The VA funding fee is usually a one-time charge paid by the Veteran, service member or eligible survivor who uses a VA-backed or VA direct home loan. It is due at closing. You can pay it in cash or add it to the loan, and adding it increases the amount you borrow and repay. A qualifying disability-compensation, survivor or service-member status can make the fee zero. On a purchase or construction loan, a down payment of at least 5% or 10% lowers the rate, but it does not eliminate the fee.
The applicable percentage depends on the loan type, whether this is your first or a subsequent use of VA loan entitlement, and—on purchase or construction loans—the size of your down payment. The rate is applied to the loan amount, not the home’s purchase price. Confirm the current schedule and your exemption status with your lender before closing.
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What the VA funding fee is and why it exists
The funding fee helps support the VA home-loan program. The Department of Veterans Affairs explains that “This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance.” It is separate from ordinary closing costs such as appraisal, title, recording and lender charges. The VA funding-fee page lists the fee and closing-cost rules at VA Funding Fee and Loan Closing Costs.
For most borrowers, the charge is assessed once, at closing. You may bring cash to closing or authorize the lender to finance the fee. Financing avoids an immediate cash payment but increases the principal balance; interest is then charged on the larger balance under your loan terms.
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VA data reported by VA News says that, since 2021, more than half of Veterans who obtained a VA-guaranteed home loan were exempt from the funding fee. The article does not provide a denominator or a more detailed breakdown, so that figure should not be treated as a percentage for every borrower or every year. The program has also reached a 29 millionth VA-guaranteed home loan milestone, reported by VA News in February 2026; that is program context, not an eligibility rule or fee rate.
How the fee rate is calculated
Start with the amount you are borrowing. For a purchase loan, that generally means the base loan after your down payment, before any funded fee is added. Do not multiply the percentage by the home’s purchase price unless the loan amount happens to be the same. The rate then depends on the loan category shown below.
The following schedule is from VA Circular 26-23-06, Exhibit B, and applies to loans closing on or after April 7, 2023, and before November 14, 2031. VA and your lender should confirm the rate in effect when your loan closes; a later law or VA update could change it. See the VA circular and the current VA fee page.
| Loan type and use | Down payment | Funding fee |
|---|---|---|
| Purchase or construction, first use | Less than 5% | 2.15% |
| Purchase or construction, first use | 5% or more | 1.5% |
| Purchase or construction, first use | 10% or more | 1.25% |
| Purchase or construction, subsequent use | Less than 5% | 3.3% |
| Purchase or construction, subsequent use | 5% or more | 1.5% |
| Purchase or construction, subsequent use | 10% or more | 1.25% |
| Cash-out refinance, first use | Any | 2.15% |
| Cash-out refinance, subsequent use | Any | 3.3% |
| Interest Rate Reduction Refinance Loan (IRRRL) | Any | 0.5% |
| Manufactured-home loan that is not permanently affixed | Any | 1% |
| Loan assumption | Any | 0.5% |
| Native American Direct Loan | Any | 1.25% for a purchase; verify the applicable direct-loan type and current schedule |
A “subsequent use” rate applies when you have previously used VA loan entitlement in a way covered by the schedule. Your lender determines which use category applies; do not assume that owning a home or having made a prior mortgage payment, by itself, answers the question.
The percentage is not a separate monthly insurance charge. It is a one-time calculation based on the qualifying loan amount. If the fee is financed, the lender adds the calculated dollar amount to the balance after determining the fee; the financed fee itself is not a reason to recalculate the percentage on the home’s price.
Worked example: calculating the dollar amount
The VA’s example uses a $200,000 home, a $10,000 down payment and a resulting $190,000 loan. If it is a first-use purchase with at least 5% down, the listed rate is 1.5%. The fee is therefore $190,000 × 0.015 = $2,850. The 1.5% is applied to the $190,000 loan, not to the $200,000 purchase price.
If you finance that $2,850, the starting balance becomes $192,850 before any other financed items permitted by your lender. If you pay it at closing instead, the loan starts at the original $190,000, but you need $2,850 more cash (in addition to other closing funds). Ask for both versions on the Loan Estimate or closing disclosure so you can compare cash needed, principal and projected interest.
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Who is exempt from paying the fee
Exemption is different from a reduced rate. An exempt borrower owes no funding fee for the qualifying loan; a borrower who qualifies for a lower purchase rate still pays a percentage. The VA identifies these exemption categories:
- VA disability compensation: You are receiving VA compensation for a service-connected disability.
- Compensation eligibility with another pay type: You are eligible for VA disability compensation but receive military retirement pay or active-duty pay instead.
- Surviving spouse receiving DIC: You are a surviving spouse receiving Dependency and Indemnity Compensation. Being a surviving spouse alone does not automatically qualify you.
- Pre-discharge proposed or memorandum rating: Before closing, a service member has a proposed or memorandum rating showing eligibility for compensation based on a pre-discharge claim.
- Purple Heart evidence: An active-duty service member provides evidence by closing that they received a Purple Heart.
Eligibility can depend on the timing and documentation, not simply on having filed a claim. Tell the lender about any VA compensation award, retirement-pay offset, DIC award, proposed rating or Purple Heart documentation as soon as possible. Ask the lender to verify the exemption with VA before the loan closes and to show the fee as zero when the exemption is established.
A lender may initially disclose a fee while verification is pending. That disclosure is not proof that you are ineligible; it means the status has not yet been documented in the file. Request a corrected Loan Estimate or Closing Disclosure when VA confirms the exemption, and review the final funding-fee line before signing.
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Ways to reduce or avoid the fee
1. Establish an exemption before closing
- Review your VA award, proposed-rating or other qualifying documentation.
- Give the lender the documentation and ask which exemption category it supports.
- Ask the lender to confirm the status with VA and reflect the result in the final closing figures.
- If the lender cannot verify the exemption, ask what additional evidence is needed and how the charge would be handled if VA later confirms eligibility.
Do not treat a pending disability claim as an automatic exemption. The timing rules for proposed or memorandum ratings are specific, and the lender must be able to document the status at closing.
2. Use the down-payment bands on a purchase or construction loan
For a qualifying purchase or construction loan, at least 5% down changes the listed first-use rate from 2.15% to 1.5%; at least 10% changes it to 1.25%. For subsequent use, the listed rate falls from 3.3% below 5% down to the same 1.5% and 1.25% bands. The reduction applies to the fee percentage, not to the entire loan balance.
Compare the fee savings with the cash you would use for the down payment. A larger down payment may affect your reserves, moving costs and ability to handle repairs. The VA schedule establishes the fee reduction, but it does not establish that a larger down payment is financially best for every household. Request side-by-side loan estimates showing the different down payments, fee amounts, cash to close and projected payments.
3. Select the correct loan type
Refinance products have their own rates. An IRRRL is listed at 0.5%, while a cash-out refinance is listed at 2.15% for first use and 3.3% for subsequent use. Purchase-loan down-payment bands do not lower a refinance fee. Make sure the lender has classified the transaction correctly and has not applied a purchase rate to a refinance or vice versa.
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You may be eligible for a refund when VA later awards service-connected disability compensation with an effective date before the loan’s closing date. Contact the VA Regional Loan Center or your current servicer and provide the award information. A proposed or memorandum rating obtained only after closing does not qualify on that basis. Refund eligibility is conditional; it is not created merely because a claim was filed or because a later award exists.
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Keep the closing disclosure and the VA award letter. The key date is the compensation effective date compared with the closing date, not simply the date VA mailed the decision. Ask the Regional Loan Center or servicer what claim form or additional evidence is required in your situation.
5. Choose cash or financing deliberately
Paying in cash keeps the fee out of the principal but increases the amount due at closing. Financing preserves cash but raises the balance and the interest charged over time. Have the lender calculate both options using your actual rate, term and anticipated time in the home. The lowest immediate cash requirement is not necessarily the lowest lifetime cost.
Refinancing: IRRRL and cash-out rules
Interest Rate Reduction Refinance Loan
An IRRRL is designed to refinance an existing VA loan under VA rules. The listed funding fee is 0.5%, with no purchase-style down-payment discount. VA says borrowers obtain IRRRLs through private banks, mortgage companies or credit unions, and that terms and fees vary. The VA IRRRL page is dated January 7, 2026; compare several lenders’ rates, points and closing costs rather than looking only at the fee percentage.
A lower 0.5% fee does not by itself prove that an IRRRL saves money. Include the fee, lender charges, any points and the change in monthly payment when calculating a break-even period. Ask when the first new payment is due and whether any amount is added to the balance.
Cash-out refinance
A cash-out refinance has a 2.15% listed fee for first use and 3.3% for subsequent use, regardless of down payment. The transaction may replace your existing mortgage and provide cash from equity, so evaluate the new interest rate, loan term, total closing costs and the amount of equity converted to debt. VA’s cash-out refinance guidance provides the product framework; your lender must quote the complete cost.
Comparing lenders and avoiding costly misunderstandings
The funding-fee percentage is set by the VA schedule, but the rest of a loan offer can differ substantially. Request written estimates from multiple lenders and compare the same loan amount, term and lock period. Include:
- the exact loan type and first-use or subsequent-use classification;
- the down-payment amount and the resulting fee percentage;
- the dollar funding fee and whether it is paid in cash or financed;
- interest rate, discount points, lender fees and other closing costs;
- cash required at closing and the projected principal-and-interest payment;
- for a refinance, the existing loan payoff, new term and break-even period.
Be cautious with advertisements promising skipped payments or unusually attractive refinance terms. A skipped payment generally does not mean the obligation disappears; it may reflect timing or a cost built elsewhere in the transaction. Ask the lender to identify every fee and the first date your new payment is due in writing.
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For an IRRRL or cash-out refinance, do not assume your current servicer has the best offer. VA identifies private banks, mortgage companies and credit unions as sources for these loans, so comparison shopping is permitted. Keep copies of the Loan Estimate, revised disclosures and final Closing Disclosure, and reconcile the funding-fee line before signing.
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Timing and documentation checklist
- At application: Tell the lender whether you have used VA entitlement before, the planned down payment and any disability, DIC, proposed-rating or Purple Heart documentation.
- When the rate is quoted: Confirm that the percentage corresponds to purchase, construction, IRRRL, cash-out, manufactured-home, assumption or Native American Direct Loan rules as applicable.
- Before appraisal and underwriting finish: Ask whether VA has verified your exemption and what evidence remains outstanding.
- When reviewing disclosures: Check that the fee is calculated on the stated loan amount and that the cash-versus-financed choice matches your instruction.
- Before closing: Recheck the rate schedule. The cited circular covers closings from April 7, 2023, through before November 14, 2031; confirm that no newer schedule applies.
- After a later disability decision: If the award’s effective date predates closing, contact the VA Regional Loan Center or servicer about a possible refund and provide the award notice.
Tax treatment requires current verification
A February 18, 2026 VA News article reported that borrowers can deduct funding fees. That report does not establish the tax year, deduction mechanics or your individual eligibility. Tax law and IRS guidance control, so verify the current IRS rules with a qualified tax professional before claiming a deduction. Do not treat the possibility of a deduction as a reason to choose a more expensive loan or finance the fee.
Frequently asked questions
Who actually pays the VA funding fee?
The Veteran, service member or eligible survivor using the VA-backed or VA direct loan is generally responsible. The fee is charged at closing, although the borrower can pay it in cash or finance it into the mortgage. A lender may offer credits toward other closing costs, but do not assume a credit eliminates the funding fee unless the final disclosure shows that result.
Can a seller pay the funding fee?
The fee is the borrower’s VA charge. Ask the lender how any seller credit or other allowable closing-cost contribution would be documented; the final disclosure must clearly show who is paying each item. Do not rely on an informal promise to cover the fee.
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No. On an eligible purchase or construction loan, 5% down lowers the listed rate to 1.5%, and 10% down lowers it to 1.25%. Only a qualifying exemption makes the fee zero.
Do down-payment discounts apply to a refinance?
No. VA states that the reduced purchase and construction rates do not apply to refinance loans. IRRRL and cash-out transactions use their own listed percentages.
Is every surviving spouse exempt?
No. The VA category is a surviving spouse receiving Dependency and Indemnity Compensation. A surviving spouse who does not meet that specific criterion should ask VA or the lender to determine eligibility.
What if my disability award arrives after closing?
A refund may be possible when the award is for a service-connected disability and its effective date is before the closing date. Contact the VA Regional Loan Center or servicer with the award notice. A claim filed after closing, or a proposed or memorandum rating obtained only after closing, does not automatically establish refund eligibility.
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Is the fee refundable if I refinance or sell?
The fee is generally a one-time charge for the original transaction. Selling or refinancing does not by itself create a refund. The specific refund path described by VA involves a later qualifying disability-compensation award with an effective date before closing.
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How can I verify the amount before signing?
Check the loan type, first-use or subsequent-use status, down-payment band, base loan amount and exemption decision. Then compare the calculated dollar fee on the Loan Estimate and Closing Disclosure. Ask the lender to explain any change and confirm whether the fee is paid in cash or financed.
What to remember
Most borrowers pay the VA funding fee once at closing, either in cash or by financing it. The fastest way to avoid it is to establish a qualifying exemption before closing. If you are not exempt, a 5% or 10% down payment can reduce the fee on a purchase or construction loan, while refinance loans use separate rates. Because financing adds the fee to your debt, compare the cash and long-term costs with written figures from more than one lender, and verify the schedule that applies on your actual closing date.
Frequently Asked Questions
Who pays the VA funding fee?
The Veteran, service member or eligible survivor using the VA loan generally pays it at closing, either in cash or by financing it into the loan.
How can I avoid the VA funding fee?
You must qualify for a VA exemption, such as receiving qualifying service-connected disability compensation, DIC as an eligible surviving spouse, having a qualifying pre-discharge rating, or documenting a Purple Heart while on active duty.
Does putting 5% or 10% down eliminate the fee?
No. On purchase or construction loans, 5% down lowers the listed rate to 1.5% and 10% down lowers it to 1.25%; only an exemption makes the fee zero.
Can I get a refund after a disability award?
Possibly. VA says the compensation award must be for a service-connected disability and have an effective date before the loan closing date. Contact the VA Regional Loan Center or your servicer.
What is the IRRRL funding-fee rate?
The listed IRRRL funding fee is 0.5%, regardless of down payment. Compare the full refinance costs, not just that percentage.
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1Fix the driver behind crashes, sound loss and screen glitches2Repair Windows errors before they cause bigger problems3Scan for outdated or missing drivers - takes under a minuteIs every surviving spouse exempt?
No. The specific VA exemption is for a surviving spouse receiving Dependency and Indemnity Compensation. Confirm your circumstances with VA or the lender.
The Bottom Line
The VA funding fee is usually paid once at closing, but a documented exemption can make it zero. Otherwise, compare the correct loan-type rate, consider whether a 5% or 10% purchase down payment justifies its cash cost, and decide deliberately whether to pay the fee upfront or finance it. Review the final disclosures and verify any later refund claim with VA.
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