The VA funding fee is a one-time charge collected on every VA-backed home loan, ranging from 0.5% to 3.3% of the loan amount depending on the loan type, your down payment, and whether you’ve used the benefit before. Federal law requires the Department of Veterans Affairs to collect it so the loan program pays for itself rather than relying on taxpayer funds to cover defaults.1Office of the Law Revision Counsel. 38 US Code 3729 – Loan Fee On a $300,000 loan with no down payment, a first-time borrower pays $6,450; the same loan on a second use costs $9,900. Certain veterans and surviving spouses owe nothing.
How the Fee Is Calculated
The fee is a percentage of the loan amount, not the home’s purchase price. If you buy a $250,000 home with a $12,500 down payment, the fee applies to the $237,500 you’re actually borrowing.2Veterans Affairs. VA Funding Fee and Loan Closing Costs The fee applies to active-duty service members, veterans, National Guard and Reserve members, and certain surviving spouses who use the program to buy, build, or refinance a home.
The current rates took effect on April 7, 2023, and are set by statute to stay in place through June 8, 2034.1Office of the Law Revision Counsel. 38 US Code 3729 – Loan Fee National Guard and Reserve members used to pay more than active-duty veterans, but the statute equalized those rates on the same date.
Rates for Purchase and Construction Loans
Two things drive the rate: how much you put down and whether this is your first VA loan.
First-time use:
- Less than 5% down: 2.15% of the loan amount
- 5% or more down: 1.50%
- 10% or more down: 1.25%
Subsequent use:
- Less than 5% down: 3.30%
- 5% or more down: 1.50%
- 10% or more down: 1.25%
The penalty for repeat use only hits borrowers who put down less than 5%. Once you reach the 5% threshold, the rate is identical whether this is your first or fifth VA loan.2Veterans Affairs. VA Funding Fee and Loan Closing Costs That makes even a modest down payment an effective way to cut the fee on a second purchase. On a $350,000 loan, the difference between 3.30% and 1.50% is $6,300.
Rates for Refinances and Other Loan Types
Cash-Out Refinance
A cash-out refinance replaces your current mortgage with a new, larger VA loan and lets you keep the difference. The funding fee is 2.15% on first use and 3.30% on subsequent use.2Veterans Affairs. VA Funding Fee and Loan Closing Costs Down payment tiers don’t apply because there is no down payment on a refinance.
Interest Rate Reduction Refinance Loan (IRRRL)
The VA’s streamline refinance, commonly called an IRRRL, carries a flat 0.5% funding fee regardless of whether you’ve used a VA loan before.2Veterans Affairs. VA Funding Fee and Loan Closing Costs It’s designed to lower your interest rate or switch from an adjustable-rate to a fixed-rate mortgage on an existing VA loan.3Veterans Affairs. Interest Rate Reduction Refinance Loan
Assumptions and Specialty Loans
When someone assumes an existing VA loan from the current borrower, the fee is 0.5% of the unpaid principal balance. Manufactured home loans for homes not permanently affixed to a foundation carry a 1% fee. The Native American Direct Loan program charges 1.25% for a purchase and 0.5% for a refinance.2Veterans Affairs. VA Funding Fee and Loan Closing Costs None of these rates change based on down payment size or prior use of the benefit.
Who Is Exempt
Several categories of borrowers owe nothing at all. The exemption applies automatically when the lender verifies your status through a Certificate of Eligibility, which contains a code indicating your exempt category.2Veterans Affairs. VA Funding Fee and Loan Closing Costs Confirm your status before closing so you don’t overpay.
- Veterans receiving VA disability compensation for any rating.
- Veterans who qualify for disability compensation but receive military retirement pay or active-duty pay instead.
- Surviving spouses of veterans who died from a service-connected cause and who receive Dependency and Indemnity Compensation.4Veterans Benefits Administration. VA Funding Fee Exemption and Refund Procedures for Lenders
- Service members currently on active duty who provide evidence of a Purple Heart award on or before the loan closing date.2Veterans Affairs. VA Funding Fee and Loan Closing Costs
The Purple Heart exemption is narrower than many people assume. It requires active-duty status at closing. A veteran who earned a Purple Heart, separated from the military, and later buys a home as a civilian does not qualify under this specific waiver. That veteran would need a service-connected disability rating to get the exemption through the standard disability pathway.5Veterans Benefits Administration. VA Circular 26-19-30 – Purple Heart Funding Fee Waiver
Getting a Refund If Disability Comes Through Later
If you paid the fee at closing but are later awarded VA disability compensation with an effective date before your closing date, you may be entitled to a refund. The retroactive effective date is the key. The VA must set your disability compensation start date to a point before the loan closed. A proposed or memorandum rating issued after closing does not qualify for a refund on its own.2Veterans Affairs. VA Funding Fee and Loan Closing Costs
To request a refund, call the VA regional loan center at 877-827-3702 (TTY: 711), Monday through Friday, 8:00 a.m. to 6:00 p.m. ET. If you had a disability claim pending when you closed on your home and it was later approved with a retroactive date, check whether that date falls before your closing. The refund won’t always come automatically.
Ways to Pay It
You have three practical options, each with a different trade-off between cash on hand and long-term cost.
Pay in Cash at Closing
Paying the full fee at closing keeps your loan balance lower and avoids paying interest on the fee over a 30-year mortgage. On a $300,000 loan with a 2.15% fee, that’s $6,450 due at closing. For borrowers who have the cash, this is the cheapest option over the life of the loan.
Finance It Into the Loan
The VA lets you roll the funding fee into your mortgage balance. On a purchase or construction loan, the funding fee is the only closing cost you’re allowed to finance this way; all other fees must be paid at closing.2Veterans Affairs. VA Funding Fee and Loan Closing Costs Financing preserves your cash reserves, but you’ll pay interest on that amount for the full term. A $6,450 fee at 6.5% over 30 years adds roughly $8,300 in interest compared to paying cash. Most VA borrowers still choose this option because it keeps money available for moving costs and immediate repairs.
Seller Concessions
The seller can pay your funding fee as part of a broader package of closing-cost credits. VA rules cap total seller concessions at 4% of the home’s appraised value, and the funding fee counts toward that limit.2Veterans Affairs. VA Funding Fee and Loan Closing Costs In a buyer-friendly market, negotiating seller-paid closing costs is one of the most effective ways to reduce your out-of-pocket expense without adding to your loan balance.
Is the Funding Fee Tax-Deductible
For the 2026 tax year, yes. Congress reinstated the mortgage insurance premium deduction and made it permanent, so VA borrowers who itemize can deduct the funding fee they paid or financed during the year.6VA News. Home Loan Borrowers Can Now Deduct Funding Fees The deduction was not available for the 2024 and 2025 tax years because the underlying provision had expired.7Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
It only helps if you itemize rather than take the standard deduction. If you financed the fee into your loan, the deductible portion is the amount attributable to the tax year, not the entire financed balance. A tax professional can help you claim it correctly.