The funding fee, explained.

The VA loan has no down payment requirement and no monthly mortgage insurance. The funding fee is the trade: a one-time charge, paid at closing or rolled into the loan, that funds the VA’s guarantee program so it doesn’t run on taxpayer money.

Compare it to the alternative before deciding it stings. A conventional borrower putting 3% down pays PMI every month for years, often $100 to $250 a month until they reach 20% equity. A first-time VA borrower pays 2.15% once and never sees a mortgage-insurance line on their statement. Over a typical hold period, the VA borrower usually comes out ahead, and a third of VA borrowers pay no fee at all.

Source: VA.gov, funding fee and closing costs, checked July 2026.

Two patterns worth noticing. The subsequent-use penalty only exists at less than 5% down; put 5% down and a repeat borrower pays the same 1.50% as a first-timer. And the jump from 2.15% to 3.30% means the “free” second use of the benefit costs real money, which is one reason keeping entitlement questions straight (see the entitlement guide) pays off.

Almost nobody writes a check for the funding fee. It gets added to the loan amount and paid off over 30 years with everything else. On a $300,000 first-use purchase with nothing down:

At a 6.5% rate, that $6,450 adds roughly $41 a month to the payment. Not nothing, but far less than PMI on a comparable low-down conventional loan. The buying-power calculator folds the fee into every estimate automatically, using your first-use and exemption answers.

Paying it in cash at closing is allowed, and sellers can pay it for you as part of seller concessions. Worth negotiating for in a buyer’s market.

You pay no funding fee at all if any of these is true:

• You receive VA disability compensation for a service-connected condition, at any rating from 10% up.
• You are eligible for compensation but receive military retired pay instead (a common situation for retirees).
• You are a surviving spouse receiving DIC.
• You are an active-duty Purple Heart recipient closing before your separation date.

The exemption shows up on your COE, and the lender applies it automatically. If you think you qualify and the COE doesn’t show it, stop and fix that before closing. On a $300,000 loan the exemption is worth $6,450 in cash.

This one goes unclaimed constantly. If you had a disability claim pending when you closed and the VA later grants compensation with an effective date on or before your closing date, you are entitled to a refund of the funding fee you paid. On the example above, a $6,450 check.

The refund is not always automatic. If the loan is still active, contact your loan servicer; you can also call the VA at 877-827-3702. Bring your award letter and note the effective date. If the fee was financed, the refund typically pays down your loan balance rather than arriving as cash.

Practical takeaway for anyone buying with a claim in progress: file the claim before you close, keep the paperwork, and set a reminder to check the effective date when the rating comes through.