VA Loan Funding Fee Explained (and Who Is Exempt)

The VA home loan is one of the best mortgage benefits available — no down payment, no private mortgage insurance, and competitive rates. But there is one cost that surprises first-time buyers: the VA funding fee. Understanding what it is, how much it costs, and who is exempt can save you thousands of dollars, because a large share of veterans do not have to pay it at all.

What the funding fee is and why it exists

The VA funding fee is a one-time charge paid to the Department of Veterans Affairs on most VA loans. Because the VA loan program requires no down payment and no mortgage insurance, the funding fee is what keeps the program running and largely self-sustaining at no cost to taxpayers. It is charged as a percentage of the loan amount, and the exact rate depends on the type of loan, whether it is your first time using the benefit, and how much you put down.

2026 funding fee rates

For a VA purchase loan, the funding fee in 2026 works like this:

• First-time use, no down payment: 2.15 percent of the loan amount.
• 5 to 9.99 percent down: 1.5 percent.
• 10 percent or more down: 1.25 percent.
• Subsequent (repeat) use, no down payment: 3.3 percent.

Putting money down lowers the fee even though the VA does not require a down payment. For refinances, a cash-out refinance carries a fee similar to a purchase, while the Interest Rate Reduction Refinance Loan (IRRRL), the VA streamline refinance, has the lowest fee of all at just 0.5 percent, regardless of how many times you have used the benefit. On a $300,000 loan, a 2.15 percent first-use fee comes to $6,450 — real money, which is why the exemptions below matter so much.

Who is exempt from the funding fee

This is the part every veteran should check, because the most common exemption covers a huge number of borrowers. You do not pay the VA funding fee if you fall into any of these groups:

• Veterans receiving VA disability compensation for a service-connected disability — at any rating, including 10 percent. This single exemption applies to a large portion of veterans who use the loan.
• Veterans who would be entitled to disability compensation but for receiving retirement or active-duty pay.
• Purple Heart recipients serving on active duty.
• Surviving spouses of veterans who died in service or from a service-connected disability and who are receiving Dependency and Indemnity Compensation.

If you are exempt, you should not be charged the fee at all. The exemption is tied to your status, so even a 10 percent rating that produces a modest monthly check can save you thousands on the funding fee.

How to pay it — or get it back

If you do owe the fee, you have a choice: pay it in cash at closing, or roll it into the loan and finance it over the life of the mortgage. Financing it spreads the cost out but means you pay interest on it, so paying upfront is cheaper if you can.

Exemptions are not always applied correctly the first time. If your disability rating was pending when you closed and is later approved with an effective date before your loan, or if you were charged the fee despite being exempt, you can apply for a refund of the funding fee you paid. It is worth confirming your exemption status before closing and following up afterward if a rating decision changes things.

The bottom line

The funding fee is the one notable cost of an otherwise remarkably affordable loan, but for disabled veterans it often disappears entirely. Before you close on a VA loan, confirm whether you are exempt — if you receive any VA disability compensation, you almost certainly are. For everyone else, putting a little money down lowers the fee, and the IRRRL keeps it tiny on a streamline refinance. Knowing the rules turns a surprise line item into a cost you can plan for or avoid.

Funding fee vs. private mortgage insurance

It is easy to look at a funding fee of two percent and wince, but it helps to compare it to the alternative. On a conventional loan with little money down you would pay private mortgage insurance, and on an FHA loan you would pay both an upfront and an ongoing mortgage insurance premium — recurring monthly charges that can continue for years. The VA funding fee, by contrast, is a single one-time charge with no monthly insurance at all. Over the life of a loan, even a fee you have to pay often costs less than the insurance you would carry on other low-down-payment mortgages. And if you are exempt, you skip it entirely while still paying no monthly insurance — a combination no other loan program matches.

Using your VA loan benefit again

The funding fee is higher the second time you use the benefit with no money down — 3.3 percent instead of 2.15 — but that does not mean you only get one VA loan. You can use the benefit more than once, and you can restore your entitlement after selling a home and paying off the prior VA loan. Importantly, the disability exemption does not expire: if you receive VA compensation, you remain exempt from the funding fee on your second, third, or later VA loan, not just your first. Knowing that protects you from being overcharged when you buy again.

How to confirm your exemption before closing

Do not leave your exemption to chance. Your Certificate of Eligibility, the document that confirms your VA loan benefit, also indicates your funding fee status, and your lender is responsible for verifying it before closing. If you receive VA disability compensation, make sure your lender has that on record and has coded the loan as exempt. If your disability claim is still pending when you close, you may be charged the fee up front and then become eligible for a refund once the rating is granted with an appropriate effective date — so keep your rating decision letter handy and follow up. A two-minute conversation with your lender before closing can save you thousands.