The Bottom Line Up Front

The VA funding fee is a one-time charge paid to the Department of Veterans Affairs, not to your lender. It replaces mortgage insurance and keeps the VA loan program running without a down payment requirement. The real question for most borrowers is whether disability exemption status is reflected on their Certificate of Eligibility before closing. If the COE does not show the exemption, the fee is collected and has to be recovered through a refund process afterward.

For a first-time VA borrower with no money down, the fee is 2.15% of the base loan amount. On a $400,000 purchase, that is $8,600 financed into the loan, not paid at the table. Repeat users pay 3.30% with no down payment. Veterans receiving VA disability compensation and certain surviving spouses are exempt entirely.

Related Funding Fee Guides

2026 VA Funding Fee Rates by Loan Type

The fee varies by loan type, whether it is a first VA loan or a subsequent use, and how much you put down. These rates apply to loans closing on or after April 7, 2023, and before November 14, 2031.

The manufactured-home exception: if a Veteran's only prior use of VA entitlement was for a manufactured home loan, the subsequent-use rate does not apply. That Veteran pays the first-use rate on the next purchase or cash-out refinance.

Purchase Price, Down Payment, and the Fee Base

The funding fee percentage applies to the base loan amount (purchase price minus down payment), not to the total loan including the financed fee. The percentage down is calculated as a percentage of the total purchase price.

Who Is Exempt from the VA Funding Fee

Exemption is determined by your status at the time of loan closing. The VA exemption categories from 38 USC 3729(c) and the VA.gov funding fee page are:

How Exemption Is Verified Before Closing

Exemption verification happens in stages. The lender checks the Certificate of Eligibility, requests documentation if needed, and follows VA procedures if the status cannot be confirmed before closing.

Stage 1: Check the COE. The COE displays the exemption status. If the COE shows exempt, no fee is collected. If the COE shows non-exempt and the Veteran has a pending compensation claim, Circular 26-23-19 directs the lender to request an updated COE prior to closing to verify any changes.

Stage 2: Active-duty pre-discharge claims. For active-duty service members with a pre-discharge disability claim pending, the lender submits VA Form 26-8937 (Verification of VA Benefits). The VA researches the claim and updates the COE. If a proposed or memorandum rating is not obtained before closing, the service member is not exempt and will not be entitled to a refund.

Stage 3: If exempt status cannot be determined before closing. The Handbook states: "If the Veteran's exempt status cannot be verified prior to loan closing, the funding fee must be remitted as if the borrower was not exempt." The circular adds: "Lenders should not advise Veterans who believe they are exempt from paying the funding fee to close on a loan and plan to request a refund later."

Refunds When the Effective Date Is Before Closing

The VA states: "You may be eligible for a refund of the VA funding fee if you're later awarded VA compensation for a service-connected disability. The effective date of your VA compensation must be retroactive to before the date of your loan closing."

How the refund is issued: Circular 26-23-19 states that "VA will issue the refund directly to the Veteran or surviving spouse." The lender or servicer initiates the correction in the VA Funding Fee Payment System (FFPS). The VA does not reduce the loan balance; the refund goes to the Veteran.

Joint Loans with Two Veterans

When two Veterans use entitlement together on a joint loan, the Handbook states: "Funding fees are always calculated equally by the number of people on the loan. It is based on each Veteran paying their equal share of the loan." Each Veteran's portion is calculated separately using that Veteran's own use history and exemption status.

Example: On a $400,000 purchase with no down payment, if Veteran A is exempt and Veteran B is a first-time user, Veteran A owes $0 on their 50% share ($200,000). Veteran B owes 2.15% on their 50% share: $200,000 x 0.0215 = $4,300. The total fee is $4,300. See the joint VA loan funding fee calculator for your scenario.

First Use and Subsequent Use

"First use" means the first time VA entitlement was ever used for a VA-guaranteed loan. Every use after that is subsequent use. Restoring entitlement after paying off a prior VA loan makes entitlement available again, but it does not reset the fee tier back to first use.

The manufactured-home exception: if a Veteran's only prior use of entitlement was for a manufactured home loan, the higher subsequent-use fee does not apply to the next purchase or cash-out refinance. That Veteran pays the first-use rate.

On joint VA loans, each Veteran's use history is evaluated individually. If one Veteran is on a first use and the other is on a subsequent use, each pays the rate matching their own history on their share of the loan.

Finance the Fee or Pay at Closing

The VA allows borrowers to include the funding fee in the loan amount. On a purchase or construction loan, only the funding fee can be financed into the loan. All other closing costs must be paid when the loan closes.

At 6.50% over 30 years, financing an $8,600 funding fee adds approximately $54 per month. Over the full term, the interest on that $8,600 is approximately $10,970, bringing the total cost to approximately $19,570. If you sell or refinance after 7 years, you will have paid approximately $4,566 toward the fee (of which approximately $3,742 is interest) and the remaining fee principal is approximately $7,776.

Seller Credits, Buydowns, and the 4 Percent Limit

The seller can pay the funding fee as a seller concession. The Handbook defines a seller concession as "anything of value added to the transaction by the builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to pay or provide." Seller concessions include payment of the buyer's VA funding fee.

The 4 percent limit: "Any seller concession or combination of concessions which exceeds four percent of the established reasonable value of the property is considered excessive, and unacceptable for VA-guaranteed loans." Normal discount points and payment of the buyer's closing costs are not included in the 4% calculation.

Temporary buydowns funded by the seller are also seller concessions and count toward the 4% cap. Lenders qualify the borrower at the full payment amount, not the bought-down rate.

Tax Deductibility

The VA announced in February 2026 that "Starting this year, Veterans, service members and their surviving spouses can deduct VA funding fees on their taxes when purchasing a home using the VA-guaranteed home loan." The VA's notice includes this disclaimer: "This post is for informational purposes only and is not intended to be, and should not be construed as, tax, legal or accounting advice."

A deduction is not a credit. A deduction reduces taxable income, so the actual tax savings depend on your marginal tax rate. The deduction also requires itemizing. Borrowers taking the standard deduction see no benefit from this provision. A deduction does not change cash-to-close or help qualify for the loan.

Refinances and Other Loan Types

IRRRL and cash-out refinances carry separate fee structures. The IRRRL fee is a flat 0.50% regardless of prior use. Cash-out refinances follow the purchase fee schedule: 2.15% first use, 3.30% subsequent use.

Loan assumptions carry a 0.50% fee on the remaining loan balance. Manufactured home loans not on a permanent foundation carry a flat 1.00% fee. Native American Direct Loans are 1.25% for purchase and 0.50% for refinance.

Frequently Asked Questions