A one-time fee on VA and USDA loans that helps fund the loan guarantee program. Typically 2.15% for VA (first-time use) and 1% for USDA. Usually rolled into the loan.
The funding fee is how VA and USDA loans cover the cost of their guarantee programs. Unlike PMI or MIP, it's a one-time fee paid at closing (or financed into the loan), with no monthly mortgage insurance after that.
VA Funding Fee: typically 2.15% for first-time use, 3.3% for subsequent use. Lower if you put money down. Waived entirely for veterans with service-connected disabilities and Purple Heart recipients.
USDA Guarantee Fee: upfront 1.0% of the loan amount, plus an annual fee of 0.35% of the balance paid monthly.
Most borrowers roll the funding fee into the loan rather than paying it cash. It increases your loan balance slightly but is dramatically cheaper than monthly mortgage insurance over the life of the loan.
Example
A first-time VA borrower buys a $400K home with 0% down. VA funding fee of 2.15% = $8,600, rolled into the loan. No monthly mortgage insurance, ever. Total saving vs. an FHA equivalent (with monthly MIP) is often $40K+ over 10 years.
Also known as
VA funding fee, USDA guarantee fee, government loan fee