What Is the VA Loan Funding Fee? (2026 Rates, Exemptions, and How to Reduce It)

The VA loan funding fee is one of the most misunderstood parts of the VA home loan benefit. Veterans and service members know that VA loans require no down payment and no private mortgage insurance — but many are surprised to learn there's a separate fee charged at closing that can run from 1.25% to 3.3% of the loan amount. Understanding what this fee is, who pays it, and how to reduce or eliminate it is essential before you apply.

What Is the VA Loan Funding Fee?

The VA loan funding fee is a one-time fee paid to the Department of Veterans Affairs at closing. It funds the VA loan guarantee program itself — the government backing that allows VA-approved lenders to offer zero-down mortgages with competitive interest rates.

Unlike PMI (private mortgage insurance), which is paid monthly, the VA funding fee is a single upfront payment. And unlike PMI, which is paid to a private insurance company, the funding fee goes directly to the federal government to sustain the VA loan program.

The fee is calculated as a percentage of the total loan amount — not the purchase price. If you borrow $350,000, a 2.3% funding fee equals $8,050.

VA Loan Funding Fee Rates for 2026

The funding fee percentage depends on three factors:

1. Whether this is your first time using a VA loan or a subsequent use
2. Your down payment amount
3. Your type of service (regular military vs. National Guard/Reserves)

First-Time VA Loan Use

Subsequent VA Loan Use

Key observation: The down payment significantly affects the fee. Putting just 5% down reduces the fee from 2.3% to 1.65% on first use — on a $350,000 loan, that's a savings of $2,275. Putting 10% down saves $3,150 compared to zero down. Whether those savings outweigh the opportunity cost of the extra cash depends on your financial situation.

Note: Cash-out refinance loans have their own funding fee schedule (2.3% first use, 3.3% subsequent use, regardless of equity). Interest Rate Reduction Refinance Loans (IRRRLs, also called VA streamline refinances) have a lower fee of 0.5%.

Who Is Exempt from the VA Funding Fee?

Not all VA loan borrowers pay the funding fee. The following are fully exempt:

• Veterans receiving VA compensation for a service-connected disability (any rating percentage qualifies)
• Veterans who would be entitled to receive disability compensation but are receiving retirement pay instead
• Surviving spouses of veterans who died in service or from a service-connected disability, who are using their own VA loan benefit
• Active duty service members who have received a Purple Heart (as of January 1, 2020)

The exemption is significant. If you have a service-connected disability rating — even 10% — you pay no funding fee. On a $400,000 loan with a 2.3% fee, that exemption is worth $9,200.

How to claim the exemption: Your lender will verify your exemption status through the VA's systems. If you have a disability rating, ensure your VA disability status is current in the VA's records before you apply. If your rating is pending, wait until it's approved — retroactive exemption refunds are possible but require an additional administrative process.

Should You Finance the Funding Fee or Pay It Upfront?

One of the flexible features of the VA loan is that you can roll the funding fee into your loan amount rather than paying it at closing. This is called "financing" the fee.

The case for financing:

• Preserves your cash reserves (you don't need to bring the fee to closing)
• Reduces the immediate cash burden, which is especially valuable for zero-down buyers who are already stretching their savings

The case for paying upfront:

• Financing the fee increases your loan balance and therefore your monthly payment
• You pay interest on the fee amount for the life of the loan — on a 2.3% fee financed on a $350,000 loan at 6.5% for 30 years, you'd pay roughly $5,800–$6,000 additional in interest
• You also start with negative equity (your loan balance exceeds the purchase price by the funding fee amount) — a minor issue if you don't plan to sell soon, but worth knowing

For most VA borrowers who are using the zero-down feature precisely because they don't have a large cash reserve, financing the fee is the practical choice. If you do have enough cash to pay it upfront without depleting your emergency fund, paying upfront saves money over the life of the loan.

How the VA Funding Fee Compares to FHA MIP

The VA loan is often compared to the FHA loan as both serve borrowers who can't put 20% down. The mortgage insurance structure is dramatically different:

FHA Mortgage Insurance:

• Upfront MIP: 1.75% of the loan amount (similar to the VA funding fee)
• Annual MIP: 0.55%–1.05% of the loan amount per year, paid monthly
• Duration: For loans with less than 10% down, MIP is permanent for the life of the loan

VA Funding Fee:

• One-time fee: 1.4%–3.3% depending on use and down payment
• No annual/monthly mortgage insurance — ever

For a borrower with zero down and a 2.3% VA funding fee on a $350,000 loan, the total insurance cost is $8,050 — once. For the same FHA loan at the same price with 3.5% down, the upfront MIP would be $5,960 plus roughly $1,920/year ($160/month) in annual MIP for 30 years, totaling approximately $63,560 in insurance costs over the loan's life.

The math strongly favors the VA loan for eligible borrowers who plan to stay in the home long-term. Even with a higher one-time fee (3.3% for subsequent use), the VA loan almost always costs less than FHA over any holding period beyond 3–4 years.

Other VA Loan Closing Costs

The VA loan limits which fees lenders can charge borrowers. Under VA rules, lenders can charge:

• A loan origination fee (capped at 1% of the loan amount)
• Reasonable and customary fees for credit reports, appraisals, title services, and recording

Lenders cannot charge VA borrowers for attorney fees (beyond what's reasonable for title work), brokerage fees, pest inspections (in most states), or any fees above the 1% cap for origination.

As a result, VA loan closing costs are typically lower than conventional or FHA loan closing costs when comparing equivalent lenders. Sellers can also contribute to VA buyer's closing costs (up to 4% of the loan in seller concessions), which further reduces the cash needed to close.

Common VA Loan Funding Fee Questions

Can the seller pay my funding fee? Yes. Seller concessions (up to 4% of the loan amount) can be used to cover the funding fee. This requires negotiating a seller credit in your purchase contract.

Is the funding fee tax-deductible? VA funding fees paid upfront may be deductible as mortgage points or as mortgage interest in some circumstances. The IRS rules have changed periodically — consult a tax professional for your specific situation in 2026.

What if my disability rating changes after closing? If your disability rating is approved after you close (or is increased retroactively), you may be entitled to a refund of the funding fee. Contact the VA directly and work with your lender's VA department to process the refund.

Do surviving spouses pay the funding fee? Surviving spouses who are eligible for VA loan benefits as surviving spouses of veterans who died in service or from a service-connected disability are exempt from the funding fee.

VA Loans as Part of Your Homebuying Strategy

The VA loan benefit is one of the most valuable financial benefits available to eligible veterans and service members. No down payment, no PMI, competitive interest rates, and limited closing costs add up to potentially tens of thousands of dollars in savings compared to conventional financing — even accounting for the funding fee.

But using the VA loan well requires understanding the details: the funding fee structure, the entitlement system, the VA appraisal process (which has its own requirements distinct from conventional appraisals), and the timeline differences compared to conventional loans.

The Complete First-Time Homebuyer Checklist at firsthometoolkit.com/homebuyer-checklist/ includes a VA loan section covering the funding fee, the Certificate of Eligibility process, VA appraisal requirements, and how VA loans interact with the offer and contingency process — alongside the full homebuying checklist for every other stage of the process.

Get the Complete Homebuyer Checklist — $14

If you've earned the VA loan benefit, make sure you understand it fully before you sign anything.