How a VA loan works
A VA loan is a mortgage from a private lender that the US Department of Veterans Affairs partly guarantees. That guarantee lets eligible veterans, service members and some surviving spouses buy with no down payment and no monthly mortgage insurance. In place of mortgage insurance, most borrowers pay a one-time VA funding fee, which keeps the program running for future borrowers.
The calculator above works out that fee from the official table, adds it to the loan if you choose, and builds your monthly payment with property tax, insurance and HOA dues. It also covers the two most common VA refinances: the cash-out refinance and the IRRRL (streamline).
The VA payment formula
Funding fee = base loan × fee rate
Loan = base loan + funding fee (when financed)
M = Loan × r ÷ (1 − (1 + r)^−n), r = yearly rate ÷ 12, n = months
Monthly payment = M + property tax + insurance + HOA
There is no PMI or MIP line, which is the main reason a VA loan usually has the lowest payment of any low-down-payment option.
VA funding fee table
These rates apply to VA loans closed on or after April 7, 2023, as published by the VA.
Purchase and construction loans
| Down payment | First use | Subsequent use |
|---|---|---|
| Less than 5% | 2.15% | 3.3% |
| 5% to less than 10% | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
Other VA loans
| Loan type | Fee |
|---|---|
| Cash-out refinance, first use | 2.15% |
| Cash-out refinance, subsequent use | 3.3% |
| Interest Rate Reduction Refinance Loan (IRRRL) | 0.5% |
| Manufactured home (not permanently affixed) | 1% |
| Loan assumption | 0.5% |
“Subsequent use” means you have used your VA home loan benefit before. If you are exempt, the fee is zero whatever the loan type.
Worked example 1: zero down on a $400,000 home
A first-time VA borrower buys a $400,000 home with nothing down at 6% for 30 years. Property tax is 1% a year and insurance is $1,600 a year.
- Funding fee = $400,000 × 2.15% = $8,600, financed, so the loan is $408,600
- Principal and interest = $2,449.76 a month
- Tax $333.33 + insurance $133.33 makes the payment $2,916.43
- Cash needed for the down payment and fee: $0 (closing costs are separate)
Put 5% down ($20,000) and the fee drops to 1.5%, or $5,700. The loan falls to $385,700 and principal and interest to $2,312.47, about $137 a month less.
Worked example 2: using the benefit a second time
The same $400,000 home, zero down, but the buyer has used a VA loan before. The fee jumps to 3.3%:
- Funding fee = $13,200, loan $413,200
- Principal and interest = $2,477.34 a month
- Total interest over 30 years: $478,643.40
If the buyer pays the $13,200 fee in cash instead, the payment drops to $2,398.20 and they avoid $15,290.64 of interest charged on the financed fee over the full term. That is the trade-off: financing keeps cash in your pocket today but costs more over time.
Worked example 3: an IRRRL to cut the rate
A veteran owes $300,000 at 7%. Over a fresh 30 years that balance would cost $1,995.91 a month in principal and interest. An IRRRL at 5.5%:
- Funding fee = $300,000 × 0.5% = $1,500, financed, new loan $301,500
- New principal and interest = $1,711.88, about $284 a month less
Before you refinance, check how long it takes the monthly savings to cover closing costs. The refinance calculator shows the break-even month and the lifetime savings.
Who does not pay the funding fee
According to the VA, you do not pay the funding fee if any of these are true:
- You receive VA compensation for a service-connected disability.
- You are eligible for that compensation but receive retirement or active-duty pay instead.
- You are a surviving spouse who receives Dependency and Indemnity Compensation.
- You are a service member with a proposed or memorandum rating of disability before closing.
- You are on active duty and received the Purple Heart.
Your Certificate of Eligibility states whether you are exempt. If you later receive a disability rating effective before your closing date, you may be able to get the fee refunded.
Who can get a VA loan
Eligibility depends on your service, not your income. In broad terms, the VA lists these groups:
- Veterans who meet minimum active-duty service requirements (for example, 90 continuous days in wartime or 181 days in peacetime for many service periods) and were not dishonorably discharged.
- Current service members after a minimum period of active duty.
- National Guard and Reserve members with the required service, including six creditable years for many members.
- Some surviving spouses of veterans who died in service or from a service-connected disability.
You prove eligibility with a Certificate of Eligibility (COE), which most lenders can request for you online. Lenders still check your credit, income and debts, and the home must meet VA minimum property standards and be your primary residence.
VA loan vs FHA vs conventional
| Feature | VA | FHA | Conventional |
|---|---|---|---|
| Minimum down payment | 0% | 3.5% | 3% to 5% |
| Monthly mortgage insurance | None | 0.15% to 0.75% a year | PMI if under 20% down |
| Upfront fee | Funding fee 0.5% to 3.3% (or exempt) | 1.75% UFMIP | None |
| Who can use it | Eligible veterans, service members, some spouses | Anyone who qualifies | Anyone who qualifies |
| Typical DTI guideline | 41% (with residual income test) | 43% | 36% to 45% |
Run the same home through the FHA loan calculator and the mortgage calculator to see the difference in dollars.
Tips
- Get your Certificate of Eligibility early. It confirms your entitlement and your funding fee status, and lenders need it.
- A 5% down payment is a sweet spot if you have the cash: it cuts the first-use fee by 0.65% of the loan and lowers the balance you pay interest on.
- Budget for closing costs. The VA limits some fees lenders can charge you, but you still pay for things like the appraisal, title and prepaid taxes. Sellers may pay some of them.
- Lenders check residual income. Besides the 41% debt-to-income guideline, VA lenders make sure enough money is left each month for living costs. See where you stand with the debt-to-income ratio calculator.
- Not sure what price to target? The house affordability calculator has a VA preset.
Common mistakes
- Using the wrong fee row. Subsequent use costs 3.3% only with less than 5% down. With 5% or more down, first and subsequent use cost the same.
- Forgetting the fee is on the loan, not the price. With a down payment, the fee applies to the smaller loan amount.
- Assuming VA means no closing costs. Zero down does not mean zero cash. Ask your lender for a Loan Estimate.
- Comparing payments without the fee. A financed funding fee adds to every payment for the life of the loan.
The figures here follow the VA’s published funding fee table and are estimates. Your lender’s Loan Estimate is the final word.