VA loans just got cheaper thanks to a reduction to the funding fee
VA loan borrowers will now pay less to get a mortgage. Here's what the recent VA funding fee cuts mean for borrowers and how much they could save.
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- VA loan borrowers with mortgages that close on or after April 7, 2023, will pay a reduced funding fee.
- The funding fee helps pay for the VA's mortgage guaranty, and you can either pay it at closing or finance it into the loan.
- Because it's often financed, a reduced funding fee can lower the amount VA loan borrowers pay in interest.
VA mortgage borrowers whose loans close on or after April 7, 2023, can benefit from a decrease in the VA's funding fee. VA mortgages are backed by the Department of Veterans Affairs and are available to veterans and service members who meet minimum active-duty service requirements.
This change reverts the funding fee back to its pre-2020 rates. The fee was temporarily increased as part of the Blue Water Navy Vietnam Veterans Act of 2019 in order to help pay for benefits provided to certain Vietnam veterans by the Act. The provision that increased the fee has now expired.
New VA funding fee charts
For borrowers buying a home, the new funding fee ranges from 1.25% to 3.3% of your loan amount, depending on how much you put down and whether you've used the program before. Use the charts below to find out how much you'll pay.
For first-time VA loan borrowers
| Down payment amount | Old funding fee | New funding fee |
| Less than 5% | 2.3% | 2.15% |
| 5% or more | 1.65% | 1.5% |
| 10% or more | 1.4% | 1.25% |
For subsequent VA loan borrowers
| Down payment amount | Old funding fee | New funding fee |
| Less than 5% | 3.6% | 3.3% |
| 5% or more | 1.65% | 1.5% |
| 10% or more | 1.4% | 1.25% |
VA cash-out refinance
| Old funding fee | New funding fee | |
| First use | 2.3% | 2.15% |
| Subsequent use | 3.6% | 3.3% |
Other types of VA loans
Funding fees for other VA loans remain unchanged.
| Loan type | Funding fee |
| Interest Rate Reduction Refinance Loan | 0.5% |
| Manufactured home loans | 1% |
| Loan assumptions | 0.5% |
| Native American Direct Loans | 1.25% |
How much VA loan borrowers could save
For a first-time homebuyer putting zero down on a $500,000 loan, their funding fee would be $10,750 as of April 7, 2023. Prior to this, that same borrower would have paid $11,500.
The VA funding fee is typically financed into the mortgage, which means you can also save a bit of money on interest over the life of your loan, since you'll be borrowing less money. Following the example above, a borrower with a 6% rate will pay $868 less in interest over the life of the loan with the new funding fee.
"You're borrowing that extra sum, which also means it's being amortized with your interest rate over the life of the loan," says Chris Birk, vice president of mortgage insight at Veterans United.
In a November letter to Congress, the Community Home Lenders of America said that the now-lower fees will save VA loan borrowers an estimated $200 million annually.
The funding fee decrease also means borrowers will spend less time underwater on their mortgages, says Birk. Because so many borrowers take advantage of the ability to put 0% down on a VA loan, those who finance their funding fee actually start out owing more than what their homes are worth.
Thanks to 0% down payments and, according to Birk, the lowest average rates on the market, VA loans are some of the most affordable mortgages available. And with the new funding fee rates, they just became even more affordable.
"It is arguably the most powerful mortgage option on the market," Birk says.