The VA Funding Fee
Generally, all Veterans using their VA Loan benefits must pay a funding fee. This does reduce the loan's cost to taxpayers considering that it does make no down payment possible and it removes the need for mortgage insurance.
The funding fee varies based on several factors:
- It can be a percentage of the loan amount which varies based on the type of loan and your military category
- If you are a first-time or subsequent loan user
- Whether you make a down payment
You have the option to finance the VA funding fee or pay it in cash, but the funding fee must be paid at closing time.
However, you do not have to pay the fee if you are a:
- Veteran receiving VA compensation for a service-connected disability, OR
- Veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay, OR
- Surviving spouse of a Veteran who died in service or from a service-connected disability.
The funding fee is slghtly higher for second time users of the loan who are not making a down payment.
Also, National Guard and Reserve Veterans pay a slightly higher funding fee percentage. See Loan Fees on the VA Website (PDF).