with a proposed or memorandum rating, before loan closing, of eligibility for compensation based on a pre-discharge claim, or who received a Purple Heart (per the VA's current rules).
Your funding-fee status usually shows on your Certificate of Eligibility. We confirm whether an exemption applies to you so you never pay a fee you do not owe — and if you already paid one you were exempt from, you may be entitled to a refund.
