IRRRL Funding Fee Rate

The VA charges the funding fee to help defray the costs of administering the VA Home Loan program and to protect the loan guaranty fund against losses. Since VA loans generally require no down payment and prohibit monthly private mortgage insurance (PMI), the government assumes significant risk. The funding fee lowers the cost of the loan for U.S. taxpayers by ensuring that the program remains financially sustainable. Even for an IRRRL, where the borrower is re-using entitlement, the 0.5% fee contributes to the solvency of the guaranty fund for future Veterans.

Yes, the lender is allowed to pay the VA funding fee on your behalf. In an IRRRL transaction, the lender may agree to cover various closing costs, including the funding fee, often by adjusting the interest rate to provide a lender credit. As long as the correct fee amount is remitted to the VA, it is permissible for the funds to come from the lender rather than the borrower. However, most borrowers choose to finance the fee into the loan balance rather than having the lender pay it or paying it in cash.

Yes, active duty Servicemembers generally must pay the funding fee unless they qualify for a specific exemption. Being on active duty does not automatically exempt a borrower from the charge. However, a Servicemember may be exempt if they have a pre-discharge claim pending and have been rated eligible to receive compensation as a result of a pre-discharge examination. If not exempt, the standard 0.5% IRRRL rate applies. If a Servicemember pays the fee and is later awarded a retroactive disability rating dating back to the loan closing, they may apply for a refund.

The 0.5% funding fee is calculated based on the total loan amount of your new IRRRL. To determine this amount, the lender takes your existing VA loan balance and adds allowable closing costs, fees, and up to two discount points. You may also include up to $6,000 for energy efficiency improvements. The 0.5% rate is applied to this adjusted total. For example, if your new loan amount including all costs is $200,000, the funding fee would be $1,000. This fee can then be added to the loan balance, resulting in a total debt of $201,000.

No, making a down payment on an IRRRL does not reduce the funding fee percentage. While VA purchase loans offer tiered funding fee rates that decrease when a borrower makes a down payment of 5% or 10% or more, these reduced rates do not apply to refinance loans. The IRRRL funding fee remains a flat 0.5% regardless of the amount of equity you have in the home or the amount of cash you pay down at closing. The fee is calculated strictly on the total loan amount.

Yes, specific borrowers are legally exempt from paying the funding fee. You are exempt if you receive VA compensation for a service-connected disability, or if you would be entitled to receive such compensation if you were not receiving retirement pay. Surviving spouses of Veterans who died in service or from a service-connected disability are also exempt. Additionally, active duty Servicemembers who have been rated eligible for compensation based on a pre-discharge examination do not have to pay the fee. Your lender verifies this status using your Certificate of Eligibility (COE) or VA confirmation.

There is a substantial difference in cost between an IRRRL and a Cash-Out Refinance. The IRRRL carries a significantly lower funding fee of 0.5%, whereas a Cash-Out Refinance is subject to the same higher fee structure as purchase loans. For a Cash-Out Refinance, the fee is generally 2.3% for first-time users and 3.6% for subsequent users. This difference exists because Cash-Out loans allow borrowers to withdraw equity, which carries higher risk, while IRRRLs are strictly for lowering rates or changing terms on an existing VA loan without extracting cash.

Yes, you are permitted to finance the VA funding fee into the new loan amount. While the fee helps lower the cost of the loan for U.S. taxpayers, the VA does not require you to pay it in cash at the closing table,. Instead, you may choose to include the fee in the total principal balance of the new refinance loan,. If you choose this option, the fee is added on top of your existing loan balance, allowable closing costs, and energy efficiency improvements, allowing you to close the loan with minimal upfront expense.

No, the funding fee for an IRRRL does not increase based on your history with VA loans. For standard purchase loans and Cash-Out Refinances, the VA charges a higher “subsequent use” fee (typically 3.6%) to borrowers who have used their entitlement previously,. However, the IRRRL is an exception to this rule. The funding fee remains fixed at 0.5% for both first-time users and subsequent users,. This ensures that Veterans are not penalized with higher government fees when they attempt to refinance their existing VA loan to obtain a more affordable interest rate.

The funding fee for an Interest Rate Reduction Refinance Loan (IRRRL) is currently set at a flat rate of 0.5% of the total loan amount,. Unlike purchase loans or Cash-Out Refinances, which have variable rates depending on your down payment or prior use of the benefit, the IRRRL rate is static. This reduced rate reflects the nature of the IRRRL as a “streamline” refinance designed to lower your interest rate or stabilize your payments with reduced documentation,. This fee applies regardless of whether you served in the regular military, Reserves, or National Guard.