VA Loan Funding Fee: Complete Guide for 2026

If you’re exploring VA home loans, you’ve probably encountered the term “funding fee” and wondered what it means for your wallet. The VA funding fee is a one-time charge that every VA loan borrower pays unless they qualify for an exemption. While it might seem like just another closing cost, understanding how it works can save you thousands of dollars.

The good news? The funding fee is far more affordable than the ongoing mortgage insurance required on conventional and FHA loans, and many veterans don’t have to pay it at all. Let’s break down everything you need to know about the VA funding fee in 2026.

What Is the VA Loan Funding Fee?

The VA funding fee is a percentage of your loan amount that helps fund the VA home loan program. Think of it as the cost of maintaining one of the most valuable benefits available to veterans and service members—the ability to buy a home with no down payment and no monthly mortgage insurance.

Why Does the Funding Fee Exist?

Unlike most government programs, the VA home loan program is designed to be self-sustaining. The funding fee helps offset the cost to taxpayers when the VA has to pay lenders due to loan defaults. According to the Department of Veterans Affairs, the funding fee allows the program to continue without requiring annual appropriations from Congress.

In other words, veterans today pay a small fee to ensure that future generations of service members can also access this benefit. The program has been remarkably successful—the VA has backed more than 25 million home loans since 1944.

Key Characteristics of the Funding Fee

• One-time charge: You pay it once, not monthly like PMI or FHA mortgage insurance
• Can be financed: Most borrowers roll it into their loan amount rather than paying cash at closing
• Varies by use and down payment: First-time users pay less than subsequent users, and down payments reduce the fee
• Not based on credit score: Unlike conventional loan fees, your credit score doesn’t affect the funding fee amount
• Many exemptions available: Veterans with service-connected disabilities and certain other groups don’t pay it

2026 VA Funding Fee Rates

The funding fee percentage depends on three main factors: whether it’s your first time using a VA loan, how much down payment you make, and what type of loan you’re getting. Here are the current rates for 2026:

Purchase Loans and Construction Loans

First-Time Use:

• No down payment: 2.15% of the loan amount
• Down payment of 5% to 9%: 1.50% of the loan amount
• Down payment of 10% or more: 1.25% of the loan amount

Subsequent Use (second or later VA loan):

• No down payment: 3.30% of the loan amount
• Down payment of 5% to 9%: 1.50% of the loan amount
• Down payment of 10% or more: 1.25% of the loan amount

Regular Military (Active Duty and Veterans):

• Down payment less than 5%: 2.15% (first use) or 3.30% (subsequent use)
• Down payment 5-9%: 1.50%
• Down payment 10% or more: 1.25%

Reserves and National Guard:

• Down payment less than 5%: 2.15% (first use) or 3.30% (subsequent use)
• Down payment 5-9%: 1.50%
• Down payment 10% or more: 1.25%

These rates assume a single veteran borrower. On joint loans with a co-borrower, the funding fee is calculated per borrower based on each veteran’s share of the loan.

Refinance Loans

VA Interest Rate Reduction Refinance Loan (IRRRL):

• 0.50% of the loan amount (regardless of use history)

Cash-Out Refinance:

• First use: 2.15% of the loan amount
• Subsequent use: 3.30% of the loan amount

What These Percentages Mean in Real Dollars

Let’s look at actual dollar amounts on a $300,000 VA loan:

• First-time use, no down payment: $6,450 (2.15%)
• Subsequent use, no down payment: $9,900 (3.30%)
• First-time use, 10% down: $3,375 (1.25% of $270,000 loan)
• IRRRL refinance: $1,500 (0.50%)

As you can see, using your VA loan benefit for the first time and making a substantial down payment can save you thousands in funding fees.

Who Is Exempt from the Funding Fee?

Many veterans and service members don’t have to pay the funding fee at all. Here’s who qualifies for exemptions:

Veterans Receiving VA Disability Compensation

If you’re receiving VA disability compensation for a service-connected disability, you’re exempt from the funding fee. This includes:

• Veterans with any disability rating from 10% to 100%
• Veterans receiving disability pay, even if it’s a deferred or pending claim that’s later approved

Even a 10% disability rating saves you thousands of dollars. On a $300,000 loan, a 10% rating saves you $6,450 in funding fees for first-time use or $9,900 for subsequent use.

Veterans Eligible for Disability Compensation

You’re also exempt if you would be entitled to receive disability compensation except for:

• You’re receiving retirement pay instead
• You’re receiving active duty pay

In other words, if you have a service-connected disability rating but are still on active duty or receiving retirement pay, you can still claim the exemption.

Surviving Spouses

Surviving spouses of veterans who died in service or from service-connected disabilities are exempt if they’re receiving Dependency and Indemnity Compensation (DIC) benefits.

Important note: Surviving spouses not receiving DIC benefits do have to pay the funding fee. If you’re a surviving spouse using your VA loan benefit, check with the VA about your DIC eligibility, as this can save you significant money.

Purple Heart Recipients

Veterans who received the Purple Heart are exempt from the funding fee, regardless of whether they have a disability rating.

How to Claim Your Exemption

If you qualify for an exemption, your lender will need documentation:

• For disability exemptions: Provide your VA award letter showing your disability rating or upload your disability documentation when applying
• For DIC recipients: Provide your DIC award letter
• For Purple Heart recipients: Provide your DD-214 or military records showing the award

Your lender will verify this information with the VA before closing. If your disability claim is pending at the time of closing, you may need to pay the fee upfront but can request a refund once your rating is approved.

How to Pay the Funding Fee

You have two options for paying the VA funding fee, though most borrowers choose to finance it:

Option 1: Roll It Into Your Loan (Most Common)

The vast majority of VA loan borrowers—probably 95% or more—choose to finance the funding fee by adding it to their loan amount. Here’s how it works:

Let’s say you’re buying a $300,000 home with a first-time VA loan and no down payment:

• Loan amount before funding fee: $300,000
• Funding fee (2.15%): $6,450
• Final loan amount: $306,450

Advantages of financing:

• No cash needed at closing for this fee
• Spread the cost over 30 years at your mortgage interest rate
• Preserves your savings for emergencies or other expenses

Disadvantages of financing:

• You’ll pay interest on the funding fee over the life of the loan
• Slightly higher monthly payment
• May push you over the VA loan limit in high-cost areas

On a 30-year loan at 6.5% interest, that $6,450 funding fee would cost you about $38-40 more per month in principal and interest. Over 30 years, you’d pay roughly $8,100 in total once you factor in the interest.

Option 2: Pay Cash at Closing

You can pay the funding fee upfront as part of your closing costs if you prefer:

Advantages of paying cash:

• Lower loan amount means lower monthly payment
• Less interest paid over the life of the loan
• May help if you’re near the VA loan limit for your area

Disadvantages of paying cash:

• Requires several thousand dollars at closing
• Reduces your cash reserves
• Most veterans prefer to preserve cash for emergencies

For most borrowers, financing makes more sense unless you have substantial cash reserves and want the lowest possible loan amount.

Can the Seller Pay Your Funding Fee?

Yes! The seller can pay your funding fee as part of seller concessions. VA loans allow sellers to contribute up to 4% of the home price toward the buyer’s closing costs, which can include the funding fee.

This is most common in buyer’s markets where sellers are motivated. Your real estate agent can negotiate for seller concessions that cover your funding fee, though you’ll likely need to account for this in your offer price.

Calculating Your Funding Fee

Calculating your funding fee is straightforward once you know your percentage:

Basic Formula

Funding Fee = Loan Amount × Funding Fee Percentage

Examples

Example 1: First-time use, no down payment

• Home price: $250,000
• Down payment: $0
• Loan amount: $250,000
• Funding fee rate: 2.15%
• Funding fee: $250,000 × 0.0215 = $5,375

Example 2: Second use, 10% down payment

• Home price: $400,000
• Down payment: $40,000 (10%)
• Loan amount: $360,000
• Funding fee rate: 1.25% (10%+ down payment)
• Funding fee: $360,000 × 0.0125 = $4,500

Example 3: IRRRL refinance

• Current loan balance: $280,000
• New loan amount: $280,000
• Funding fee rate: 0.50%
• Funding fee: $280,000 × 0.005 = $1,400

Important Notes on Calculation

• The funding fee is calculated on the loan amount, not the home price
• If you make a down payment, calculate the fee on the reduced loan amount
• The funding fee itself is NOT included in the calculation—you calculate it on the base loan amount, then add it on
• Exemptions eliminate the fee entirely regardless of loan amount

How to Reduce Your Funding Fee

If you don’t qualify for an exemption, here are strategies to minimize your funding fee:

1. Make a Down Payment

This is the most effective strategy for reducing your funding fee:

• 5% down payment: Reduces fee from 2.15% to 1.50% (saves 0.65%)
• 10% down payment: Reduces fee to 1.25% (saves 0.90% compared to zero down)

On a $300,000 loan, a 10% down payment saves you $2,430 in funding fees:

• No down payment: $300,000 × 2.15% = $6,450
• 10% down payment: $270,000 × 1.25% = $3,375
• Savings: $3,075

Of course, making a 10% down payment requires $30,000 upfront, so you need to decide whether you’d rather pay more in funding fees or tie up that cash.

2. Pursue a Disability Rating

If you have any service-connected conditions but haven’t filed for VA disability, now might be the time to do so. Even a 10% rating eliminates the entire funding fee.

Visit the VA Disability Compensation page to learn about filing a claim. Many veterans have service-connected conditions they don’t realize qualify for compensation.

3. Time Your Home Purchase

If your disability claim is in progress, you might want to wait for approval before closing on your home. Here’s why:

• If you close before your rating is approved, you’ll pay the funding fee
• You can request a refund later, but it requires additional paperwork
• Waiting a few months could save you $6,000-10,000 instantly

However, if home prices are rising or interest rates are climbing, the savings from waiting might be offset by higher costs. Work with your lender to determine the best timing.

4. Use IRRRL for Refinancing

If you’re refinancing an existing VA loan to lower your rate, use the Interest Rate Reduction Refinance Loan (IRRRL) instead of a cash-out refinance. The IRRRL funding fee is only 0.50% compared to 2.15-3.30% for cash-out refinances.

The IRRRL is designed specifically for rate-and-term refinances where you’re not taking cash out, making it much more affordable.

Can You Get a Funding Fee Refund?

Yes, you may be eligible for a funding fee refund in certain situations:

Disability Rating Approved After Closing

If you close on your loan and later receive a disability rating (or your pending claim is approved), you can request a refund of the funding fee. This applies even if:

• The rating is retroactive to before your closing date
• You receive your rating months or even years after closing

To request a refund, contact your lender or loan servicer with your VA award letter showing your disability rating. They’ll submit a claim to the VA on your behalf.

Refinance Out of VA Loan Quickly

In rare cases, if you refinance out of your VA loan within a very short time (typically within the same year), you might be eligible for a partial funding fee refund. However, this is uncommon and requires specific circumstances.

How to Request a Refund

1. Obtain your VA award letter showing your disability rating
2. Contact your mortgage servicer (the company you make payments to)
3. Provide documentation of your disability rating
4. Your servicer will submit VA Form 26-8937 to request the refund
5. Processing typically takes 6-8 weeks

The refund check will be sent to you directly from the VA, not from your lender. It will not automatically reduce your loan balance unless you apply it as a principal payment.

Funding Fees for VA Refinance Loans

Refinancing has different funding fee rules than purchase loans:

VA Interest Rate Reduction Refinance Loan (IRRRL)

The IRRRL, also called a “VA Streamline Refinance,” has the lowest funding fee at just 0.50% of the loan amount. Key features:

• Same 0.50% rate whether it’s your first or fifth VA loan
• No down payment required (it’s a refinance, not a purchase)
• Can be financed into the loan amount
• Still waived for disabled veterans

The IRRRL is designed to help veterans lower their interest rates with minimal cost and hassle. You can’t take cash out (beyond covering closing costs and paying off small liens), but if you’re just trying to reduce your rate, this is your best option.

VA Cash-Out Refinance

If you want to tap your home equity through a VA refinance, you’ll use a cash-out refinance, which has higher funding fees:

• First-time use of VA loan benefit: 2.15%
• Subsequent use: 3.30%

These are the same rates as purchase loans. The “first-time use” determination is based on whether you’ve ever used a VA loan before, not whether you’ve used it for a refinance specifically.

Example: If you bought your home with a conventional loan and are now doing a VA cash-out refinance for the first time, you’d pay the 2.15% first-time rate. But if you originally bought with a VA loan and are now doing a VA cash-out refinance, you’d pay the 3.30% subsequent-use rate.

Switching from Conventional to VA

Many veterans buy their first home with a conventional loan before they learn about VA loans. If this describes you, refinancing to a VA loan can eliminate PMI and often lower your rate.

If you’ve never used your VA loan benefit before, this would count as first-time use (2.15% funding fee). Even with the funding fee, you’ll likely save money by eliminating monthly PMI, which typically costs $100-300/month.

Funding Fee vs. PMI: The Big Difference

Here’s why the VA funding fee is actually a much better deal than the private mortgage insurance (PMI) required on conventional loans:

Cost Comparison

VA Funding Fee:

• One-time charge of 2.15% (first use, no down payment)
• On a $300,000 loan: $6,450 total
• If financed over 30 years at 6.5%: About $38-40/month
• Total cost with interest: ~$8,100 over life of loan

Conventional PMI:

• Monthly charge of 0.5-1.5% annually (varies by credit score and down payment)
• On a $300,000 loan with 3% down and good credit: About $150/month
• Continues until you reach 20% equity (typically 7-10 years)
• Total cost: $12,600-18,000 over 7-10 years

Even when you factor in the interest on a financed funding fee, VA borrowers typically save $4,000-10,000 compared to conventional borrowers paying PMI.

Key Differences

Why This Matters

The one-time nature of the funding fee is a massive advantage. Even veterans who don’t qualify for exemptions pay far less than conventional borrowers for mortgage insurance protection.

Additionally, the funding fee doesn’t increase if you have a lower credit score, while PMI rates can double for borrowers with credit scores below 680. A veteran with a 620 credit score pays the same 2.15% funding fee as a veteran with a 780 score, while conventional borrowers with 620 scores might pay 1-1.5% annually in PMI compared to 0.5% for 780 scores.

Common Funding Fee Misconceptions

Let’s clear up some common misunderstandings about the VA funding fee:

Myth 1: “The Funding Fee Is Due at Closing”

Reality: You can finance it into your loan amount. Most borrowers do exactly that, meaning you don’t need cash for the funding fee at closing.

Myth 2: “The Funding Fee Is Based on Your Credit Score”

Reality: Your credit score doesn’t affect the funding fee at all. It’s based on your down payment amount and whether you’ve used a VA loan before.

Myth 3: “I’ll Never Get My Funding Fee Back”

Reality: If you’re later approved for a disability rating, you can request and receive a full refund of the funding fee you paid.

Myth 4: “The Funding Fee Counts Toward the VA Loan Limit”

Reality: The funding fee can be financed above the VA loan limit. If the limit in your area is $766,550, you can borrow that amount plus the funding fee without making a down payment.

Myth 5: “Disabled Veterans Still Have to Pay Something”

Reality: Veterans with a disability rating of 10% or higher pay absolutely nothing in funding fees. The exemption is complete, not partial.

State-Specific Funding Fee Considerations

While the VA funding fee itself is federal and doesn’t vary by state, how it interacts with state and local costs can differ:

High-Cost Areas

In expensive real estate markets like California, Hawaii, or the Northeast, funding fees can be substantial. A $700,000 loan carries a $15,050 funding fee (2.15%) for first-time use. That’s a significant amount to finance into your loan.

In these markets, it becomes even more valuable to:

• Qualify for the disability exemption if possible
• Consider making a down payment to reduce the fee percentage
• Negotiate for seller concessions to cover the fee

State Taxes on Funding Fees

Most states don’t charge sales tax or transfer tax on the VA funding fee since it’s not part of the home purchase price. However, some states have recording fees or other charges that apply to the total loan amount (including the funding fee).

Check with your lender about total closing costs in your state to understand the complete picture.

The Bottom Line on VA Funding Fees

The VA funding fee is a small price to pay for the incredible benefits of VA loans: no down payment, no monthly mortgage insurance, competitive rates, and flexible credit requirements. Here’s what you need to remember:

• Most borrowers pay 2.15% for first-time use with no down payment
• Many veterans pay nothing due to disability exemptions
• You can finance it into your loan—no cash needed at closing
• It’s cheaper than PMI by a significant margin over time
• Down payments reduce the fee if you have cash available
• You can get a refund if you’re later awarded a disability rating

If you’re comparing VA loans to conventional financing, don’t let the funding fee scare you. When you factor in no down payment, no monthly PMI, and generally lower interest rates, VA loans typically save borrowers tens of thousands of dollars over the life of the loan—even after paying the funding fee.

Frequently Asked Questions

This article is provided by USMilitary.org, an independent educational resource. We are not affiliated with the Department of Veterans Affairs or any government agency. For official VA loan information and current funding fee rates, please visit VA.gov or contact a VA-approved lender.