The VA funding fee is a one-time payment that helps sustain the VA loan program for future veterans. While this fee adds to your closing costs, it can be financed into your loan amount, and many veterans qualify for exemptions or reduced rates.
Understanding the VA Funding Fee
The VA funding fee varies based on your military category, down payment amount, and whether it's your first or subsequent use of the VA loan benefit. The fee ranges from 1.25% to 3.30% of the loan amount for most borrowers.
Good news: Unlike private mortgage insurance (PMI) on conventional loans, the VA funding fee is a one-time payment, not an ongoing monthly expense.
2025 VA Loan Funding Fee Tables
Regular Military (Active Duty & Veterans)
| Loan Type | Down Payment | First-Time Use | Subsequent Use |
|---|---|---|---|
| Purchase/Construction | Less than 5% | 2.15% | 3.30% |
| Purchase/Construction | 5% - 9.99% | 1.50% | 1.50% |
| Purchase/Construction | 10% or more | 1.25% | 1.25% |
| Refinance (IRRRL) | N/A | 0.50% | 0.50% |
| Cash-Out Refinance | N/A | 2.15% | 3.30% |
| Loan Assumption | N/A | 0.50% | 0.50% |
Reserves & National Guard
| Loan Type | Down Payment | First-Time Use | Subsequent Use |
|---|---|---|---|
| Purchase/Construction | Less than 5% | 2.40% | 3.30% |
| Purchase/Construction | 5% - 9.99% | 1.75% | 1.75% |
| Purchase/Construction | 10% or more | 1.50% | 1.50% |
| Refinance (IRRRL) | N/A | 0.50% | 0.50% |
| Cash-Out Refinance | N/A | 2.40% | 3.30% |
Funding Fee Cost Examples (Arizona)
Example 1: First-Time Purchase (Zero Down)
Home Price: $350,000
Down Payment: $0 (0%)
Loan Amount: $350,000
Funding Fee Rate: 2.15%
Funding Fee: $7,525
Can be financed → Final loan: $357,525
Example 2: First-Time with 10% Down
Home Price: $350,000
Down Payment: $35,000 (10%)
Loan Amount: $315,000
Funding Fee Rate: 1.25%
Funding Fee: $3,938
Savings vs 0% down: $3,587
Example 3: IRRRL Refinance
Current Loan Balance: $280,000
Funding Fee Rate: 0.50%
Funding Fee: $1,400
Can be financed → New loan: $281,400
Learn about VA IRRRL refinancing
Example 4: Subsequent Use (Second VA Loan)
Home Price: $400,000
Down Payment: $0 (0%)
Loan Amount: $400,000
Funding Fee Rate: 3.30%
Funding Fee: $13,200
Higher rate for subsequent use
VA Funding Fee Exemptions & Waivers
100% Fee Exempt Categories
Veterans in these categories pay NO funding fee:
- ✓ Veterans receiving VA compensation for service-connected disabilities
- ✓ Veterans who would be entitled to receive compensation for service-connected disabilities if not receiving military retirement pay
- ✓ Surviving spouses of veterans who died in service or from service-connected disabilities
- ✓ Veterans rated as Purple Heart recipients
- ✓ Active duty servicemembers within 90 days of discharge for service-connected disabilities
How to Claim Exemption
- Obtain your VA disability rating documentation
- Provide documentation to your lender at application
- Lender verifies exemption status with VA
- Exemption applied - no funding fee charged
Note: Even a 0% disability rating qualifies for exemption if compensable
Exemption Savings Example
Scenario: $400,000 home, zero down, first-time use
Standard Funding Fee: $8,600 (2.15%)
Exemption Saves: $8,600
Over 30 years at 6.5% rate, this eliminates $216/month in added payments
How to Pay the VA Funding Fee
1. Finance Into Loan
Most Common Option
- ✓ No upfront cash needed
- ✓ Fee added to loan amount
- ✓ Paid over loan term
- ✓ Slightly increases monthly payment
2. Pay at Closing
Reduces Loan Amount
- ✓ Lower monthly payment
- ✓ Less interest paid overall
- ✓ Requires available cash
- ✓ Better long-term savings
3. Seller Pays Fee
Negotiation Strategy
- ✓ Seller concession option
- ✓ Up to 4% seller concessions allowed
- ✓ May affect offer competitiveness
- ✓ Common in buyer's markets
Financing Impact Example
$7,500 funding fee financed at 6.5% for 30 years adds approximately $47/month to your payment. Total interest paid on this amount over 30 years: $9,420.
Strategies to Reduce VA Funding Fee
1. Make a Down Payment
Putting down 5% reduces fee from 2.15% to 1.50%. Putting down 10% reduces it to 1.25%.
2. Get Disability Rating
File for VA disability benefits if you have service-connected conditions. Even minor ratings provide full exemption.
3. Use IRRRL for Refinancing
VA Interest Rate Reduction Refinance Loan has lowest funding fee (0.50%) compared to cash-out refi (2.15%-3.30%).
4. Restore Entitlement Carefully
If buying a second home, consider whether to restore entitlement or use remaining entitlement to avoid subsequent-use rates.
5. Time Your Purchase
If nearing disability approval, waiting could save thousands in funding fees.
6. Negotiate Seller Concessions
In favorable markets, ask sellers to cover closing costs including funding fee.
VA Funding Fee FAQs
Can I get a refund if I later become exempt?
Yes. If you receive a disability rating after closing, you can request a refund of the funding fee paid. Contact the VA within one year of receiving your rating to request the refund.
Does the funding fee count toward the VA loan limit?
No. The funding fee can be financed above the county loan limit without requiring a down payment. For example, if the Maricopa County limit is $766,550, you can finance up to that amount plus the funding fee.
Is the funding fee tax deductible?
The funding fee itself is not tax deductible. However, if you finance it into your loan, the interest you pay on that portion over time may be deductible as mortgage interest. Consult your tax advisor for specific guidance.
Do National Guard and Reserves pay more?
Yes. Reserves and National Guard members pay slightly higher funding fees (2.40% vs 2.15% for regular military on first-time zero-down purchases). All other categories have the same rates.
What if I'm buying with a non-veteran co-borrower?
The funding fee is only calculated on your portion of the loan. If you're using 50% of your entitlement with a non-veteran co-borrower, you'd pay the funding fee on half the loan amount.
Calculate Your VA Loan Costs
Get a detailed breakdown of your VA loan funding fee and total costs for your Arizona home purchase.