By Dollar Feeder | Published July 2, 2026
The VA loan funding fee is one of the most important costs to understand before using a VA-backed home loan. It can be paid at closing or rolled into the loan, and some veterans, service members, and surviving spouses do not have to pay it at all. The planning mistake is treating the fee like a small line item when it can change your cash needed to close, your loan balance, and your monthly payment.
This article is general education for veterans, service members, surviving spouses, and military families. It is not individualized financial, tax, legal, mortgage, benefits, real estate, or investment advice. VA rules, tax treatment, lender requirements, closing costs, eligibility, disability status, and household affordability can change or depend on your facts. Confirm details with VA, your lender, a VA-accredited representative, a qualified tax professional, and other qualified professionals before making decisions.
What the VA Funding Fee Is
The VA funding fee is a one-time charge on many VA-backed or VA direct home loans. VA explains that the fee helps lower the cost of the home loan program for taxpayers because VA loans generally do not require a down payment or monthly mortgage insurance.
That does not mean it is always small. For a buyer who is not exempt, the fee is calculated as a percentage of the loan amount. The percentage can depend on the loan type, whether it is a first or later use of the VA loan benefit, and the size of the down payment.
For planning, keep three ideas separate:
- The home price: What you agree to pay for the property.
- The base loan amount: The amount you borrow before any financed funding fee.
- The total loan amount: The loan balance after adding a financed funding fee, if you choose to finance it.
VA says the funding fee applies to the loan amount, not the purchase price. That distinction matters when you make a down payment, because the fee percentage and the dollar amount may both change.
Current VA Funding Fee Percentages for Purchase Loans
VA's published funding fee chart is effective April 7, 2023, and the VA.gov page was last updated January 15, 2026. For VA-backed purchase and construction loans, the current rates for veterans, active-duty service members, and National Guard and Reserve members are:
| Use of VA Loan Benefit | Down Payment | Funding Fee |
|---|---|---|
| First use | Less than 5% | 2.15% |
| First use | 5% or more | 1.5% |
| First use | 10% or more | 1.25% |
| After first use | Less than 5% | 3.3% |
| After first use | 5% or more | 1.5% |
| After first use | 10% or more | 1.25% |
The big planning point: the fee can be much higher for a subsequent use with less than 5% down. That does not automatically make the VA loan a bad choice, but it means you should compare the full cost, not only the monthly payment.
A Simple Funding Fee Example
Suppose a first-time VA loan user buys a $300,000 home with no down payment and is not exempt from the funding fee. A 2.15% fee on a $300,000 loan would be $6,450.
If that buyer finances the fee, the loan balance would increase from $300,000 to $306,450 before interest. The fee is not just a closing-day number. If it is rolled into the mortgage, it becomes part of the amount that accrues interest over time.
Now suppose the same buyer puts 5% down. The base loan amount would be $285,000, and the funding fee percentage would drop to 1.5%. That fee would be $4,275. The down payment requires more cash up front, but it reduces both the loan amount and the fee percentage.
| Scenario | Base Loan Amount | Fee Percentage | Fee Amount |
|---|---|---|---|
| First use, 0% down | $300,000 | 2.15% | $6,450 |
| First use, 5% down | $285,000 | 1.5% | $4,275 |
| First use, 10% down | $270,000 | 1.25% | $3,375 |
These examples are for education only. Your lender's Loan Estimate and Closing Disclosure should show the actual fee, loan amount, cash to close, interest rate, and payment details for your transaction.
Who Usually Pays the Funding Fee
If the borrower is not exempt, the funding fee is usually the borrower's cost. VA says it can be paid in either of two ways:
- Paid in full at closing. This keeps the fee out of the mortgage balance but increases cash needed to close.
- Included in the loan and paid over time. This can reduce up-front cash pressure, but it increases the loan balance and can add interest cost over the life of the loan.
Other parties may also help in some cases. VA says home sellers or builders may offer credits to cover some or all of a buyer's closing costs, and seller concessions can include credits for the VA funding fee. VA also notes that seller concessions are limited to no more than 4% of the home's reasonable value.
Do not assume a seller credit is automatic. In a competitive purchase, the seller may reject the request or raise the price to offset it. In a slower market, seller help may be negotiable. Either way, ask your lender and real estate professional to model the numbers clearly.
Who Is Exempt From the VA Funding Fee
VA lists several exemption categories. You generally will not have to pay the VA funding fee if one of these applies to you:
- You are receiving VA compensation for a service-connected disability.
- You are eligible to receive VA compensation for a service-connected disability, but you are receiving retirement pay or active-duty pay instead.
- You are receiving Dependency and Indemnity Compensation as the surviving spouse of a veteran.
- You are a service member with a proposed or memorandum rating before the loan closing date showing eligibility for compensation because of a pre-discharge claim.
- You are an active-duty member of the Armed Forces and, on or before the loan closing date, you provide evidence that you received a Purple Heart.
Exemption status should be confirmed before closing. Do not rely on memory, an old claim status, or a casual statement from someone outside the loan process. Ask your lender how the exemption is being verified and whether the Certificate of Eligibility, VA benefit record, proposed rating, or other documentation supports the fee waiver.
What If Your Disability Claim Is Approved After Closing?
A borrower may be eligible for a funding fee refund if VA later awards compensation for a service-connected disability and the effective date of that compensation is retroactive to before the loan closing date.
That effective-date detail matters. If the award date supports the refund rule, the fee may be returned. If a proposed or memorandum rating is received only after closing, VA says the borrower still needs to pay the fee and will not be eligible for a refund based on that rating.
If this might apply to you, keep the Closing Disclosure, VA loan documents, disability decision letter, and effective-date records together. Then contact VA or your lender about the refund process instead of assuming it will happen automatically.
How the Funding Fee Fits With Other Closing Costs
The funding fee is not the same thing as every other closing cost. VA says lenders determine many loan details, including the interest rate, discount points, and other closing costs. Typical closing costs can include appraisal, title, recording, taxes, insurance, credit report items, and lender charges.
There is also an important purchase-loan rule: VA says that on a purchase or construction/permanent loan, only the VA funding fee can be financed into the loan amount. Other fees and charges generally must be paid when the loan closes, unless they are covered another permitted way.
That is why a buyer should review the full Loan Estimate, not only the funding fee. A no-down-payment VA loan can still require cash for earnest money, inspections, appraisal timing, prepaid insurance, escrow setup, moving costs, repairs, furniture, utility deposits, and the first few months of homeownership.
Refinance, IRRRL, NADL, and Other Loan Types
Purchase loans are only one part of the chart. VA also publishes current funding fee rates for other loan types. As of the current VA chart:
- VA-backed cash-out refinance: 2.15% for first use and 3.3% after first use.
- Interest Rate Reduction Refinance Loan: 0.5%.
- Native American Direct Loan purchase: 1.25%.
- Native American Direct Loan refinance: 0.5%.
- Manufactured home loan not permanently affixed: 1%.
- Loan assumption: 0.5%.
- Vendee loan for purchasing VA-acquired property: 2.25%.
If you are refinancing, do not use a purchase-loan article or social media chart as your source. Refinance costs, recoupment, interest rate changes, and loan-term resets can change the real benefit of the transaction. Ask for a side-by-side comparison showing the old loan, the new loan, fees, payment change, break-even period, and total interest impact.
Is the Funding Fee Tax-Deductible?
VA News reported in February 2026 that eligible home loan borrowers can deduct VA funding fees when purchasing a home using the VA-guaranteed home loan. That is a tax-sensitive claim, so treat it carefully.
Do not assume the deduction will help your household just because the fee appears deductible. Itemizing versus taking the standard deduction, purchase timing, income, other deductions, and tax-law details can change the outcome. Keep your closing documents and ask a qualified tax professional how the rule applies to your return.
How to Plan Before You Make an Offer
Before you shop seriously, ask your lender for numbers that separate the funding fee from the rest of the transaction. You want to know:
- Your expected funding fee percentage
- Whether your VA records show an exemption
- Whether you are a first-time or subsequent user for fee purposes
- How different down payment amounts change the fee
- The cash-to-close difference between paying and financing the fee
- The payment difference if the fee is rolled into the loan
- Whether seller credits are realistic for your price range and market
- Whether property taxes, insurance, HOA dues, or repairs make the payment less affordable than it first appears
A VA loan can be powerful, but the strongest buyers still know their all-in cost before they fall in love with a property.
A Practical Pre-Closing Checklist
Use this checklist before closing day:
- Verify exemption status early. Ask the lender what VA record or documentation supports the answer.
- Compare fee scenarios. Model no down payment, 5% down, and 10% down if those are realistic choices.
- Review the Loan Estimate. Check whether the funding fee is paid at closing or financed.
- Review the Closing Disclosure. Confirm the final loan amount, cash to close, and funding fee line.
- Keep cash outside closing. Do not drain every dollar just to reduce the fee.
- Save the documents. Keep the Closing Disclosure, COE, exemption records, and any disability decision paperwork.
- Ask tax questions separately. Mortgage approval is not tax advice.
The Bottom Line
The VA loan funding fee is not something to ignore or fear. It is a real cost that should be modeled early. If you are exempt, make sure the exemption is verified before closing. If you are not exempt, decide whether paying the fee up front or financing it fits your cash position, payment comfort, and long-term plan.
The best VA loan decision is not just about getting approved. It is about buying a home with enough cash left to handle repairs, moving costs, insurance, taxes, maintenance, and the first year of ownership without turning the mortgage into a monthly stress test.
Sources and Official Starting Points
- VA.gov: VA funding fee and loan closing costs
- VA.gov: Buying a home with a VA-backed loan
- VA.gov: VA home loan entitlement and loan limits
- VA News: Funding fee, who pays, and who is exempt
- VA News: Home loan borrowers can now deduct funding fees
- VA Home Loan Guaranty Buyer's Guide
Disclaimer: Dollar Feeder provides general educational information only. This article is not financial, investment, legal, tax, mortgage, real estate, insurance, or benefits advice, and it does not create a professional-client relationship. VA rules, funding fee rates, tax treatment, lender requirements, eligibility, exemptions, and closing costs can change and may depend on your specific facts. Use official sources and qualified professionals before making decisions.
~Veteran Owned and Operated~