How Much a Down Payment Saves on a VA Loan Funding Fee

The Quick Read: A down payment lowers the VA funding fee in two ways. It moves you into a lower fee percentage at 5% and again at 10%, and it shrinks the loan the percentage is applied to. The biggest drop belongs to repeat users, whose fee falls from 3.3% to 1.5% at 5% down. Veterans exempt from the fee save nothing on it, and extra cash beyond 10% down stops lowering the fee percentage. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

Most of what you read online about this topic comes from fee charts, and some of those charts are stale. This article walks through how the fee is set, how a down payment changes it, where the general rule breaks, and how to decide whether putting money down makes sense for your file. Everything here is plain mechanics. Every program figure is subject to lender guidelines and full file review, and nothing here is a commitment to lend.

What the VA Funding Fee Is

The funding fee is a one-time charge paid to the VA, not to the lender. It helps cover the cost of running the program. It is also the reason a VA loan carries no monthly mortgage insurance.

Two things matter about how it is handled. First, you can pay it in cash at closing or roll it into the loan. The VA Lenders Handbook, Chapter 8 states that the loan amount may include the funding fee. Second, when the fee is financed, the percentage is applied to the loan amount before the fee is added. The fee does not charge itself on itself.

VA loans through the wholesale programs Lendmire places files with offer 100% financing with no mortgage insurance. There is no VA loan limit when you have full entitlement. If you have remaining entitlement from an earlier VA loan, a down payment may be required, and that is a conversation for a loan officer, not a chart.

The Fee Tiers, Laid Out

The current schedule for purchase loans is set out in VA Circular 26-23-06, Exhibit B. It applies to loans closing on or after April 7, 2023, and before November 14, 2031.

Read the table by row, not by column. The first-use and subsequent-use columns only differ in the bottom-tier row. Once you put 5% down, a repeat user pays the same fee percentage as a first-time user. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

Two details trip people up. The thresholds say “5% or more” and “10% or more,” so an exact 5% or an exact 10% qualifies for the better tier. And congress can change the schedule, which is why the end date matters. Check any chart you find against the VA’s own circular.

Beware the Old Chart

An earlier schedule ran higher: 2.3%, 1.65% and 1.4% for first use, and 3.6% for subsequent use with under 5% down. That is the old Exhibit A schedule, and it stopped applying to loans closing on April 7, 2023. If a page shows those numbers, it is out of date. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

How a Down Payment Saves Money Twice

The savings come from two separate effects, and most explanations only mention one.

Effect one: a lower percentage. Moving from under 5% down to 5% down drops a first-use fee from 2.15% to 1.5%. That is a 0.65 percentage point cut. Moving from 5% to 10% down drops it a further 0.25 points to 1.25%. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

Effect two: a smaller base. The percentage is applied to the loan amount. A down payment reduces the loan amount. So the lower percentage lands on a smaller number.

Put together, a buyer who goes from zero down to 5% down gets a lower fee percentage applied to a smaller loan. The fee falls on both counts. You can see this with any price: take the price, multiply by the loan share, then apply the fee percentage. Run it once at zero down and once at 5% down, and the gap is wider than the percentage change alone suggests. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

There is a third, smaller effect when the fee is financed. A smaller financed fee means a smaller balance, so a little less interest accrues on it over the life of the loan. It is modest, but it points the same direction.

How the Down Payment Percentage Is Measured

The handbook’s fee-table steps tell lenders to calculate what percentage of the property’s sales price the veteran is putting down. So the tier is based on the down payment divided by the sales price.

Practical consequences:

1. The tier depends on price, not on a dollar amount. The cash needed to hit 5% scales with the home price. Work out 5% of your contract price, not a number from a blog post.

2. Falling just short counts as falling short. At 4.9% down you are in the top-fee tier. If you are close to a threshold, a small extra amount of cash can change the entire fee percentage.

3. Confirm what counts. Ask your loan officer which funds are credited toward the down payment on your file before you count on a tier. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

The Appraisal Wrinkle

VA loans generally allow no down payment unless the lender requires one or the price is above the reasonable value set by the VA appraiser. If the appraisal comes in under the price and you bring cash to cover the gap, that cash fills a shortfall. It is not necessarily a down payment that moves you up a fee tier. Rules on this can be nuanced, so confirm with your loan officer how that cash is treated on your file.

Who Saves the Most

Repeat users gain the most. A subsequent-use borrower with less than 5% down faces a 3.3% fee. At 5% down, that drops to 1.5%. That is a 1.8 point swing, against 0.65 points for a first-time buyer making the same move. If you have used your VA benefit before and are buying again, the first 5% of cash is the most valuable cash in the file. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

First-time users get a smaller but still real benefit, and the step from 5% to 10% is smaller still: a 0.25 point cut for both groups. That last tier is worth less per dollar than the first.

The saving also stops at 10%. The tiers end there. Put 20% down and the fee percentage is the same as at 10%. Extra cash only shrinks the loan balance. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

Where the General Rule Breaks

A down payment does not help in several situations. These are the edge cases that catch people.

Exempt veterans. Veterans receiving VA compensation for a service-connected disability do not pay the fee. Other exempt groups are listed in the VA Buyer’s Guide. For an exempt borrower, a down payment saves nothing on the fee. Exemption status should show on the Certificate of Eligibility before closing. A disabled veteran does not pay a “reduced” fee. They pay none.

Cash-out refinances. There are no down payment tiers on a cash-out. The fee is 2.15% for first use and 3.3% for subsequent use, no matter how much equity you keep. Leaving more equity in the house does not lower it. The same logic applies to the VA cash-out’s ability to reach 100% of the appraised value including the financed fee: the equity you retain does not work like a down payment.

IRRRLs. The streamline refinance carries a flat 0.5% fee unless you are exempt. No tiers apply. It requires a net tangible benefit and seasoning, the later of 210 days from the first payment and the sixth payment, and it needs no VA appraisal.

When someone else pays. The fee can be paid by the seller, the lender or another party on the borrower’s behalf. If a seller pays your fee, the fee savings from a down payment matter less to you.

Occupancy. VA loans are for primary residences. This article covers owner-occupied purchases only.

Pay the Fee in Cash or Finance It

Paying in cash keeps the loan balance lower. Financing keeps cash in your pocket but adds to the balance. Financing the fee raises the principal and interest component of the monthly payment modestly.

Here is the tradeoff in practice. A buyer with 5% saved has a choice. They can put that 5% down, drop to the 1.5% fee, and finance a smaller loan. Or they can keep the 5% as reserves, take the higher fee, and finance both a bigger loan and a bigger fee. The first path costs more cash now and less over time. The second keeps a cushion for repairs, moving costs and emergencies. Neither is wrong. They answer different problems. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

Skipping a down payment lets buyers use those savings to build an emergency fund or cover household expenses. On the other hand, a down payment can lower both the monthly payment and the outstanding loan amount. Both statements are true. The decision turns on how much cash cushion you need after closing.

Does Putting Money Down Pay Off? A Decision Guide

This is how I would walk through it with a borrower. It is not advice for any specific file.

The question that decides most files is break-even. Take the extra cash needed to reach the next tier. Compare it to the fee dollars the tier saves, plus the smaller loan balance. Reaching 5% down is usually the best return per dollar, because it triggers the largest percentage drop. Reaching 10% returns less per dollar. Do the arithmetic with your actual price. Quoting a dollar figure from a lender’s marketing calculator will not help you, because it will not match your contract.

I would also weigh one honest toss-up. A buyer with plenty of cash may find the fee savings real but small compared with what that cash could do elsewhere. A buyer whose cash is thin may find that even a good fee saving isn’t worth draining reserves. I make no claim about what the cash could earn elsewhere, because that depends on the person.

Common Mistakes

Across the VA files that cross my desk, the same errors repeat.

1. Assuming VA requires a down payment. It does not. Putting money down is optional.

2. Quoting the old fee chart. The 2.3% and 3.6% figures are from a schedule that no longer applies.

3. Confusing down payment with closing costs. They are separate. Closing costs do not move you up a fee tier.

4. Missing a tier by a small margin. A few hundred dollars short of 5% can cost the whole tier.

5. Assuming an exempt borrower has a fee to negotiate. An exempt borrower is not charged the fee.

6. Treating the fee as a lender charge. It goes to the VA. Lenders remit it through the VA’s Funding Fee Payment System after closing.

7. Expecting equity to cut a cash-out fee. It will not.

Read your Loan Estimate and your Closing Disclosure side by side. The funding fee should appear in both, and the figures should match your tier.

Key Terms Defined

Funding fee: a one-time charge paid to the VA on most VA loans, which can be paid in cash or financed.

First use: the first time a veteran uses the VA home loan benefit.

Subsequent use: any later use of the benefit, which carries a higher fee when the down payment is under 5%.

Certificate of Eligibility (COE): the VA document that confirms eligibility and shows fee exemption status.

Entitlement: the amount of the VA guaranty available to a veteran; full entitlement means no VA loan limit.

Residual income: what is left of monthly income after major obligations and living costs, and the controlling test in VA underwriting.

How This Fits the Rest of the VA File

The fee is one piece of the file. Underwriting centers on residual income. The 41% debt-to-income figure is a guideline, not a cap, and a higher ratio needs residual income well above the table. The wholesale programs Lendmire works with start at a 580 decision score. Eligibility comes from the COE, and service requirements are the VA’s rules.

Lendmire’s overview of its VA loan programs covers the product as a whole.

If you are buying a home and want to see whether a VA loan fits your file, Lendmire can help you compare the options and what each one asks of the file.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. VA Lenders Handbook (Pamphlet 26-7), Chapter 8

2. VA Circular 26-23-06, Exhibit B (current loan fee rates)

3. VA Circular 26-23-06, Exhibit A (prior fee rates)

4. VA Home Loan Guaranty Buyer’s Guide