VA Funding Fee Explained: Exemptions, Financing, and Refunds

The VA funding fee is a one-time charge connected with many VA-backed and VA direct home loans. It helps support a program that frequently allows eligible borrowers to buy without a down payment or monthly mortgage insurance.

Not every borrower pays it. The percentage also changes based on the loan type, down payment, and whether the borrower has used the benefit before.

That makes the fee easy to misunderstand and easy to quote incorrectly. The lender should verify the current rate and exemption status directly through VA rather than relying on a remembered chart.

Current purchase-loan funding-fee rates

VA’s official rate chart is effective for loans closed on or after April 7, 2023. As of the current 2026 guidance, the purchase and construction rates are:

• First use with less than 5 percent down: 2.15 percent
• First use with at least 5 percent down: 1.5 percent
• First use with at least 10 percent down: 1.25 percent
• Subsequent use with less than 5 percent down: 3.3 percent
• Subsequent use with at least 5 percent down: 1.5 percent
• Subsequent use with at least 10 percent down: 1.25 percent

The fee is calculated from the loan amount, not the purchase price.

For example, a first-use borrower buys a $300,000 home with no down payment. A 2.15 percent fee would equal $6,450.

If the fee is financed, the starting loan balance would become $306,450, assuming no other adjustment.

Funding-fee rates are set by law and policy and can change. The lender should use VA’s live rate chart for the actual closing.

Different loan types use different percentages

The purchase chart should not be applied to every VA transaction.

VA currently lists:

• VA cash-out refinance: 2.15 percent for first use and 3.3 percent after first use
• Interest Rate Reduction Refinance Loan: 0.5 percent
• Loan assumption: 0.5 percent
• Manufactured home loan when the home is not permanently affixed: 1 percent
• Native American Direct Loan purchase: 1.25 percent
• Native American Direct Loan refinance: 0.5 percent

The lender must identify the correct loan type and use status. A borrower who previously used VA financing only to purchase a manufactured home that was not permanently affixed may still receive first-use treatment for a later purchase under VA’s published note.

For refinance-specific rules, read VA IRRRL Explained and VA Cash-Out Refinance Requirements.

Who may be exempt from the fee

VA’s official guidance lists several exemption categories.

You may be exempt if you are:

• Receiving VA compensation for a service-connected disability
• Eligible to receive compensation but instead receive retirement or active-duty pay
• A surviving spouse who is eligible for a VA home loan
• An active-duty service member who has received a proposed or memorandum rating establishing eligibility for compensation because of a pre-discharge claim
• A service member on active duty who provides evidence of receiving the Purple Heart before or on the loan-closing date

The lender should not decide exemption based on a borrower saying, “I have a disability rating.” It must verify the status through the VA process used for the loan.

Some Veterans have a service-connected rating but receive military retirement pay instead of VA compensation. That can still support an exemption when VA records show the Veteran would be entitled to compensation.

What the COE does and does not show

The Certificate of Eligibility may display funding-fee exemption information. It is an important starting point, but the lender may need a current verification if benefits are pending or recently changed.

A borrower can receive a disability award while the loan is in process. The effective date and VA status determine whether the exemption applies.

If your claim or rating is pending, tell the lender early. Do not assume the closing agent will discover the change automatically.

Our Certificate of Eligibility guide explains the other information and conditions shown on the COE.

Financing the fee

The borrower can generally pay the funding fee at closing or finance it into the VA loan.

Financing preserves cash, but it increases the starting balance and the amount of interest paid over time.

Using the earlier $6,450 example, financing the charge does not simply delay the fee. The borrower pays mortgage interest on that additional principal for as long as it remains in the loan.

That does not make financing wrong. A borrower may reasonably prefer to keep funds for reserves, repairs, or moving expenses.

The decision should be based on the actual fee, payment difference, time expected to keep the loan, and available cash.

The seller can also pay the funding fee on a purchase transaction as part of permitted seller concessions, subject to VA rules and the contract.

Read VA closing costs and seller concessions explained before negotiating the credit.

A down payment can reduce the fee

VA’s purchase chart rewards down payments of at least 5 percent and at least 10 percent with lower fee percentages for borrowers who are not exempt.

A borrower should not make a down payment only to reduce the funding fee without comparing the full numbers.

For example, putting $30,000 down to save a few thousand dollars in funding fee may not be the best choice if it empties the emergency fund.

Ask the lender to compare:

• Zero down with the applicable fee
• Five percent down with the lower fee
• Ten percent down with the lower fee
• The monthly payment for each option
• Cash remaining after closing
• Total interest over the expected holding period

The right answer depends on the household’s priorities, not simply which option has the lowest fee.

Funding-fee refunds

A borrower may be eligible for a refund when VA later determines that the borrower was exempt as of the relevant date.

This often involves a service-connected disability award with an effective date that reaches back before the loan closing.

VA, not the lender, determines the refund.

If the fee was paid in cash, an approved refund may generally be paid to the borrower.

If the fee was financed, VA may send the refund to the current loan holder for application to the principal balance. That usually reduces the balance rather than automatically lowering the monthly principal-and-interest payment.

A borrower who has sold or refinanced the home may need to provide updated loan and contact information so VA can process the payment correctly.

Keep the Closing Disclosure and funding-fee documentation. If VA issues a retroactive award, contact the VA Regional Loan Center or use the assistance information provided by VA.

The fee is different from lender closing costs

The funding fee goes to VA. It is not the lender’s origination charge, appraisal fee, discount points, title insurance, or prepaid tax and insurance amount.

A Loan Estimate can show all of these items, which makes it easy to lump them together.

Ask the lender to identify:

• The VA funding fee
• Lender-controlled charges
• Third-party settlement charges
• Prepaid expenses and escrow deposits
• Seller-paid items
• Lender credits

That separation makes it easier to compare lenders. The funding-fee percentage should not vary between lenders when the same borrower and loan type are used. Interest rates, discount points, origination charges, and credits can vary.

What to ask your lender

• Which funding-fee percentage are you using and why?
• Is this considered first or subsequent use?
• Does my COE show an exemption?
• Have you checked for a recent change in my VA benefit status?
• Will the fee be paid in cash, financed, or paid by the seller?
• How much does financing it change the payment?
• Would a 5 or 10 percent down payment materially improve the total cost?
• If my disability claim is pending, what happens if VA awards it after closing?

Frequently asked questions

Is the VA funding fee monthly mortgage insurance?

No. It is a one-time program charge. VA-backed loans generally do not have monthly mortgage insurance.

Can the funding fee be added to the loan?

Yes, it can generally be financed. Doing so increases the loan balance and interest paid over time.

Can the seller pay it?

Yes, the seller may pay the funding fee as a permitted concession, subject to VA rules and the contract.

Does every disabled Veteran receive an exemption?

The lender must verify that the borrower meets one of VA’s exemption categories. A disability or medical condition by itself is not enough without the qualifying VA status.

Will the monthly payment drop after a refund is applied?

Not necessarily. A refund applied to principal reduces the balance, but the scheduled payment may remain unchanged unless the loan is otherwise recast or refinanced.

Can funding-fee rates change?

Yes. Confirm the live VA rate chart for the actual closing rather than relying on an older article or worksheet.

The funding fee is easiest to manage when the borrower knows three things before choosing a loan option: the verified exemption status, the exact rate for the transaction, and the long-term effect of financing the charge. Those numbers belong in the comparison, not as a surprise on the Closing Disclosure.

Official Sources and Further Reading

• VA funding fee and closing-cost rate charts
• VA Home Loan Guaranty Buyer’s Guide
• VA Certificate of Eligibility information

This article is general mortgage education. Loan Under Review is not a lender and does not provide financial, legal, lending, or appraisal advice. Program rules and lender requirements can change, and lenders may apply additional requirements.