The VA home loan program is one of the most powerful benefits available to eligible veterans, active-duty service members, and surviving spouses -- offering no-down-payment financing with no private mortgage insurance requirement. To help sustain the program for future generations of borrowers, most VA loan users pay a one-time VA funding fee at closing. Here is everything you need to know for 2026.
What Is the VA Funding Fee?
The VA funding fee is a one-time payment made to the Department of Veterans Affairs at loan closing. It reduces the cost of the program to U.S. taxpayers, since VA loans require no down payment and no monthly mortgage insurance. The fee can be paid in cash at closing or rolled into the loan amount, though financing the fee increases the total amount borrowed and the monthly payment. Critically, unlike PMI on a conventional loan, there is no ongoing monthly mortgage insurance after the funding fee is paid.
2026 VA Funding Fee Rates
The funding fee percentage varies based on loan type, whether it is your first time using a VA loan, and the size of your down payment:
Purchase Loans -- First Use:
- Down payment less than 5%: 2.15%
- Down payment of 5% to 9.99%: 1.50%
- Down payment of 10% or more: 1.25%
Purchase Loans -- Subsequent Use:
- Down payment less than 5%: 3.30%
- Down payment of 5% to 9.99%: 1.50%
- Down payment of 10% or more: 1.25%
Cash-Out Refinance Loans:
- First use: 2.15%
- Subsequent use: 3.30%
Interest Rate Reduction Refinance Loan (IRRRL): 0.50% for all users
Manufactured home loans (not permanently affixed): 1.00%
Loan assumptions: 0.50%
Who Is Exempt from the VA Funding Fee?
Not all VA loan borrowers pay the funding fee. The following are exempt:
- Veterans receiving VA compensation for service-connected disabilities
- Veterans who would be entitled to receive compensation for service-connected disabilities if they were not receiving retirement pay
- Surviving spouses of veterans who died in service or from service-connected disabilities (those receiving Dependency and Indemnity Compensation)
- Service members with proposed or memorandum ratings indicating they will receive disability compensation
- Recipients of the Purple Heart who are on active duty at loan closing
Exemption is not automatic -- you must document your disability rating or DIC status. Your lender will request the appropriate VA documentation to confirm and apply the exemption at closing.
How the Fee Compares to PMI on a Conventional Loan
Understanding the funding fee in isolation is less useful than comparing it to the alternative for borrowers with less than 20% down payment on a conventional loan. That alternative is private mortgage insurance (PMI), which typically costs 0.5-1.5% of the loan amount annually.
Consider a veteran purchasing with no down payment on a $400,000 home -- a first-time use scenario:
- VA funding fee: $400,000 x 2.15% = $8,600 (one-time, can be financed)
- Conventional PMI at 1%/year: $4,000/year, paid monthly until 20% equity is reached (typically 7-10 years at minimum payments)
- Total PMI cost over 7 years: approximately $28,000
The VA funding fee of $8,600 is substantially less expensive than 7-10 years of PMI payments even when the comparison accounts for the interest cost of financing the funding fee into the loan. For most veterans, the VA loan is the financially superior option -- even factoring in the funding fee.
The Impact of Down Payment on the Funding Fee
For veterans who can make a down payment, the funding fee structure rewards it. Putting down 5% or more reduces the first-use fee from 2.15% to 1.50% -- a savings of $2,600 on a $400,000 loan. Putting down 10% or more reduces the fee further to 1.25% -- a $3,600 savings versus the no-down-payment scenario.
However, the down payment decision should not be driven solely by the funding fee optimization. A down payment also reduces the loan amount, which reduces total interest paid over the loan's life. But it also depletes cash reserves that could be important for emergencies or future investment opportunities. For many veterans, using the no-down-payment VA benefit and preserving cash is the better financial decision even though it results in a higher funding fee.
Financing the Funding Fee: Costs and Considerations
The ability to roll the funding fee into the loan is a significant benefit -- it allows you to close without additional out-of-pocket expense. However, financing the fee has a cost: you pay interest on the fee for the life of the loan.
Example: A 2.15% funding fee on a $400,000 loan is $8,600. Financed into a 30-year loan at 6.3%, the additional monthly payment is approximately $53. Over 30 years, you pay approximately $19,200 for the financing of the $8,600 fee (the $8,600 principal plus $10,600 in interest). If you can afford to pay the fee in cash at closing, that is the lower total-cost option. But for veterans with limited liquid assets, financing the fee preserves cash and still results in a loan that is typically cheaper than the PMI alternative.
VA Loan Limits and the 2026 Conforming Limit
VA loans do not have a loan limit for eligible veterans with full entitlement -- you can borrow any amount a lender will approve. However, the VA funding fee is calculated on the full loan amount, so larger loans generate proportionally larger fees. The 2026 conforming loan limit of $806,500 is relevant for VA purposes primarily in the context of jumbo VA loans and for veterans with reduced entitlement (due to a prior VA loan that has not been paid off and entitlement restored).
The VA IRRRL: The Lowest-Cost VA Refinance
The Interest Rate Reduction Refinance Loan (IRRRL), also known as the VA Streamline Refinance, charges a funding fee of just 0.5% -- the lowest of any VA loan type. This reduced fee recognizes that the IRRRL's purpose is purely rate-and-term refinancing of an existing VA loan, creating lower risk for the VA program.
The IRRRL has streamlined underwriting -- no appraisal is typically required, and income verification is limited. For veterans who purchased with a VA loan during the elevated rate period of 2023-2024 and are now looking to refinance, the IRRRL is the most cost-effective path if they are refinancing into another VA loan at a lower rate.
Frequently Asked Questions
How do I know if I am exempt from the VA funding fee?
Your VA-approved lender will verify your exemption status through the VA's Loan Guaranty system. If you receive VA disability compensation, your lender can check your exemption status electronically. If you have a proposed or memorandum rating, you will need to provide documentation from the VA. It is worth confirming your exemption status before closing, as errors are possible and the refund process can take time if you are incorrectly charged.
Can I get the funding fee refunded if I find out later that I was exempt?
Yes. If you paid a funding fee but were later determined to have a service-connected disability that should have exempted you, you can apply for a refund through the VA. This most commonly occurs when a veteran's disability rating is finalized after the loan closes. Contact your VA regional loan center to initiate the refund process.
Is the VA funding fee tax-deductible?
The VA funding fee may be deductible as mortgage points if it meets IRS requirements for point deductibility -- specifically, if it is calculated as a percentage of the loan amount and meets other criteria. Consult a tax professional for guidance on your specific situation, as tax law and its application to VA fees has been subject to IRS guidance that varies by circumstance.
What is the difference between a subsequent-use VA loan and a first-use loan?
A first-use VA loan is the first time you use your VA home loan benefit. Subsequent use applies any time you use the VA benefit again after the first time, unless your previous VA loan has been paid in full and the entitlement restored. The subsequent-use fee for no-down-payment purchases is 3.30% -- 1.15 percentage points higher than first use -- reflecting the increased utilization of the program.
How long does VA entitlement restoration take after paying off a prior VA loan?
Once you sell the property and pay off the VA loan, entitlement restoration is not automatic -- you must formally request it from the VA. The process typically takes 2-4 weeks after the VA receives documentation of the payoff and sale. Your new lender can also assist with this process as part of originating a new VA loan. Full restoration allows you to use the first-use funding fee rate on the new loan.
Source: Department of Veterans Affairs, VA Home Loan Funding Fee, updated January 2026.