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    Should You Finance the VA Funding Fee or Pay at Closing?

    Updated: May 26 2026 • 7 min read
    Written by Bennett Leckrone
    Bennett Leckrone

    Written by
    Bennett Leckrone
    Writer / Reviewer / Expert

    Bennett Leckrone is the editorial manager and an analyst for Lower. He specializes in making complicated mortgage topics accessible for consumers. That includes both in-depth product guides and in-depth analysis on what economic moves mean for homebuyers and refinancers. He was previously a business reporter with a focus on higher education and fintech at BestColleges. In that role, he reported on the development of fintech and AI curriculum, as well as the rapidly changing nature of finance education. He also wrote guides to help business students navigate AI and online education. He also reported on state politics at Maryland Matters, with a focus on how policy affected people and businesses. He holds a bachelor of science in journalism degree from Ohio University.
    Reviewed by Neel Patel
    Neel Patel

    Reviewed by
    Neel Patel
    Reviewer

    Neel Patel is a mortgage industry professional with more than a decade of hands-on experience across loan origination, customer experience, sales operations, and strategy. He has worked at every stage of the mortgage lifecycle, from advising individual borrowers to leading teams of loan officers. As an expert reviewer, Neel evaluates mortgage and personal finance content for accuracy, clarity, and real-world applicability. He specializes in ensuring information reflects how lending actually works in practice so consumers can make confident, informed decisions.
    Our Editorial Standards

    Key Takeaways

    • Financing the VA funding fee can reduce the cash you need at closing, but it increases your loan balance and can increase total interest.
    • Paying the funding fee at closing keeps the mortgage balance lower, but it requires more upfront cash.
    • The better choice depends on your cash reserves, monthly payment target, loan timeline, interest rate and whether you qualify for a funding-fee exemption.
    People decide whether or not to finance the VA funding fee.

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    Whether you should finance the VA funding fee or pay it at closing depends on your short-term cash needs and long-term cost goals.

    Financing the fee may make sense if preserving cash is more important than keeping the loan balance as low as possible. Paying it at closing may make sense if you have the cash and want to avoid paying interest on the fee.

    The VA gives borrowers both options. VA.gov says you can pay the VA funding fee at closing or include it in the loan and pay it off over time.

    The funding fee is not the same for everyone. It depends on the loan type, down payment amount, first-use or subsequent-use status and whether you are exempt.

    Financing vs. Paying the VA Funding Fee Basics

    Option How It Works Best Fit Main Trade-Off
    Finance the funding fee The fee is added to the loan balance. Borrowers who want to preserve cash at closing. Higher loan balance and more interest over time.
    Pay the funding fee at closing The fee is paid upfront as part of closing funds. Borrowers with enough cash reserves who want a lower loan balance. More cash needed at closing.
    Use an exemption if eligible The fee is waived for qualifying borrowers. Eligible exempt borrowers. Not available to every VA borrower.

    When Financing the VA Funding Fee May Make Sense

    Financing the VA funding fee may make sense when cash preservation is a priority. Buying a home often comes with moving costs, repairs, furniture, utility setup, emergency savings needs and other expenses beyond the mortgage.

    Financing can also help eligible VA borrowers take advantage of one of the program’s main benefits: buying with limited cash upfront. The trade-off is that the fee becomes part of the loan and can increase monthly payment and total interest.

    You Want To Keep More Cash After Closing

    Keeping cash available after closing can help cover repairs, maintenance and unexpected expenses. If paying the funding fee upfront would leave your reserves too low, financing may be more practical.

    You Expect To Refinance Or Sell Before the Long-Term Interest Cost Adds Up

    If you expect to keep the loan for a shorter period, the added interest from financing the fee may be less important than preserving cash. This depends on the actual rate, fee amount and timeline.

    You Are Using a No-Down-Payment VA Purchase Structure

    Many eligible VA buyers choose the program because it can reduce upfront cash needs. Financing the funding fee can support that structure, but it should still be compared with the higher loan balance.

    When Paying the VA Funding Fee at Closing May Make Sense

    Paying the VA funding fee at closing may make sense if you have enough cash after closing and want to keep the mortgage balance lower.

    Because the fee is not added to the loan, you avoid paying mortgage interest on the fee. This can reduce total interest over the life of the mortgage.

    You Have Strong Cash Reserves

    If paying the fee upfront does not leave you short on emergency savings, repairs or moving costs, paying at closing can reduce borrowing.

    You Plan To Keep the Loan Long Term

    The longer you keep the loan, the more time interest has to accrue on any financed fee. Paying upfront can be more attractive when you expect to keep the loan for many years.

    You Want the Lowest Possible Loan Balance

    Paying the fee at closing keeps the loan amount lower. That can slightly reduce the monthly payment and preserve more equity from the start.

    Example: Financing the VA Funding Fee vs. Paying Upfront

    Assume a borrower is buying a $400,000 home with no down payment and a first-use VA funding fee of 2.15%. The funding fee would be $8,600.

    Option Cash Needed For Funding Fee At Closing Starting Loan Balance Trade-Off
    Finance the fee $0 for the funding fee $408,600 Less cash due upfront, higher loan balance.
    Pay at closing $8,600 $400,000 More cash due upfront, lower loan balance.

    This example is for educational purposes only. It does not include other closing costs, prepaid items, seller credits, lender credits, taxes, insurance or interest.

    How Financing the Funding Fee Affects Monthly Payment

    Financing the funding fee raises the loan amount. A higher loan amount usually means a higher monthly principal and interest payment.

    For example, if financing the funding fee adds $8,600 to the mortgage, the monthly payment increase depends on the interest rate and term. The increase may look small month to month, but it can add up over a long loan term.

    Decision Factor Why It Matters
    Interest Rate A higher rate increases the cost of financing the fee.
    Loan Term A longer term spreads the cost out but may increase total interest.
    Time In the Loan The longer you keep the loan, the more relevant total interest becomes.
    Cash Reserves Paying upfront may not be worth it if it leaves too little cash after closing.

    Check Whether You Are Exempt Before Deciding

    Before deciding whether to finance or pay the VA funding fee, confirm whether you have to pay it at all. VA.gov lists several exemptions, including certain borrowers receiving VA compensation for a service-connected disability, certain borrowers eligible for compensation but receiving retirement or active-duty pay instead, surviving spouses receiving Dependency and Indemnity Compensation and active-duty Purple Heart recipients who provide evidence before closing. 

    If an exemption applies, the funding fee may be waived. In that case, there may be no funding fee to finance or pay at closing.

    Can the Seller Pay the VA Funding Fee?

    The seller may be able to pay the VA funding fee as part of seller concessions, subject to VA rules and the purchase contract. VA.gov says sellers can pay some or all closing costs and up to 4% of the property’s reasonable value in concessions. It also lists payment of the VA funding fee as a seller concession example. 

    A seller-paid funding fee can reduce the buyer’s cash burden without increasing the loan balance. The availability of seller credits depends on the market, purchase contract, appraised value, loan structure and seller willingness.

    Questions To Ask Before Financing the VA Funding Fee

    1. Am I exempt from the VA funding fee?
    2. How much is the funding fee in dollars?
    3. How much higher will my loan balance be if I finance it?
    4. How much will financing the fee add to my monthly payment?
    5. How long do I expect to keep this mortgage?
    6. Would paying upfront leave me with enough cash after closing?
    7. Can seller credits or lender credits cover part of the cost?

    The Bottom Line

    Financing the VA funding fee can make sense if you want to preserve cash at closing and are comfortable with a higher loan balance. Paying the fee at closing can make sense if you have the cash and want to reduce the loan amount and long-term interest.

    The best choice depends on your cash reserves, loan timeline, interest rate, seller credits, lender credits and exemption status. Before deciding, compare both options on your Loan Estimate and ask the lender to show how each option affects cash to close, monthly payment and total loan amount.

    Frequently Asked Questions

    Should I Finance the VA Funding Fee?

    Financing the VA funding fee may make sense if preserving cash is more important than keeping the loan balance lower. It raises the mortgage balance and may increase total interest.

    Should I Pay the VA Funding Fee at Closing?

    Paying at closing may make sense if you have enough cash reserves and want to avoid paying interest on the fee. It requires more upfront cash but keeps the loan balance lower.

    Does Financing the VA Funding Fee Cost More Over Time?

    It can. When the fee is financed, it becomes part of the mortgage balance. That means you may pay interest on the fee over time.

    How Much Is the VA Funding Fee?

    The amount depends on loan type, down payment, whether it is first use or later use and exemption status. For many purchase loans, VA.gov lists rates from 1.25% to 3.30%, depending on down payment and use status. 

    Is It Better To Roll the VA Funding Fee Into the Loan?

    It depends. Rolling the fee into the loan can preserve cash at closing, but it increases the loan balance. Paying it upfront can reduce long-term borrowing costs, but it requires more cash at closing.

    Can the Seller Pay My VA Funding Fee?

    Yes, the seller may be able to pay the VA funding fee as a seller concession, subject to VA rules and the contract. VA.gov says seller concessions can include payment of the VA funding fee.

    Do Disabled Veterans Pay the VA Funding Fee?

    Some disabled veterans are exempt from the VA funding fee. VA.gov lists exemptions for borrowers receiving VA compensation for a service-connected disability and certain borrowers eligible for compensation but receiving other pay instead.

    Can I Get a Refund If I Paid the VA Funding Fee But Later Qualify for Disability Compensation?

    You may be eligible for a funding fee refund if you paid the fee and later receive VA compensation for a service-connected disability with an effective date before the loan closing date. 

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