VA loans are mortgages granted to veterans, service members on active duty, members of national guards, reservists, or surviving spouses, guaranteed by the U.S. Department of Veterans Affairs (VA). As long as the person was given a DD 214 document, which proves honorable discharge on good terms, they may qualify. VA loans are intended to help growing populations of homeless veterans in the U.S. find affordable houses. VA loans make up a small portion of all mortgages in the U.S. due to the specific demographic who qualify, but studies have shown that they have the lowest foreclosure rates of all loans.
VA Funding Fee
A VA funding fee is a one-time payment that borrowers typically pay as part of acquiring a VA loan. The fee is a percentage of the loan amount that varies from 0% to 3.3% depending on factors such as the down payment amount, veteran's military experience, type of home, and loan purpose. It is the fee that goes towards the upkeep of the program and is used in the case that a borrower defaults.
For applicants with 10% or more service-related disability (or their surviving spouse), the fee is waived.
The VA funding fee can be financed into the loan amount. All other fees must be paid in cash at closing after negotiations to determine whether the buyers or sellers are responsible for them.
Below is a chart that shows the standard VA funding fee structure:
Down Payment
First Time Use
Second and Subsequent Use
<5%
2.15%
3.3%
5-10%
1.5%
1.5%
≥10%
1.25%
1.25%
There are also other VA Funding Fee rates for different scenarios:
Interest Rate Reduction Refinancing Loans: 0.50% Also called IRRRL, they can be used to lower interest rates by refinancing existing VA loans. It is also possible to refinance adjustable-rate mortgages (ARM) into fixed-rate mortgages.
Assumptions: 0.50% A loan assumption allows a third party to step in and take over the remainder of the loan without a new mortgage. Note that the assumer does not have to be a veteran, just as long as they are approved by the lender.
Manufactured Home Loans (Not Permanently Affixed): 1.00% Manufactured homes, or mobile homes that are not permanently affixed, have a fixed rate of 1.00%.
Other Common Fees Paid at Closing
Aside from the VA funding fee, borrowers will most likely need to pay some closing fees:
Loan Origination Fee—Used to cover administrative costs for processing of VA loans.
Loan Discount Points—Charged in order to receive interest rates lower than current market rates. Two discount points (2%), or less, is considered to be reasonable. Discount points may be paid by either the buyer or seller.
Credit Report—This fee is paid to credit agencies to evaluate the credit history of a potential borrower. It may not be refunded, even if the loan never closes.
Appraisal Fee—Appraisals are formal statements of property value to determine maximum loan amounts obtained without a down payment. Non-refundable even if loan never closes.
Hazard Insurance and Real Estate Taxes—Necessary to insure payment of taxes and insurance during the first year.
Title Insurance—Used to verify there are no outstanding liens against the property.
Recording Fee—Used to record deed on county records.
Certain fees are normally not paid by buyers. These include brokerage fees, real estate commissions, and title insurance.
Pros and Cons of VA Loans
Like any financial product, VA loans have pros and cons.
Pros
What sets a VA loan apart is the absence of a down‑payment requirement. Only a few other loan programs—namely Navy Federal Credit Union and USDA loans—offer the same benefit. By contrast, conventional mortgages typically demand at least a 5 % down payment, and FHA loans need a minimum of 3.5 %.
There is no mortgage insurance involved, relieving VA loan borrowers of a big expense.
Both parties may bargain over who covers closing costs. A seller can agree to shoulder part or even the entire amount, capped at 4 % of the loan balance, but there is no legal requirement for them to do so.
VA loans can be used for purchases or refinance on existing loans, and qualified applicants need not be first-time buyers and can reuse their benefits.
Typically, both the interest rates and closing costs are slightly lower than other mortgages.
Because property appraisals are done by the VA, homebuyers are given some peace of mind that they probably will not overpay for a certain home.
Cons
Only applicants given DD 214 documents can qualify for VA loans.
The VA funding fee can be expensive for those not exempted.
VA loans cannot cover projected home improvements, so no fixer-upper homes.
Many lenders and sellers are inexperienced with VA borrowers, as these transactions are less common than other loan types. Consequently, misinformation and knowledge gaps often arise. It’s advisable to work with real‑estate professionals or lenders who specialize in VA financing, though the pool of such specialists may be limited.
VA loans can only be used on primary residences (owner-occupied homes only), not investment properties or empty land.
Relative to other loans, a lot of paperwork must be done at closing for VA loans.
Weighing the advantages against the drawbacks, qualified applicants usually find VA loans to be the most attractive choice—especially if they qualify for a waived funding fee or can afford a minimal down payment. When comparing alternatives, ensure that the savings and benefits of the VA loan exceed the cost of its funding fee.
Prepayment
Paying extra toward the principal can accelerate repayment and lower total interest costs. Our calculator’s "Extra Payments" field lets you model monthly, annual, or one‑time contributions and see the projected savings in both interest and loan duration. Keep in mind that prepaying isn’t suitable for every borrower; assess your cash flow before committing to additional payments.
VA‑guaranteed mortgages impose no penalties for early repayment. As stipulated in Title 38 of the Code of Federal Regulations, borrowers may prepay any amount—down to a single installment or $100, whichever is lower—without incurring fees.
House Affordability
Use our House Affordability Calculator to estimate how much home you can afford with a VA loan. Select “VA Loan” from the Debt‑to‑Income (DTI) ratio dropdown to tailor the results.
VA lenders often look at the debt‑to‑income ratio as an initial risk indicator, but if a borrower falls short, they may still consider other strengths—such as a solid employment record or a history of on‑time credit payments—before rejecting the application.
