How it's calculated
VA-backed home loans for Veterans, service members and eligible survivors don't require monthly mortgage insurance. Instead, unless you are exempt, you pay a one-time VA funding fee: a percentage of the loan amount that depends on your down payment and whether you've used the VA home loan benefit before.VA
For purchase and construction loans, VA's current rate chart (effective April 7, 2023) is:
| Down payment | First use | After first use |
|---|---|---|
| Less than 5% | 2.15% | 3.3% |
| 5% or more | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
You can pay the fee at closing or include it in the loan. You don't pay it at all if, for example, you receive VA compensation for a service-connected disability, receive Dependency and Indemnity Compensation as a surviving spouse, or are an active-duty service member who received a Purple Heart; VA's page lists every exemption.
The formula
- Loan before the fee = price − down payment.
- Fee rate from VA's chart, using your down payment as a share of the price and first or subsequent use (0% if you're exempt).
- Funding fee = loan × fee rate. VA's own example: a first-time user buying a $200,000 home with $10,000 down (5%) pays 1.5% of the $190,000 loan, or $2,850.
- Total loan = loan + funding fee if you finance it.
- Monthly payment = principal and interest on the total loan (standard amortization) + property tax ÷ 12 + insurance ÷ 12 + HOA.
Worked example
A first-time VA borrower buying a $400,000 home with no down payment at 6% for 30 years pays a funding fee of $8,600 (2.15%). Financed, it makes the loan $408,600 and the monthly payment with taxes and insurance $3,000.
| Line | Monthly |
|---|---|
| Principal & interest | $2,450 |
| Property tax | $400 |
| Homeowners insurance | $150 |
| Monthly payment | $3,000 |
Putting 5% down cuts the fee to $5,700. On a second VA loan with no down payment, the fee is $13,200.
Assumptions and limitations
- Purchase loans only. Cash-out refinances, interest rate reduction refinances (IRRRL), assumptions, manufactured homes and Native American Direct Loans use other rates.
- No loan limit or entitlement check. Ask your lender how your remaining entitlement affects the loan you can get.
- Closing costs aren't included. You and the seller can negotiate who pays them, and VA lets sellers or builders offer credits toward them (seller concessions are capped at 4% of the home's reasonable value).
- Taxes and insurance stay flat; they usually rise over time.
- Exemption is an input. Your lender confirms with VA whether you are exempt from the funding fee.