VA Funding Fee Explained: 2026 Rates, Exemptions, and How to Minimize Your Costs

The VA funding fee is a one-time charge of 2.15% of the loan amount for first-time use with zero down (3.3% for subsequent use), paid at closing or financed into the loan. Putting 5% down reduces the fee to 1.5%, and 10% down drops it to 1.25%. The IRRRL streamline refinance carries the lowest fee at just 0.5%. Veterans with a 10% or higher VA disability rating, Purple Heart recipients, and surviving spouses of veterans who died in service or from service-connected disabilities are completely exempt and pay no funding fee at all. Veterans with pending disability claims who are later approved retroactively can request a full refund. Unlike conventional PMI, which is billed every month until you build enough equity to cancel it, the funding fee is charged once as a percentage of the loan and can be paid at closing or financed.

What Is the VA Funding Fee?

The [VA funding fee](https://www.va.gov/housing-assistance/home-loans/funding-fee/) is a one-time payment that most VA loan borrowers pay at closing. It helps fund the VA loan program so it can continue helping veterans achieve homeownership.

Think of it as an alternative to mortgage insurance. While conventional borrowers pay PMI monthly for years, VA borrowers pay a single funding fee once. In most cases, you come out way ahead with the VA approach.

The fee varies based on several factors: whether it's your first VA loan, how much you put down, and whether you're regular military or Guard/Reserve. And importantly, many veterans are completely exempt from paying it.

Let me walk you through exactly how this works.

2026 VA Funding Fee Rates

Here are the current funding fee rates for purchase loans:

First-Time VA Loan Use

0% down payment: 2.15%

5% or more down: 1.5%

10% or more down: 1.25%

Subsequent VA Loan Use

0% down payment: 3.3%

5% or more down: 1.5%

10% or more down: 1.25%

Refinance Loans

VA Streamline (IRRRL): 0.5%

Cash-out refinance: 2.15% (first use) or 3.3% (subsequent use)

Guard and Reserve

The rates above apply equally to Guard and Reserve members. Previous years had different rates for reserves, but these were equalized effective April 7, 2023.

Turning the Percentage Into Dollars

The math is simple multiplication: your base loan amount times the percentage that applies to you. Three things decide which percentage that is:

• Whether this is your first VA loan or a later one
• How much you put down, if anything
• Whether the loan is a purchase, a cash-out refinance, or an IRRRL

If you finance the fee, it's figured on the loan amount before the fee is added, and your Loan Estimate shows the exact figure in dollars. Before you worry about that number, though, check whether you have to pay it at all.

Who Is Exempt From the Funding Fee?

Here's the good news: a significant percentage of VA loan users are exempt from the funding fee entirely. Check if any of these apply to you:

Veterans with service-connected disabilities rated 10% or higher

If you have any [VA disability rating](https://www.va.gov/disability/how-to-file-claim/) of 10% or above, you're exempt. This is the most common exemption. A 10% rating might be for tinnitus, knee problems, back issues, or any other service-connected condition.

Veterans receiving VA compensation for service-connected disabilities

Even if you're not receiving monthly compensation (maybe due to offset with military retirement), if you have a compensable rating, you're likely exempt.

Veterans entitled to compensation but receiving retirement pay

Some veterans receive military retirement instead of VA compensation. If you'd be entitled to VA comp, you can request an exemption.

Purple Heart recipients

If you've been awarded a Purple Heart, you're exempt from the funding fee. This exemption applies even if you don't have a disability rating.

Surviving spouses

Surviving spouses of veterans who died in service or from service-connected disabilities are exempt.

Veterans awaiting disability determination

If you have a pending VA disability claim, you can still close your loan. If your claim is later approved at 10% or higher with an effective date before your loan closing, you can get a refund of the funding fee.

The Pending Claim Situation

This is worth exploring because it affects many veterans.

Let's say you're buying a house in March. You have a disability claim pending with the VA, but no decision yet. You close on your loan and pay the funding fee because you're not yet rated.

In June, your disability claim is approved at 20%, with an effective date of January (before your loan closed).

What happens? You can apply for a refund of your funding fee. The VA will verify your disability rating and effective date, and the fee will be refunded.

Work with your lender to handle this properly. Many veterans don't realize they can get this money back.

Can You Roll the Funding Fee Into Your Loan?

Yes. This is one of the key benefits of the VA funding fee structure.

You can finance the funding fee into your loan amount rather than paying it as cash at closing. This means your actual out-of-pocket closing costs stay low.

Here's the trade-off in plain terms. A financed fee is added to your loan balance, so your monthly payment rises a little and you pay interest on that amount for as long as you keep the loan. In exchange, you don't have to bring that cash to closing.

For many veterans that trade is worth it, because cash at closing is often the biggest hurdle to buying. If you're on the fence, ask your lender for a Loan Estimate both ways, fee financed and fee paid in cash, and compare.

Funding Fee vs. PMI: How They Compare

Some people look at the funding fee and think, "That seems expensive." It helps to line it up against the private mortgage insurance a conventional borrower with less than 20% down usually pays.

The VA funding fee:

• Charged once, as a percentage of the loan
• Paid at closing or financed into the loan
• Waived entirely for exempt veterans
• No monthly mortgage insurance afterward

Conventional PMI:

• Billed every month as part of the payment
• Priced by credit score, down payment and loan size
• Stays until you reach enough equity to cancel it or it drops off automatically
• Comes on top of the down payment a conventional loan usually requires

To compare on your own file, get a Loan Estimate for each option and add up the mortgage insurance you'd pay over the years you expect to keep the home. For many buyers putting little or nothing down, the one-time fee comes out ahead, and the VA loan doesn't require a down payment in the first place.

How to Reduce Your Funding Fee

If you're not exempt, here are ways to minimize what you pay:

Put money down

A 5% down payment drops your fee from 2.15% to 1.5% on first-time use, and the lower percentage applies to a smaller loan, too.

The catch is that the down payment is cash you no longer have in reserve. Compare the fee you'd save with the cushion you'd give up. Sometimes it's smarter to finance the higher fee and keep your savings.

Apply for VA disability rating

If you have any service-connected conditions that might warrant a disability rating, file a claim. Many veterans don't realize they have ratable conditions. Common ones include:

• Tinnitus (ringing in ears)
• Back problems
• Knee issues
• Sleep apnea
• PTSD or anxiety
• Hearing loss

If you're awarded compensation for a service-connected condition, the funding fee goes away entirely.

Use your IRRRL benefit wisely

If you already have a VA loan and want to refinance, the [streamline refinance (IRRRL)](https://www.va.gov/housing-assistance/home-loans/loan-types/interest-rate-reduction-loan/) fee is only 0.5%. This is significantly lower than other refinance options.

First Use vs. Subsequent Use

The jump from 2.15% to 3.3% on subsequent use (with no money down) is significant. Why does this happen?

The VA considers "subsequent use" to mean you've already used and paid off (or are still using) a VA loan. The thinking is that repeat users have benefited from the program and can contribute more to sustain it.

However, there's good news: if you put down 5% or more, the first-use and subsequent-use rates are identical (1.5%). And at 10% down, both are 1.25%.

So if you're on your second or third VA loan with no down payment, expect the 3.3% fee. But a modest down payment equalizes the rate.

When the Funding Fee Gets Refunded

There are several scenarios where you might receive a funding fee refund:

Disability rating approved retroactively

As discussed above, if your disability claim is approved with an effective date before your loan closing, you can get a refund.

Error in exemption status

If you should have been exempt but the fee was charged anyway, you can request a refund.

Loan falls through after fee was collected

If you paid the fee but the loan didn't close for some reason, you're entitled to a refund.

The Impact on Your Monthly Payment

Financing the fee nudges your payment up, because the fee becomes part of the balance you repay. How much depends on your loan amount, rate and term, so the clean way to see it is to ask for two Loan Estimates, one with the fee financed and one with it paid in cash.

Keep in mind what you're comparing against. A VA loan has no monthly mortgage insurance and no required down payment, while a conventional loan with a small down payment usually carries PMI every month.

Seller Contributions and the Funding Fee

Can the seller pay your funding fee? Yes, if you negotiate it.

VA counts a seller-paid funding fee as a seller concession. All concessions together, such as the funding fee plus prepaid taxes and insurance, are capped at 4% of the property's reasonable value from the VA appraisal.

Your ordinary closing costs sit in a separate bucket. A seller can agree to pay those too, and VA doesn't count them toward the 4% limit. Your agent and loan officer can help you size each request before you write the offer.

If you negotiate both into your offer, the seller can cover your funding fee as well as your other closing costs.

Common Funding Fee Questions

Is the funding fee tax deductible?

The funding fee is treated similarly to mortgage insurance for tax purposes. Depending on current tax law (which changes), it may be deductible. Consult a tax professional for your specific situation.

Can I pay the funding fee with a credit card?

No. The funding fee must be paid via certified funds, wire transfer, or financed into the loan.

What if I become disabled after closing?

A disability rating acquired after your loan closes doesn't result in a refund. The exemption applies based on your status at the time of closing (or retroactive effective dates).

Does every VA loan have a funding fee?

All VA loans have a funding fee unless you're exempt. There's no way to waive it if you don't qualify for an exemption.

How do I prove I'm exempt?

Your lender will verify your disability status through VA systems. In most cases, you don't need to provide documentation – they can see it electronically.

Strategic Considerations

Here's how I'd think about the funding fee strategically:

If you have any service-connected conditions: File a VA disability claim before buying if possible. Even the lowest compensable rating removes the fee.

If you're deciding between down payment and reserves: In most cases, keeping cash reserves is smarter than paying down to reduce the fee. Liquidity provides security.

If you're on subsequent use with no down payment: The 3.3% fee is significant. Consider whether a small down payment (5%) makes sense to drop the rate to 1.5%.

If you're refinancing: The IRRRL 0.5% fee is a great deal. Don't hesitate to use it if the rate savings make sense.

The Bottom Line

The VA funding fee is a one-time cost that funds the VA loan program. While it might seem substantial on paper, it's actually a better deal than the mortgage insurance you'd pay on a conventional loan.

Many veterans are exempt due to disability ratings. If you're not exempt, you can finance the fee into your loan to minimize out-of-pocket costs.

Compared to PMI, which is billed month after month until you've built enough equity, a one-time fee is usually the better deal. And unlike PMI, once you've paid it (or financed it), it's done.

Don't let the funding fee discourage you from using your VA benefit. For most eligible buyers, the overall VA package compares very well against conventional alternatives once you put the numbers side by side.

Frequently Asked Questions

What is the VA funding fee percentage right now?

For first-time use with no down payment, it's 2.15%. With 5% down it's 1.5%, and with 10% down it's 1.25%. Subsequent use with no down payment is 3.3%.

Who is exempt from the VA funding fee?

Veterans with 10%+ disability rating, Purple Heart recipients, surviving spouses of veterans who died in service or from service-connected conditions, and those receiving VA compensation.

Can I finance the VA funding fee?

Yes. Most borrowers roll the funding fee into their loan amount rather than paying cash at closing.

Is the VA funding fee refundable?

In certain cases, yes. Most commonly, if you receive a disability rating retroactive to before your loan closing, you can request a refund.

Is the VA funding fee the same as PMI?

No. PMI is monthly mortgage insurance on conventional loans. The funding fee is a one-time VA cost. The funding fee typically costs less over time than PMI.

Can sellers pay the VA funding fee?

Yes. VA treats a seller-paid funding fee as a concession, so it counts toward the 4% limit measured against the VA reasonable value. Ordinary closing costs the seller covers are counted separately.