Funding Fee

A funding fee is a one-time charge required on VA-backed and USDA-backed mortgage loans, paid at closing or financed into the loan amount. The fee supports the respective government guarantee programs and varies based on loan type, down payment amount, and the borrower's service history.

What This Means

VA Funding Fee

The VA funding fee applies to most VA purchase and refinance loans. It helps sustain the VA home loan program without requiring monthly mortgage insurance. The fee amount depends on several factors:

First-time use with no down payment: 2.15% of the loan amount
First-time use with 5%-9.99% down: 1.5%
First-time use with 10%+ down: 1.25%
Subsequent use with no down payment: 3.3%

Certain veterans are exempt from the VA funding fee, including those receiving VA disability compensation, Purple Heart recipients on active duty, and surviving spouses of veterans who died in service or from service-connected disabilities .

USDA Guarantee Fee

USDA loans carry their own version of a funding fee called the guarantee fee. The upfront guarantee fee is 1.0% of the loan amount , and the annual fee is 0.35% , paid monthly. Unlike the VA funding fee, the USDA annual fee continues for the life of the loan unless the borrower refinances into a different loan type.

Financial Considerations

Both the VA funding fee and the USDA guarantee fee can be financed into the loan balance rather than paid out of pocket at closing. While this preserves cash reserves, it increases the total loan amount and the interest paid over the loan term. Borrowers should factor the financed fee into total cost comparisons when evaluating loan options.