What Is the VA Funding Fee and Can You Avoid It? (2026)
A complete explanation of the VA funding fee - what it is, how much it costs, when it's charged, who is exempt, and whether rolling it into the loan makes sense.
The VA funding fee is a one-time fee paid to the Department of Veterans Affairs at closing that helps fund the VA loan program. It ranges from 1.25% to 3.3% of the loan amount depending on your loan use, down payment, and service type. Veterans receiving VA disability compensation of 10% or more are completely exempt. The fee can be rolled into the loan rather than paid at closing.
What the VA Funding Fee Pays For
The VA doesn't fund loans directly - it guarantees them. The funding fee sustains that guarantee program. It replaces the private mortgage insurance (PMI) that conventional borrowers pay when they put less than 20% down. Unlike PMI (an annual recurring cost), the VA funding fee is a single one-time charge at closing.
Net result: Even with the funding fee, VA loans typically cost less over the life of the loan than a conventional loan with PMI - especially at zero down.
VA Funding Fee Rates (2026)
Rates are set by the VA and can change periodically. Verify current rates at benefits.va.gov.
Active duty and veterans:
| Down Payment | First Use | Subsequent Use |
|---|---|---|
| Less than 5% | 2.15% | 3.30% |
| 5% to 9.99% | 1.50% | 1.50% |
| 10% or more | 1.25% | 1.25% |
National Guard and Reserve members:
| Down Payment | First Use | Subsequent Use |
|---|---|---|
| Less than 5% | 2.15% | 3.30% |
| 5% to 9.99% | 1.50% | 1.50% |
| 10% or more | 1.25% | 1.25% |
Note: Effective January 1, 2020, the VA equalized funding fee rates for active duty, Guard, and Reserve. Rates are now the same.
Dollar examples on a $265,000 loan:
| Scenario | Rate | Fee Amount |
|---|---|---|
| First-time use, 0% down | 2.15% | $5,698 |
| First-time use, 5% down | 1.50% | $3,975 |
| Second use, 0% down | 3.30% | $8,745 |
| Disability exempt | 0% | $0 |
Who Is Exempt From the VA Funding Fee
The following borrowers are completely exempt from the VA funding fee:
- Veterans receiving VA disability compensation (any rating of 10% or higher)
- Veterans who are entitled to receive VA disability compensation but are receiving retirement pay or active duty pay instead
- Service members with a proposed or memorandum rating indicating eligibility for disability compensation due to a pre-discharge claim
- Surviving spouses of veterans who died in service or from a service-connected disability who are receiving Dependency and Indemnity Compensation (DIC)
- Purple Heart recipients on active duty (as of January 5, 2018 legislation)
This exemption is significant. On a $265,000 loan at 2.15%, the funding fee is $5,698. For an exempt veteran, that's $5,698 saved - money that stays in your pocket.
How to claim the exemption: Your lender will verify your exempt status through the VA's loan eligibility system. Make sure your disability rating is reflected in your VA records before closing. If you have a pending disability claim, inform your lender immediately - a pending claim may delay or complicate the exemption.
Can You Roll the Funding Fee Into the Loan?
Yes. The VA allows borrowers to finance the entire funding fee into the loan balance. This means:
- You pay nothing out-of-pocket at closing for the funding fee
- Your loan amount increases by the fee amount
- You pay interest on that higher balance over the loan term
Example:
- Home price: $265,000
- Loan amount (0% down): $265,000
- 2.15% funding fee: $5,698
- Final loan amount with fee rolled in: $270,698
- Monthly payment increase: ~$36/month
Is rolling it in a good idea? For most buyers without substantial savings, yes. Paying $36 more per month over 30 years ($12,960 total) is preferable to depleting savings at closing. For buyers who can easily pay the fee upfront, paying it at closing saves on long-term interest.
Reducing the VA Funding Fee
Put 5% down. Moving from 0% to 5% down drops the first-use fee from 2.15% to 1.50% - a savings of $1,723 on a $265,000 loan. If you have savings, this may be worth considering.
Put 10% down. Dropping to 1.25% saves $2,381 vs. the 0-down fee. But you're also putting $26,500 down - for most PCS buyers, this doesn't make financial sense when the VA 0-down option exists.
Use your VA loan for the first time. If this is your second or subsequent VA loan use and you haven't met the down payment threshold, the 3.30% rate is significant. Restoration of entitlement or a different loan structure may be worth exploring with your lender.
Frequently Asked Questions
Does the VA funding fee apply to VA refinances?
Yes. VA Interest Rate Reduction Refinance Loans (IRRRL) carry a 0.50% funding fee. VA cash-out refinances carry the same fees as VA purchase loans (2.15% first use / 3.30% subsequent use). Disability-exempt veterans are exempt from funding fees on all VA loan types.
Does the VA funding fee change every year?
VA funding fee rates can change through Congressional legislation. The rates were last significantly adjusted effective January 1, 2020. Always verify current rates at benefits.va.gov or with your VA-approved lender at the time you're applying.
Can the seller pay the VA funding fee?
No. The VA funding fee is the borrower's obligation. Sellers can contribute to other closing costs (up to 4% in seller concessions on VA loans), but they cannot pay the funding fee.
How do I know if I'm exempt from the VA funding fee?
Your VA eligibility and disability status are verified through the VA loan eligibility system when your lender pulls your Certificate of Eligibility (COE). If your disability rating is 10% or higher in the VA system, the exemption will be automatically flagged. If you have a pending disability claim, inform your lender immediately - the timing of your rating determination relative to your closing date matters.
Is the VA funding fee tax-deductible?
The VA funding fee may be deductible as mortgage interest in the year paid (or amortized over the loan term if financed into the loan). Tax law in this area has changed in recent years - consult your tax advisor for current guidance.
John David Peña | License #0733512 | Peña El Paso Realty Group | Brokered by Home Pros Real Estate Group | Broker License #0483789
VA funding fee rates are current as of 2026. Verify rates at benefits.va.gov before closing.
Related Articles: