Rates, Exemptions, Refunds, and 2026 Updates
2026 VA Funding Fee
The VA Funding Fee and Closing Costs
The VA Home Loan Overview
VA News Funding Fee Tax Update
In 2026, VA funding fee rates are still the same as the schedule set in April 2023. The amount depends on your down payment, loan type, and whether this is your first VA use or a later use. Many borrowers can finance the fee, and some pay nothing at all because they qualify for a waiver.
Next step:
Check Your VA Funding Fee Exemption Now
Purchase and Construction Loan Rates
- Less than 5% down: First-time use is 2.15% and subsequent use is 3.30%.
- 5% to 9.99% down: The fee drops to 1.50% for both first-time and subsequent use.
- 10% or more down: The fee drops again to 1.25% for both first-time and subsequent use.
- Action: If you are near a 5% down payment, test whether the lower fee improves total cost enough to matter.
Refinance and Other Loan Rates
- IRRRL: The streamline refinance funding fee is 0.50%.
- Cash-Out Refinance: First use is 2.15% and subsequent use is 3.30%.
- Other uses: Loan assumptions are 0.50% and certain non-permanently affixed manufactured homes use 1.00%.
- Action: Match the funding fee to the exact loan type before you estimate cash to close.
Exemptions and Refunds
- Common exemptions: Many borrowers receiving VA disability compensation, eligible Purple Heart recipients on active duty, and some surviving spouses pay $0.
- Alternative pay status counts: Some borrowers eligible for disability compensation but receiving retirement or active-duty pay instead are also exempt.
- Retroactive refund path: If your disability effective date is on or before closing, you may be able to recover the full fee.
- Action: Check your COE and award dates before closing so the file is priced correctly from the start.
Key 2026 Updates
- Tax deductibility: VA has said borrowers can deduct funding fees starting with tax year 2026, subject to tax filing rules.
- Seller help: Seller concessions can sometimes be structured to cover the funding fee, depending on the full deal terms.
- Financing is still common: Many buyers roll the fee into the loan balance instead of paying it in cash.
- Action: Save your Closing Disclosure because it is the cleanest proof of the exact fee amount paid or financed.
Frequently Asked Questions
What is the VA funding fee in 2026?
Can you avoid the VA funding fee in 2026?
Can the VA funding fee be rolled into the loan?
Explore VA Funding Fee Resources
These articles cover costs, exemptions, refunds, deductions, and smart ways to handle the VA funding fee at closing.- VA Funding Fee: Complete Guide — Who pays, how it’s calculated, key examples.
- Disabled Veterans: VA Funding Fee Exemption — Eligibility by rating and required documents.
- VA Funding Fee Refund: How It Works — When refunds apply and how to request.
- Surviving Spouses: Funding Fee Exemptions — Qualifying cases, proof, and application steps.
- Is the VA Funding Fee Tax-Deductible? — When deductible and where it appears.
- Can the Seller Pay the VA Funding Fee? — Concession rules, 4% cap, negotiation tips.
- Finance the Funding Fee or Pay at Closing? — Compare total cost and cash flow.
2026 VA Funding Fee: Rates, Exemptions, Refunds, And Real Tradeoffs
How much will the VA funding fee cost you in 2026, and can you avoid it? The fee depends on loan type, down payment, and whether this is first use or subsequent use. The decisions that change your outcome are practical: whether you’re exempt, whether you finance the fee or pay it in cash, and whether seller credits are structured correctly under the 4% concession cap. This guide focuses on what changes approvals and closing math in real files.
Who Pays The Funding Fee In 2026?
Many borrowers pay it, but plenty don’t because they’re exempt. The fee is a one-time charge on VA-backed loans unless you meet an exemption category that applies at closing. The part that trips people up is timing: if the file can’t prove exemption before closing, the fee usually stays on the Closing Disclosure. You can still correct later in some cases, but that doesn’t help cash-to-close today.
- If your disability compensation or survivor status is already established, your lender can usually document exemption early and keep the fee off disclosures from day one.
- If you have a pending claim, lenders often treat you as non-exempt until the COE or VA systems show exemption, which can change late in the file.
- If you assume exemption without documentation, you can end up short on cash-to-close or with a payment that is higher than you budgeted.
- Scenario: A buyer budgets $0 for the fee, then learns the COE still shows “non-exempt,” forcing a last-week choice between financing or bringing cash.
VA.gov: VA Funding Fee And Loan Closing Costs
What Are The 2026 Funding Fee Rates For Purchase And Construction Loans?
Purchase and construction loans use the same rate chart. The rate depends on down payment and whether this is first use or after first use. These percentages are applied to the loan amount, not the purchase price, so a down payment changes both the percentage and the base it’s applied to. If your file is tight on residual income, the difference between 2.15% and 3.30% can matter.
| Down Payment | First Use | After First Use |
|---|---|---|
| Less Than 5% | 2.15% | 3.30% |
| 5% Or More | 1.50% | 1.50% |
| 10% Or More | 1.25% | 1.25% |
- “After first use” is a common surprise for repeat users at $0 down, because the jump to 3.30% increases the financed balance and the payment immediately.
- Putting 5% down can reduce the fee rate, but that cash might be more useful as reserves if your file is already borderline on manual underwriting or residual income.
- Because the fee is based on the loan amount, a down payment reduces the fee base, which can make the fee drop more than borrowers expect at the same percentage.
- Scenario: A repeat user chooses $0 down and finances the fee; the payment is fine until taxes and insurance update after appraisal and residual income tightens.
VA.gov: Funding Fee Rate Charts (Effective April 7, 2023)
What Are The Funding Fee Rates For IRRRL, Cash-Out, Assumptions, And Manufactured Homes?
Refinance and specialty VA loan types don’t use the down payment tier chart. IRRRLs, assumptions, and manufactured home loans not permanently affixed use fixed rates, while cash-out refinancing uses the first-use versus after-first-use split. This matters because borrowers often assume “refinance equals lower fee,” then discover cash-out is priced like a major VA use and the fee is bigger than expected.
- IRRRLs typically use a 0.5% funding fee, which is small but still real money when you finance it into the new loan and carry it for years.
- Cash-out refinances use the first-use versus after-first-use split, so repeat users should budget for the higher fee even if the refinance is “just to consolidate.”
- Loan assumptions carry a 0.5% funding fee, and assumption timelines can be slower, so rate savings can be real but the process is not always fast.
- Manufactured home loans not permanently affixed use a 1.0% funding fee, and the bigger risk is eligibility and collateral rules, not just the fee percentage.
VA.gov: Funding Fee Rates For Other VA Loan Types
Should You Finance The Funding Fee Or Pay It In Cash?
Financing the fee preserves cash; paying cash reduces the loan balance. The “right” choice depends on what is limiting your deal: monthly payment, residual income, or reserves. If your approval is tight on payment, financing can push you over the edge. If your approval is tight on reserves or you’re moving with limited cash, paying cash can create a different failure: no buffer for repairs, escrow changes, or emergency costs.
- Financing the fee increases the loan balance and interest paid over time, but it can keep reserves intact, which is often more valuable for manual-underwrite or low-score files.
- Paying cash can protect residual income by keeping the payment lower, but it can drain liquidity that underwriters view as a compensating factor on tight files.
- On purchase loans, you generally can’t finance normal closing costs, so “finance everything” is not a workable plan; seller credits and lender credits handle the rest.
- Scenario: A borrower passes residual income only if the fee is paid in cash; financing pushes PITI up enough that the residual calculation fails after final escrow numbers post.
VA.gov: Paying Or Financing The Funding Fee
What Counts As An Exemption And How Lenders Verify It?
You’re exempt if you meet one of the VA’s exemption categories at closing. The operational issue is proof: lenders typically rely on COE indicators and VA systems, and they’ll re-check close to closing when a claim is pending. Exemption is not based on “how disabled you feel” or what you expect later. It’s based on what the VA record shows on or before the closing date.
- Receiving VA compensation for a service-connected disability qualifies you for exemption, and there is no minimum rating threshold in the VA exemption list.
- Active-duty Purple Heart recipients can be exempt if evidence is provided on or before closing, which makes timing and documentation the real constraint.
- Surviving spouses receiving DIC can be exempt, but surviving spouse eligibility and DIC status must be established in the loan file before closing week.
- Scenario: A borrower is eligible for compensation but receives retirement pay instead; the file needs the correct VA indicator so the lender doesn’t charge the fee by default.
VA.gov: Funding Fee Exemptions
When Can You Get A Funding Fee Refund After Closing?
A refund is possible when you paid the fee and later receive disability compensation with an effective date before your loan closing date. The effective date is the hinge, not the decision date. If the award effective date is after closing, the fee was correctly charged. This is why “I’ll get a rating later” is not a closing plan unless the claim is likely to be retroactive to before closing.
- Check the VA decision letter for the effective date, because that date determines refund eligibility, not the day you received the letter or the day VA processed it.
- Keep your Closing Disclosure and the funded loan details together, because you’ll need proof of the funding fee amount and the closing date to support a refund request.
- Expect an administrative timeline, because a refund is not an instant closing adjustment; it is processed after VA confirms the exemption applied at closing by effective date.
- Scenario: A borrower closes while a claim is pending, pays the fee, then receives an award retroactive to before closing; the refund is real, but it arrives later.
Oversight.gov: Audit Summary on Funding Fee Refund Eligibility by Effective Date
Can The Seller Pay Your Funding Fee Under The 4% Concession Cap?
Yes, but it uses the seller concession bucket. Seller concessions are capped at 4% of the home’s reasonable value, and the funding fee credit counts as a concession. The seller can still pay normal closing costs without using the 4% bucket. The deal breaks when credits are labeled casually and the Closing Disclosure ends up showing more than 4% in concessions.
- Seller-paid closing costs and seller concessions are different buckets, and confusing them is how “seller pays everything” offers become noncompliant late.
- Funding fee credits count toward the 4% concession cap, so a big credit to cover the fee can crowd out other concession items like debt payoff or prepaids.
- Temporary buydowns funded by the seller or builder also count as concessions, which can push you over the cap if you stack buydowns and fee credits together.
- Scenario: A buyer asks for a seller-funded 2-1 buydown and also wants the seller to pay the funding fee; the combined concession total can exceed 4% and must be restructured.
VA Credit Standards Course: Seller Concessions and the 4% Cap
VBA: Temporary Buydowns and Seller Concession Treatment
Are Funding Fees Tax-Deductible Starting Tax Year 2026?
VA says funding fees can be deducted starting in 2026 for eligible borrowers, but the benefit depends on how you file. A deduction can reduce taxable income, but it doesn’t change your cash-to-close and it won’t help you qualify. The realistic planning move is treating it as a tax-time benefit, not as a reason to stretch purchase price or pay for points. If you don’t itemize, it may not help at all.
- This matters only if you paid a funding fee; exempt borrowers have nothing to deduct and should focus on getting exemption documented correctly before closing.
- Tax benefits usually require itemizing, so borrowers who take the standard deduction may not see any value from the deduction even if it is allowed.
- If you financed the fee, you still paid it as part of your loan cost structure, but tax treatment can differ from “paid in cash,” so keep your documents.
- Scenario: A buyer expects a tax benefit and stretches the payment; then escrow increases and the budget tightens, because deductions don’t solve monthly cash flow.
VA News: Home Loan Borrowers Can Now Deduct Funding Fees
IRS: Instructions for Schedule A (Form 1040)
The Bottom Line
In 2026, the VA funding fee is based on loan type, down payment, and whether the loan is first use or after first use. Many borrowers pay it, but exemption is common and depends on what the VA record shows at closing. If you are not exempt, your key decision is cash versus financing: financing preserves reserves but raises the loan balance and payment; paying cash lowers the balance but can drain the cushion underwriters and real life both rely on. Seller credits can cover the fee, but seller concessions are capped at 4% of reasonable value and the fee credit counts in that cap. Refunds hinge on a disability award effective date before closing. VA also says fees are deductible starting tax year 2026, but only the tax return can confirm how it applies to you.
Resources Used
- VA.gov: VA Funding Fee and Loan Closing CostsCurrent rate charts, exemption categories, refund rules, seller concession cap language, and financing limits for purchase loans.
- VA Credit Standards Course: Seller Concessions and the 4% CapExplains what counts toward the 4% cap and that normal closing costs can be seller-paid outside the concession bucket.
- VBA: Temporary BuydownsConfirms seller-funded temporary buydowns count as seller concessions and are capped at 4% of reasonable value.
- VA News: Home Loan Borrowers Can Now Deduct Funding FeesVA announcement on deductibility starting tax year 2026.
- IRS: Instructions for Schedule A (Form 1040)Itemizing rules that determine whether deductions apply on a given return.
- Oversight.gov: Audit Summary on Funding Fee Refund EligibilityConfirms refund eligibility hinges on an effective date for benefits before loan closing.
Frequently Asked Questions
Is the Funding Fee Based on the Purchase Price or the Loan Amount?
It’s based on the loan amount. A down payment reduces the loan amount, so it also reduces the fee base. If you finance the fee, the fee increases the final loan balance you repay over time.
Who Is Exempt From the Funding Fee?
You’re exempt if the VA record shows you receive disability compensation, you’re eligible but receiving retirement or active-duty pay, you’re a qualifying surviving spouse receiving DIC, or you’re an active-duty Purple Heart recipient with evidence before closing.
Can I Finance the Funding Fee on a Purchase Loan?
Usually yes. You can typically finance the funding fee into the loan amount, but you generally cannot finance other closing costs on a purchase loan. Financing raises the loan balance and payment, so check residual income if your file is tight.
Can the Seller Pay My Funding Fee?
Yes, but it counts as a seller concession and uses the 4% concession cap tied to the VA Notice of Value. Standard closing costs can still be seller-paid outside the cap. Misclassification is the most common late-file problem.
When Can I Get a Funding Fee Refund?
A refund is possible if you paid the fee and later receive disability compensation with an effective date before your loan closing date. The effective date controls eligibility. Keep your Closing Disclosure and the VA decision letter to support the request.
Are Funding Fees Tax-Deductible Starting Tax Year 2026?
VA says yes for tax year 2026, but the benefit depends on your tax filing. Deductions generally require itemizing, and it won’t change your mortgage approval. Keep your Closing Disclosure because it shows the fee amount you actually paid.