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Want a VA loan? Be ready to pay the VA funding fee

Cheryl Knight

MortgageVA Loans

Two military women browsing tablet computer | Sean Murphy/Getty Images

Sean Murphy/Getty Images

One of the great benefits of military service is the VA home loan. The loan often allows veterans to buy a home with no money down.

There is, however, a cost that must be paid for a VA loan: the VA funding fee. It can be paid in cash at closing or can be rolled into the loan.

Why do you pay the VA funding fee?

The funding fee helps sustain the VA home loan program, which is supported by taxpayer dollars. Private lenders make the loans, and the Department of Veterans Affairs guarantees them.

The VA funding fee is owed when you buy a home with a VA home loan, when you refinance a VA home loan or when you refinance a non-VA loan into the VA program.

The amount of the fee depends on several factors, such as:

  • The type of VA loan sought (such as purchase loan or refinance).
  • The nature of the borrower's military service.
  • Whether the borrower is making a down payment.
  • Whether the borrower has had a prior VA loan.
  • If the borrower is disabled.

The VA funding fee ranges from 0.5 percent for a VA streamline refinance loan to slightly over 3 percent for VA purchase loans and cash-out refis.

VA loan funding fees for purchase loans
Type of service Down payment VA funding fee for first-time borrowers VA funding fee for subsequent VA home loans
Regular military personnel None 2.15% 3.3%
5-9% 1.5% 1.5%
10% or more 1.25% 1.25%
Reserves and National Guard None 2.4% 3.3%
5-9% 1.75% 1.75%
10% or more 1.5% 1.5%

Veterans receiving compensation for a service-related disability do not have to pay the fee. A veteran must have received an honorable discharge in order to qualify for VA benefits, including a VA home loan.

Use Bankrate's calculator to help you determine how much house you can afford to buy.

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