Yes, the VA loan funding charge can be added to your balance on purchases and refinances, increasing the total amount you borrow.
What The Funding Charge Is And How It Works
The funding charge is a one-time cost tied to most VA-backed mortgages. It helps keep the program self-sustaining so qualified borrowers can use zero-down financing without monthly mortgage insurance. The percentage you pay depends on service category, down payment, and whether this is your first time or a subsequent use of entitlement. Borrowers who qualify for an exemption pay nothing.
You can cover this cost in multiple ways. The most common: add it to the loan, bring cash to closing, request seller help within program limits, or accept a lender credit that offsets part of the fee. The right path depends on cash reserves, time horizon, and market leverage.
Finance Options At A Glance
| Method | What It Means | Best When |
|---|---|---|
| Roll Into Loan | The charge is added to principal at closing. | You want to keep cash for reserves or repairs. |
| Pay In Cash | You bring the full amount to the table. | You prefer the lowest monthly payment from day one. |
| Seller Concessions | Seller covers it as part of allowable concessions. | You have room under the 4% cap and the market favors buyers. |
| Lender Credit | A slightly higher rate funds a credit to offset costs. | You expect to keep the loan a short stretch and value upfront savings. |
Why Adding It To The Balance Is Common
When you roll this charge into the loan, the principal rises above the home price or payoff figure. VA rules allow the amount financed to exceed the property’s reasonable value by the exact fee. That means your combined loan-to-value can sit above 100% without any monthly mortgage insurance. The trade-off is simple: a higher balance and a slightly higher payment.
Purchase Loans Versus Refinances
Purchase
On a home purchase, you can add the charge to the balance, pay it at closing, or use seller help and lender credits if available. If you put money down, the percentage often drops, which shrinks the amount you roll in or the cash you bring.
Streamlined Refinance (IRRRL)
A rate-reduction refi of an existing VA loan. Appraisal is often waived. The percentage tied to this product is the smallest among common VA options, and most borrowers add it to the new balance along with allowable costs.
Cash-Out Refinance
This replaces any existing loan with a new VA loan and lets you draw equity. You can include the charge in the new principal. Expect a full underwrite and an appraisal. The percentage used here differs from purchase and IRRRL tables.
Can You Roll The VA Loan Funding Charge Into The Mortgage? Rules
Yes, adding the charge to the balance is allowed on purchases and refis. The amount tacked on equals what appears on the Closing Disclosure. If you make a down payment, the percentage often drops, trimming the portion you add to principal. Since this cost is a closing fee, seller concessions can cover it within the 4% ceiling on purchases. Public VA pages summarize payment choices, and the lender handbook spells out which fees can be included in the loan amount and how seller concessions work.
What Financing The Charge Changes In Your Numbers
Monthly Payment
A bigger principal leads to a larger payment. The bump depends on loan size, the fee percentage tied to your scenario, and your interest rate.
Total Interest Over Time
Since the charge becomes part of principal, you pay interest on it for as long as you keep the loan. A short hold makes the extra interest small; a long hold magnifies it.
Cash Versus Comfort
If you can pay at closing without draining reserves, that keeps monthly costs lower. If you value a cushion, rolling it in can be the better trade. Many borrowers blend methods: bring a modest down payment to drop the percentage, then add the remainder to principal.
Walkthrough With Simple Scenarios
Take a buyer using zero down on a $350,000 home with a first-use percentage. Adding the charge lifts the new principal above the price. If that buyer instead brings 5%, the percentage falls and the financed portion shrinks. With repeat use, the percentage changes again. IRRRL scenarios carry a smaller percentage. Cash-out cases use a different table and require a full review.
Seller Concessions And The 4% Cap
Program rules allow sellers to cover specific items for the buyer, and this charge is one of them, subject to a 4% ceiling measured against the price. That limit applies to concessions beyond standard closing costs. In a competitive market, getting this coverage can be tough; in a buyer-friendly stretch, it’s common. Ask your agent to shape the offer so the total concession package stays under the cap.
Lender Credits And Rate Trade-Offs
A lender can offset part or all of this expense by offering a credit funded by a slightly higher rate. This approach makes sense when you expect to refinance or sell sooner rather than later. Over a long span, the extra interest tends to outpace the credit.
Who Never Pays It
Many borrowers are exempt. That includes Veterans with a qualifying service-connected disability, eligible surviving spouses, and certain active-duty members awarded a Purple Heart by closing. Your lender checks the Certificate of Eligibility and VA systems to confirm status. If an exemption is confirmed after closing, the charge can be refunded.
Proof And Timing For Exempt Status
Your lender relies on your current award letter or the exemption flag on your COE. If the record updates mid-process, the file and Closing Disclosure are revised to remove the line item. When the exemption shows up post-closing, the lender files for a refund.
Table: Common Scenarios And Whether You Can Add The Charge
| Scenario | Can Add To Balance? | Notes |
|---|---|---|
| Purchase, first use, no down payment | Yes | Balance rises above price by the charge amount. |
| Purchase with ≥5% down | Yes | Lower percentage trims what you add to principal. |
| IRRRL (streamlined refi) | Yes | Usually the smallest percentage; often fully financed. |
| Cash-out refinance | Yes | Full appraisal and underwrite; different table applies. |
| Exempt borrower | N/A | No charge is collected or financed. |
Pros And Cons Of Rolling It In
Pros
- Preserves cash for emergencies, moving, or repairs.
- Keeps the process simple since it’s wrapped into principal.
- Pairs well with zero-down buying power.
Cons
- Higher monthly payment and total interest.
- Larger balance if you sell early, which can affect net proceeds.
- Rate-driven credits can cost more over long holds.
How To Decide: A Five-Step Check
- Ask the lender to price three setups: pay cash, finance it all, and use a partial credit.
- Request a side-by-side with the same lock period so the quotes match.
- Compare the payment change and the five-year cost, not just the monthly line.
- Verify any seller-paid amount sits under the 4% concession cap.
- Confirm exemption status early so the file is set up correctly.
What You’ll See On The Closing Disclosure
The line item appears in the cash-to-close section. If it’s rolled in, the Loan Amount line reflects the higher number. If the seller pays it, you’ll see a credit applied to you. If you’re exempt, the line is removed.
Down Payment Size And Percentage Breaks
A 5% down payment usually triggers a lower percentage on purchases. At 10% down, the percentage drops again. Those breaks can move the needle in two ways: reduce what you add to the balance, or reduce the cash you need if you still choose to pay at closing.
Refi Paths: What Changes Between IRRRL And Cash-Out
IRRRL
This is a streamlined rate-reduction for an existing VA loan. The percentage tied to the product is small, and allowable costs can be folded in. Many borrowers choose to include the entire figure in the new balance.
Cash-Out
This product lets you tap equity while moving into a new VA loan. You can add the charge to principal. The percentage attached to this path differs from the streamlined version and you’ll need a full appraisal and income review.
Edge Cases Worth Knowing
- Builder incentives: The charge can be covered as a concession if the package fits under 4%.
- Energy upgrades: Costs for approved improvements can be added in some cases; the charge can still be financed.
- Large loan amounts: VA entitlement has no set loan limit, yet lenders use overlays. Rolling the charge in remains standard if the file meets residual-income and underwriting rules.
Tax Angle
In some tax years, federal law has treated this charge similar to a mortgage insurance premium for deduction purposes. That treatment shifts with legislation. Ask a qualified tax pro about current-year rules before you file.
Documents Lenders Use
Loan officers rely on the VA lender handbook and current circulars for day-to-day guidance, while the public VA page outlines payment choices and current tables in plain language. If you’d like to read the source material, your officer can point you to the exact chapter used for your quote.
Second Table: Who Doesn’t Owe The Charge And Proof Needed
| Exemption Type | Who Qualifies | Proof |
|---|---|---|
| Service-connected disability | Veteran with a qualifying disability rating | COE shows exempt status or current award letter |
| Eligible surviving spouse | Unremarried spouse of a Veteran who died in service or from a service-connected cause | COE for surviving spouse |
| Purple Heart on active duty | Active-duty member awarded a Purple Heart by closing | Military orders or VA system record |
Practical Tips To Keep Costs Down
- If you can swing a modest down payment, check how much the percentage drops and whether that saves more than holding the cash.
- Shop at least two lenders the same day and ask each for a no-points, low-cost quote with and without a credit.
- In a buyer-friendly market, ask your agent to request that the seller cover this cost within the concession cap.
- If you served and believe you’re exempt, push for a COE update early so no charge is collected by mistake.
- Keep copies of the Closing Disclosure and COE in case a later refund is needed.
Common Myths, Debunked
“My payment will skyrocket if I add the charge.” The change is usually modest relative to the whole payment, especially at typical loan sizes.
“Seller help can’t cover this line item.” It can, as part of allowable concessions, so long as the total package stays under 4% of the price.
“You must keep the loan for decades for rolling it in to make sense.” The choice hinges on cash on hand and your time horizon. A short hold can still favor adding it to principal.
Bottom Line
You can add this charge to the balance on purchases and refinances. It raises principal but keeps upfront cash low. If you’re exempt, you pay nothing. If not, weigh cash needs, time horizon, and market leverage, then pick the route that fits your plan.
Helpful references: VA’s page on funding fees and closing costs, and the VA lender handbook chapter that defines what can be included in the loan and seller concessions.