The short answer
A $400,000 home with $0 down, 6.25% rate, 30 years, first-time VA use, and the funding fee financed into the loan: funding fee is 2.15% ($8,600), total loan $408,600, monthly principal & interest $2,515.82, and $3,065.82/month with taxes and insurance included. No PMI, no down payment — but $497,095.37 in total interest over the full term.
Key takeaways
- VA loans skip PMI and down payment entirely for qualified borrowers, but nearly all pay a funding fee instead — 2.15% of the loan for first-time use at 0% down in this example.
- Reusing your VA entitlement costs more: the same $400,000, 0%-down loan carries a 3.3% funding fee ($13,200) on subsequent use versus 2.15% ($8,600) the first time — a $4,600 gap.
- Putting even 10% down doesn't just shrink the loan — it also drops the funding fee rate to 1.25%, well below the 2.15% charged at 0% down.
- Financing the funding fee into the loan (the default here) avoids cash due at closing but adds interest on that fee for the full loan term — paying it upfront in cash saves $52.95/month and $10,462.60 in total interest.
How the funding fee is set
| Scenario (regular military) | Fee Rate | Fee on $400,000 Loan |
|---|---|---|
| First-time use, 0% down | 2.15% | $8,600 |
| First-time use, 10%+ down | 1.25% | $4,500* |
| Subsequent use, 0% down | 3.3% | $13,200 |
*Based on a $360,000 loan amount after a $40,000 (10%) down payment.
The VA funding fee replaces both a down payment requirement and monthly mortgage insurance, and it scales with three factors: whether it's your first time using VA loan benefits, how much you put down, and (for a subsequent use) whether any down payment was made at all. Veterans with a service-connected disability rating are typically exempt from the fee entirely — that exemption alone is worth $8,600 in this example. Because the fee is a percentage of the loan amount, any down payment shrinks both the base loan and the rate applied to it, compounding the savings.
Financing the fee vs. paying it upfront
Financed: loan = $400,000 + $8,600 = $408,600 → $2,515.82/mo P&I
Paid upfront: loan = $400,000 → $2,462.87/mo P&I + $8,600 due at closing
Rolling the funding fee into the loan is what makes VA loans genuinely $0-down in practice — you don't need cash for the fee any more than you need cash for a down payment. The trade-off is that the fee then accrues interest for the full 30 years just like the rest of the loan: $52.95 more per month and $10,462.60 more in total interest compared to paying the $8,600 fee in cash at closing. If you have the cash available, paying the fee upfront is the cheaper path over the life of the loan; if preserving cash for moving costs, repairs, or reserves matters more right now, financing it keeps the loan genuinely no-money-down.
Related calculators
- Mortgage Calculator — compare against a conventional loan with PMI.
- FHA Loan Calculator — see another low-down-payment government-backed option.
- Refinance Calculator — model a future VA Interest Rate Reduction Refinance.