The VA funding fee is usually the single largest cost on a VA home purchase, and starting with the 2026 tax year it became tax deductible for borrowers who itemize. That change, passed as part of the 2025 tax legislation that restored the mortgage insurance premium deduction, is the first meaningful shift in how the fee works since the current rate schedule took effect in April 2023. For a first time buyer putting nothing down on a $400,000 home, the fee is $8,600. Understanding how it is calculated, who does not have to pay it, and how to reduce it can change your cash to close by thousands of dollars.
What Is the VA Funding Fee?
The VA funding fee is a one time charge the Department of Veterans Affairs collects on most VA backed home loans. It is not a lender fee, and no lender sets it or profits from it. The fee goes directly to the VA to sustain the loan program, which is how the VA can guarantee loans with no down payment and no monthly mortgage insurance without passing the full cost to taxpayers.
That last part is the trade worth understanding. A conventional borrower who puts less than 20% down pays private mortgage insurance, a monthly premium that protects the lender, every month until they build enough equity to remove it. An FHA borrower pays both an upfront premium and a monthly one that often lasts the life of the loan. A VA borrower pays the funding fee once and then never pays mortgage insurance again. Over the life of a loan, that structure usually favors the VA borrower by a wide margin, even when the upfront fee looks large.
The fee applies to purchases, cash out refinances, and streamline refinances, though at very different rates. It can be paid in cash at closing or rolled into the loan balance, and a significant share of veterans owe nothing at all.
How Much Is the VA Funding Fee in 2026?
The fee is a percentage of your loan amount, and three things determine which percentage applies: the type of loan, your down payment, and whether you have used your VA loan benefit before. The current rates took effect on April 7, 2023 and remain in place for 2026. Congress sets these rates by legislation, so they do not adjust annually the way loan limits do.
On a purchase or construction loan with less than 5% down, the fee is 2.15% for first time users and 3.30% for anyone who has used the benefit before. A down payment of 5% to 9.99% drops the fee to 1.50% for everyone, first use or not. At 10% or more down, it falls to 1.25% across the board. If you are new to how these loans work on the purchase side, our explainer on what a VA purchase loan is covers the process from offer to closing.
Cash out refinances are charged at those same zero down purchase rates, 2.15% for first use and 3.30% for subsequent use, no matter how much equity you have in the home. A veteran with 40% equity doing a cash out refinance on a second use of the benefit still pays 3.30%, which is a real argument for comparing a home equity loan against a VA cash out before committing.
The lowest rates in the program belong to the IRRRL, the VA's streamline refinance, and to loan assumptions. Both carry a flat 0.50% fee regardless of usage history.
Two details in that schedule catch borrowers off guard. First, the subsequent use penalty only exists at the zero down tier. Put 5% down on your second VA purchase and you pay the same 1.50% a first time buyer would. Second, first use means the first time the funding fee is charged on your entitlement, and restoring your entitlement after paying off a prior VA loan does not reset you to first use rates. If you have used the benefit before, you are a subsequent user for fee purposes even after full restoration.
What the Funding Fee Costs in Real Numbers
Percentages hide the stakes, so here is the math on a $400,000 purchase. A first time user with nothing down pays 2.15% of $400,000, which is $8,600. Most borrowers finance it, which makes the actual loan $408,600. At a 6.5% rate over 30 years, that financed fee adds roughly $54 per month to the payment, or about $19,500 in total payments over the full term.
Now run the same purchase with 5% down. The loan drops to $380,000 and the fee tier drops to 1.50%, so the fee is $5,700 instead of $8,600. That $20,000 down payment saved $2,900 in fees on top of the interest saved on the smaller balance. For borrowers sitting right at the edge of a down payment decision, the fee tier is often the deciding factor, because the jump from 4.99% down to 5% down is worth 0.65% of the entire loan amount. If you are weighing how much to put down in the first place, our guide on what a down payment is walks through the tradeoffs beyond the fee tiers.
The subsequent use math is harsher. That same zero down $400,000 purchase on a second use of the benefit carries a 3.30% fee, which is $13,200. Veterans planning to use the benefit more than once should know that number before assuming the second purchase will look like the first. If you are earlier in the process and still comparing loan types, our overview of what a VA loan is and who qualifies covers the full benefit picture beyond the fee.
Who Is Exempt From the VA Funding Fee
Exemptions are not an edge case. According to the VA, more than half of veterans who obtained a VA guaranteed home loan since 2021 were exempt from the funding fee entirely. You are exempt if any of the following applies:
- You receive VA disability compensation for a service connected condition, at any rating of 10% or higher.
- You are eligible to receive disability compensation but receive retirement or active duty pay instead.
- You are a surviving spouse receiving Dependency and Indemnity Compensation, or eligible under the VA home loan benefit as a surviving spouse.
- You are a service member with a proposed or memorandum rating before your loan closes, indicating entitlement to compensation.
- You are an active duty service member who has received the Purple Heart and can provide evidence before or at closing.
The exemption is not small money. On typical loan sizes it saves between $4,300 and $13,000, which is why verifying your status before closing matters so much. Your lender confirms exemption through your COE, so make sure it reflects your current disability status. Our explainer on what a Certificate of Eligibility is covers how to get one and what it shows. If a disability claim is pending when you close, pay attention to the refund rules in the next section, because you may get the money back.
VA Funding Fee Refunds
The VA refunds the funding fee in one specific and surprisingly common scenario. If you paid the fee at closing and are later awarded disability compensation with an effective date before your closing date, you are entitled to a refund of the full fee.
This happens more often than you might expect. Disability claims take time to process, and veterans frequently close on homes while a claim is pending. When the rating comes through and the effective date lands before closing, the fee should come back. If you financed the fee into your loan, the refund is typically applied to your principal balance rather than sent as a check.
The process is supposed to happen automatically through your lender or the VA, but automatically is doing some heavy lifting in that sentence. If you receive a retroactive rating, contact your loan servicer and confirm the refund is in motion rather than assuming it is. Keep your Closing Disclosure, since it documents exactly what you paid.
Should You Finance the Funding Fee or Pay It in Cash?
Most borrowers roll the fee into the loan, and for most borrowers that is the right call. The whole point of the VA benefit is preserving cash, and writing an $8,600 check at closing undermines it. Financing the fee raises the monthly payment modestly, about $54 on the example above, and keeps your savings intact for moving costs, repairs, and reserves.
Paying cash makes sense in narrower cases. If you plan to sell or refinance within a few years, the financed fee sits in your balance earning interest against you without much time for the tradeoff to matter. If your loan amount is brushing up against the appraised value, financing the fee can push your total loan above the home's value, which is allowed on VA loans but leaves you with negative equity on day one.
There is a third path worth negotiating for. VA rules allow the seller to pay your funding fee as a seller concession, a contribution from the seller toward your costs. The funding fee counts against the VA's 4% concession cap, while standard closing costs the seller pays do not, so the two categories need to be structured correctly in the contract. Our breakdown of what seller closing costs are explains what sellers typically pay on their own side and where concessions fit in. This is also a place where agent experience shows. CapCenter's realty team ranks in the top 1% of agents by transaction volume, and structuring VA concessions correctly, so the funding fee gets covered without blowing the cap or misclassifying costs, is exactly the kind of detail that high volume experience makes routine.
The Funding Fee Is Now Tax Deductible
Beginning with the 2026 tax year, the VA funding fee is deductible as a mortgage insurance premium for borrowers who itemize deductions. The 2025 tax legislation restored the mortgage insurance premium deduction on a permanent basis, and the VA funding fee qualifies under it, reported on Schedule A the same way an FHA upfront premium would be. The Department of Veterans Affairs announced the change in early 2026.
The practical value depends entirely on your tax situation. The deduction requires itemizing, and most households take the standard deduction, so many VA borrowers will see no benefit. Income limits also phase the deduction out at higher adjusted gross incomes. But for a borrower who already itemizes, deducting an $8,600 fee has real value in the year of the purchase. The deduction does not change your loan approval, your rate, or your cash to close. It is purely a tax question, and it is worth a conversation with a tax professional before you count on it.
What the change signals matters as much as the dollars. The funding fee has been treated as a fixed, unavoidable cost for decades. Between the exemptions, the refund rules, seller concessions, and now the deduction, there are more ways to reduce or recover it than most veterans realize.
How the Funding Fee Fits Into Total VA Closing Costs
Here is the honest framing most lenders skip. The funding fee is a VA charge, set by Congress, and it follows you to any lender in the country. What varies from lender to lender is everything else on the closing statement: origination fees, underwriting fees, processing fees, and the third party costs like title, settlement, and appraisal that typically add thousands more on top of the funding fee.
That second category is where CapCenter changes the math. With ZERO Closing Costs, CapCenter charges no lender fees and covers the third party closing costs on VA purchase and refinance loans. For a VA borrower, that means the funding fee becomes close to the whole story on costs instead of one line among many. And since more than half of VA borrowers are exempt from the fee, many can get remarkably close to a true zero cost, zero down purchase. You can see how the numbers come together on our breakdown of why you should not pay closing costs.
The same logic applies even more sharply to the IRRRL. At 0.50%, the streamline refinance carries the lowest funding fee in the program, and when the lender side costs are eliminated, the decision to refinance reduces to a simple question: is the new rate enough better than the old one? Our full explainer on the VA IRRRL walks through how the streamline process works, and you can model your own numbers with our refinance calculator before talking to anyone.
Frequently Asked Questions
Do I pay the VA funding fee every time I use my benefit?
Yes, unless you are exempt. The fee applies each time you take out a VA loan, and subsequent uses at less than 5% down are charged the higher 3.30% rate. Down payments of 5% or more bring subsequent use fees back down to first use levels.
Is the VA funding fee the same as PMI?
No. PMI is a recurring monthly premium on conventional loans with less than 20% down. The funding fee is a one time charge, and VA loans never carry monthly mortgage insurance regardless of down payment.
Can I get the funding fee waived if my disability claim is still pending?
If you have a proposed or memorandum rating before closing, you may close exempt. If the rating arrives after closing with an effective date before your closing date, you are entitled to a refund of the fee you paid.
Does the funding fee count toward the VA's limit on seller concessions?
Yes. A seller paying your funding fee counts against the 4% concession cap. Standard closing costs the seller pays fall outside the cap, so the contract needs to classify each correctly.
How do I know what my exact funding fee will be?
Multiply your loan amount by the rate that matches your loan type, down payment, and usage history. Your Loan Estimate will show the exact figure, and you can model the full payment with our purchase calculator before you apply.
The Bottom Line
The VA funding fee is the price of a loan program that asks for no down payment and no monthly mortgage insurance, and on those terms it is usually a good trade. But it is not a fixed cost to accept passively. The rate you pay moves with your down payment, your usage history, and your loan type. Exemptions eliminate it entirely for more than half of VA borrowers. Retroactive ratings trigger refunds. Sellers can pay it. And as of the 2026 tax year, itemizers can deduct it.
The veterans who pay the most are the ones who treat the fee as a footnote. The ones who pay the least checked their exemption status, ran the down payment tiers, and structured their contract before closing day.
If you are weighing a VA purchase or refinance, the funding fee math is straightforward once your situation is clear. You can check current rates without an application, start an application in about 15 minutes when you are ready, and our team can walk through your COE, your fee tier, and your total cost picture in one conversation.
