If you are using your VA home loan benefits for the first time, chances are good that you’re learning about how the VA loan funding fee works. The VA loan funding fee is a required part of most VA mortgage loan transactions (with certain exceptions) and the amount of that fee is based on a set of variables that includes whether a borrower is a first-time VA borrower, whether he or she is exempt from the funding fee (more on that below), and the amount of the borrower’s down payment.

The VA official site says of the VA loan funding fee, “The VA funding fee is required by law. The fee is intended to enable the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduce the cost to taxpayers.”

VA loan funding fees are higher for those using their VA loan benefit a second time, and that fee is slightly higher for those who do not make a down payment. “The idea of a higher fee for second time use is based on the fact that these veterans have already had a chance to use the benefit once, and also that prior users have had time to accumulate equity or save money towards a down payment.”

The VA loan funding fee is reduced depending on whether or not you make a down payment and how much that down payment is:

“First and second time users who make a down payment of at least 5 percent pay a reduced funding fee of 1.5 percent, the same as first time users making the same down payment. For a 10 percent down payment, the fee drops to 1.25 percent. The effect of the funding fee on a veteran’s financial situation is minimized since the fee may be financed in the loan.”

The amount of your VA loan funding fee is also affected depending on the nature of your military service. “National Guard and Reservist veterans pay a slightly higher funding fee percentage” according to the VA official site.

Some borrowers pay no VA loan funding fee at all. This is because they have been officially recognized by the Department of Veterans Affairs as having service-connected disabilities or medical issues and are eligible to receive (or are currently receiving) VA benefits. This exemption is not automatic and must be applied for-discuss your situation with your loan officer if you feel you may be exempt from having to pay the VA loan funding fee.