To reduce your VA funding fee, increase your down payment, qualify for exemptions, or refinance via IRRRL. Larger down payments lower the fee percentage, while service-connected disabilities or Purple Heart recipients may be exempt. Smaller loan amounts and VA assumption loans also help. Plan multiple VA loan uses carefully and consider state assistance programs.
In this guide, we’ll explore effective strategies to lower your VA funding fee and provide actionable tips for maximizing your savings.
What Is the VA Funding Fee?
The VA funding fee is a one-time payment required by the Department of Veterans Affairs (VA) when you take out a VA-backed home loan. The fee helps offset taxpayer costs and ensures the program remains available for future borrowers.
Standard VA Funding Fee Rates
- First-time use with no down payment: 2.15% of the loan amount
- Subsequent use with no down payment: 3.3% of the loan amount
- With a 5% down payment: 1.5% of the loan amount
- With a 10% down payment: 1.25% of the loan amount
Example: On a $300,000 home purchase, a 2.15% funding fee would cost $6,450.
Why Is the VA Funding Fee Important?
The VA funding fee helps fund the VA loan program, which allows eligible military borrowers to purchase homes with no down payment and no private mortgage insurance (PMI). Without this fee, the VA loan program would require more taxpayer funding to sustain its benefits.
While the fee is beneficial to maintaining the program, reducing your fee can save you thousands of dollars — especially on higher-value homes.
Strategies to Lower Your VA Funding Fee
1. Increase Your Down Payment
One of the most effective ways to reduce your VA funding fee is by making a larger down payment. The more you put down upfront, the lower your funding fee percentage will be.
- 5% Down Payment: Reduces the fee to 1.5%
- 10% Down Payment: Reduces the fee to 1.25%
Example: For a $300,000 home with a 5% down payment, your funding fee would be $4,275 instead of $6,450 — saving you over $2,000.
2. Qualify for an Exemption
Some borrowers are exempt from paying the VA funding fee. If you qualify for any of the following categories, you can potentially avoid this expense altogether:
✅ Veterans receiving VA compensation for a service-connected disability
✅ Surviving spouses of veterans who died in service or from a service-connected disability
✅ Active-duty service members who have received a Purple Heart
Tip: Contact your VA loan officer to verify your exemption status before closing.
3. Choose a Smaller Loan Amount
Because the VA funding fee is a percentage of your loan, a smaller loan naturally leads to a lower fee. Consider these options to reduce your total loan amount:
- Increase your down payment
- Choose a less expensive property
- Pay for closing costs out of pocket instead of rolling them into the loan
4. Consider Refinancing
If you already have a VA loan, refinancing through the VA’s Interest Rate Reduction Refinance Loan (IRRRL) program can reduce your funding fee to only 0.5% of the loan amount. This strategy is ideal for homeowners seeking to lower their interest rate and monthly payments simultaneously.
Example: Refinancing a $250,000 VA loan through the IRRRL program would require only a $1,250 funding fee compared to higher fees for new loans.
5. Opt for a VA Assumption Loan
In some cases, you can transfer your VA loan to another eligible borrower. This strategy eliminates the need for a new VA funding fee altogether.
When to Use This Strategy:
- If you’re selling your home and the buyer is eligible for VA financing
- If transferring ownership to a family member who meets VA eligibility criteria
6. Plan for Multiple VA Loan Uses
If you’re purchasing a second home with a VA loan, your funding fee increases. To avoid paying a higher fee, consider waiting until your first VA loan is fully paid off before applying for another.
7. Timing Your Purchase Wisely
The VA occasionally updates funding fee rates based on federal changes or policy shifts. By staying informed and timing your purchase accordingly, you may be able to secure a lower funding fee rate.
8. Exploring State and Local Assistance Programs
Certain state and local programs offer grants or financial assistance to help cover VA funding fees or down payment costs. Check with your state’s housing agency or local VA offices for available options.
Additional Tips to Save Money
- Use VA Loan Calculators: Tools like VA funding fee calculators can help you estimate costs upfront and plan your budget accordingly.
- Consult a VA Loan Specialist: Professionals can guide you on minimizing costs based on your financial situation.
- Stay Informed: The VA occasionally updates funding fee rates, so keep up with current policies.
- Bundle Costs Wisely: While some buyers prefer to finance the funding fee by rolling it into the mortgage, paying it upfront can save you thousands in interest over the life of the loan.
Common Misconceptions About the VA Funding Fee
- “The VA Funding Fee Is Optional.”
- While exemptions are available, most borrowers are required to pay the fee unless they qualify for an exemption.
- “The VA Funding Fee Covers Closing Costs.”
- The funding fee is separate from closing costs; however, some lenders may allow you to roll both into your mortgage.
- “Refinancing Always Reduces the VA Funding Fee.”
- While refinancing through the IRRRL program offers a reduced fee, other refinance options may not automatically lower the fee.
Key Takeaways
- Making a larger down payment significantly reduces your VA funding fee.
- Exemptions are available for disabled veterans, surviving spouses, and Purple Heart recipients.
- Refinancing or choosing a smaller loan amount can lower your costs.
- Exploring state and local assistance programs may help cover your funding fee expenses.
By applying these strategies, you can reduce your VA funding fee and improve your financial standing as a homebuyer. For personalized advice, consult a VA loan specialist to explore your best options.
Ready to calculate your potential savings? Use a VA funding fee calculator or reach out to a trusted real estate professional today.