You served your country—and now you’re ready to own a home. But one hidden fee could quietly cost you $6,000+ upfront: the VA funding fee.

The good news? You might not have to pay it at all.

In this guide, you’ll discover:

• Who’s 100% exempt
• How to get a refund
• Smart ways to avoid paying out of pocket

Before you close, read this—and keep more money in your pocket.

Key Takeaways

• VA Funding Fee: A mandatory one-time fee (0.5%–3.3%) that supports the VA loan program.
• Exemptions Available: Disabled veterans, Purple Heart recipients, and certain surviving spouses pay no fee.
• Refunds Possible: Veterans approved for disability compensation after closing can request a refund.
• Smart Negotiations: Seller concessions can reduce your upfront cost significantly.

How to Avoid Paying the VA Funding Fee in 2025

If you're a veteran receiving disability compensation, or a Purple Heart recipient, you're fully exempt from the funding fee.
Tip: If your disability claim is still pending, you can still close—and apply for a refund once approved.

👉 Learn more in our VA Disability Rates 2025 guide.

Is the VA Loan Funding Fee Worth It?

Yes—because VA loans require no down payment, no PMI, and still offer low interest rates.
Think of the funding fee as a one-time access pass to lifetime VA home loan benefits.
However, smart borrowers reduce or eliminate it using exemptions or seller credits.

Pros and Cons of the VA Funding Fee

Pros:

• Keeps the VA loan program self-funded
• No monthly mortgage insurance
  Eligible for refunds if disability approved

Cons:

• Can cost over $6,000 on average loans
• Must be paid upfront or financed

Not all veterans are exempt

What is the VA Funding Fee and Why Does It Exist?

The VA funding fee is your contribution toward keeping the VA loan program operational, allowing future veterans and service members to benefit from zero-down loans and competitive interest rates.

(VA Handbook 26-7 defines this as a self-sustaining program to minimize taxpayer support.)

Why You're Charged:

• Enables zero-down payment loans.
• Maintains competitive interest rates.
• Eliminates monthly mortgage insurance payments.

VA Funding Fee Rates for 2025:

The fee varies depending on loan type and your VA benefit usage:

Example: A $300,000 first-time VA loan would typically include a $6,450 funding fee unless you're exempt.

Who's Exempt from Paying the VA Funding Fee?

You won't pay this fee if:

• You're receiving VA disability compensation.
• You qualify for VA compensation but currently receive retirement pay instead.
• You filed a disability claim before discharge and it was approved.
• You're an active-duty Purple Heart recipient.
• You're the surviving spouse of a veteran who passed from a service-connected disability.

Important: If your disability claim is pending during closing, you can later request a refund upon approval.

VA Loan Closing Costs (Beyond the Funding Fee)

Typical closing expenses:

• Appraisal: $500–$700
• Loan Origination Fee: Capped at 1% of the loan amount
• Credit & Title Fees: Vary by provider
• Prepaid Taxes & Insurance: Due at closing

Using VA Seller Concessions to Lower Costs

VA rules allow sellers to cover certain closing costs, up to 4% of your loan amount:

• Funding fee
• Origination charges
• Discount points (to lower your interest rate)
• Title and recording fees
• Prepaid taxes and insurance

Negotiation Tip: Work with your agent to request these concessions—especially in motivated seller situations.

How to Secure a VA Funding Fee Refund

If you paid the fee and later receive a disability rating, you’re eligible for a refund:

1. Update your Certificate of Eligibility (COE).
2. Inform your lender or loan servicer immediately.
3. Submit your refund request (often your lender will assist).

Processing Time: Typically 2–3 months after exemption confirmation.

Is the VA Funding Fee Tax Deductible?

Yes, if you itemize your deductions, the funding fee is deductible as mortgage-related expenses.

(See IRS Form 1040 Schedule A for details.)

Don’t Let the VA Funding Fee Eat Into Your Benefits

You’ve earned your VA home loan benefit—make sure you maximize it. By understanding your exemption eligibility, knowing how to negotiate seller credits, and applying for refunds when eligible, you can save thousands.

If you're buying in 2025, there's no better time to work with reAlpha—the commission-free home buying platform designed for veterans.
Less fees. More savings. Zero stress.

Ready to Navigate Your VA Loan Confidently?

Be My Neighbor Mortgage (NMLS #1743790): VA loan experts who simplify the process.

FAQs

What is the 1% VA loan fee?‍

It’s the loan origination fee, capped at 1%, covering loan processing expenses.

How much can sellers pay on a VA loan?‍

Up to 4% in concessions plus typical closing costs.

What are 'points' on a VA loan?‍

Optional fees (about 1% of the loan amount) that reduce your interest rate—ideal if you plan long-term ownership.

Be My Neighbor Mortgage, LLC (NMLS #1743790) | Equal Housing Lender. This isn't a commitment to lend. All loans subject to credit and underwriting approval. Rates and terms may change.