How Much Does a Down Payment Lower the VA Funding Fee? The 5% and 10% Tiers, Worked Out
How much does a down payment lower the VA funding fee? More than most buyers expect, and the biggest saving goes to repeat buyers. Put 5% down and the fee drops to 1.5% whether it is your first VA loan or your third. Put 10% down and it drops to 1.25%. The catch is that the fee is charged on the loan amount, not the purchase price, so a down payment shrinks both numbers at once.
How much does a down payment lower the VA funding fee? The tier table
The VA sorts purchase loans into three down payment tiers. Under 5% down, first-time use pays 2.15% and subsequent use pays 3.3%. At 5% to 9.99% down, both pay 1.5%. At 10% or more down, both pay 1.25%. Those are the current VA rate chart figures, and they have held steady for years.
| Down payment | First-use fee | Subsequent-use fee |
|---|---|---|
| Less than 5% | 2.15% | 3.30% |
| 5% to 9.99% | 1.50% | 1.50% |
| 10% or more | 1.25% | 1.25% |
Two details trip people up. First, the fee percentage applies to the base loan amount before the fee itself is added, so financing the fee does not change the tier. Second, a 5% down payment erases the entire penalty for subsequent use. A repeat buyer who puts 5% down pays exactly what a first-timer pays, which is the single best deal in the VA fee schedule.
The $400,000 worked example
Take a $400,000 purchase. With no down payment and first-time use, the fee is 2.15% of $400,000, which is $8,600. Put 5% down, $20,000, and the loan becomes $380,000 at 1.5%, so the fee is $5,700. You spent $20,000 in cash and saved $2,900 in fees, plus you owe interest on a $20,000 smaller loan for as long as you hold it.
Now the same house as a second VA loan. No down payment means 3.3% of $400,000, or $13,200. With 5% down, the fee is the same $5,700 as the first-timer. That is a $7,500 saving from one $20,000 check. I have watched repeat buyers walk past this because nobody told them the tier resets at 5%.
Going from 5% to 10% down is a different story. The loan falls to $360,000 at 1.25%, so the fee is $4,500. The extra $20,000 of cash saves only $1,200 in fees. Run your own numbers on our VA funding fee calculator before you decide the extra down payment is worth it. For most buyers, it is not the fee that justifies 10% down. It is the smaller payment.
Why 5% is the sweet spot, and when 10% is not worth it
My view: 5% down is the best value move in the VA program for anyone who is not exempt. It buys the full tier reset for the least cash, and it leaves money in reserve. Cash at closing is not dead money. It covers the move, the first repair, and the month where something breaks.
Ten percent down only makes sense when you want the lower payment anyway, or when the smaller loan keeps you under a debt-to-income limit. Chasing a $1,200 fee saving with $20,000 of cash is a bad trade if it empties your emergency fund. The fee is a one-time charge. An empty savings account is a monthly problem.
One more wrinkle: if you are exempt from the funding fee because of a service-connected disability rating or DIC, the down payment changes nothing about the fee. It is zero either way. Your down payment decision then turns on payment size and reserves alone, which is a simpler question. Our refund guide covers what happens when the exemption lands after closing.
The two places a down payment does not help
A down payment does not lower the fee on a VA cash-out refinance. The cash-out fee runs at 2.15% for first use and 3.3% for subsequent use regardless of equity. You cannot buy your way into a lower tier on a refinance, because the tier table applies to purchase loans.
The IRRRL streamline refinance is the same story at a lower price. Every IRRRL carries a flat 0.5% fee, first use or fifth. No down payment applies at all. If someone tells you to put money down to cut an IRRRL fee, they are confusing it with a purchase loan. Our IRRRL guide has the flat-fee math.
What I would do with $20,000 at closing
Check exemption status first. If you are exempt, skip the fee math entirely. If you are not exempt and this is a second or later VA loan, put 5% down unless that cash is your whole reserve. The $7,500 fee saving on a $400,000 purchase is the highest return available at any closing table I know.
Then stop. Keep the rest of your cash. A 10% down payment is a fine choice when you want the payment it produces, but the fee saving alone does not carry it. And if a seller concession is on the table, remember the seller can pay the fee within the 4% concession cap, which changes the whole comparison. Our seller-concession guide walks through that trade.
The question I cannot answer here: whether your lender is applying the right tier. Tier mistakes happen, usually when a loan is coded as subsequent use by default. Read the funding fee line on your closing disclosure, divide it by your base loan amount, and check that the percentage matches the tier your down payment buys.
Frequently Asked Questions
Does a down payment lower the VA funding fee?
Yes. On purchase loans, 5% down cuts the fee to 1.5% for first and subsequent use alike, and 10% down cuts it to 1.25%. With less than 5% down, the fee is 2.15% for first use and 3.3% for subsequent use.
How much do I save with 5% down on a $400,000 home?
On a first-use loan, the fee falls from $8,600 to $5,700, a $2,900 saving. On a subsequent-use loan, it falls from $13,200 to $5,700, a $7,500 saving. You also borrow $20,000 less, which lowers the payment and total interest.
Does a down payment lower the fee on a VA cash-out refinance?
No. Cash-out refinance fees are 2.15% for first use and 3.3% for subsequent use no matter how much equity you have. The down payment tiers apply to purchase loans only.
If I am exempt from the funding fee, does a down payment matter for the fee?
No. An exempt borrower pays a 0% funding fee at any down payment. The down payment still affects your loan amount and monthly payment, just not the fee.
Is 10% down worth it just for the lower funding fee?
Usually not for the fee alone. Moving from 5% to 10% down on a $400,000 purchase saves only $1,200 in fees. It can still be worth it for the smaller payment, but keep enough cash in reserve.
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