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What Is the VA Funding Fee?
The VA funding fee is a one-time payment charged on most VA loans. It goes directly to the Department of Veterans Affairs to help keep the VA loan program running for future veterans. It is not a fee your lender charges or marks up — it is a federal payment set by Congress and adjusted by the VA. Whether you use a small broker or a national bank, the funding fee is the same.
The reason it exists: the VA loan program does not require private mortgage insurance (PMI), and the VA guarantees a portion of every VA loan. That guaranty costs the government money when loans default. The funding fee spreads that cost across veterans who use the program — and it is what keeps the VA loan available with zero down payment, no PMI, and competitive rates for veterans who come after you.
Not Paid to Your Lender
The funding fee goes to the VA, not to Texas VA Mortgage. Your lender has no authority to reduce, negotiate, or waive it. It is a federal payment set by law.
One-Time Payment
Unlike PMI which is monthly, the VA funding fee is charged once per loan. Even including it, the total lifetime cost of a VA loan is almost always lower than a conventional loan with PMI.
Financed or Paid at Closing
Most veterans roll the funding fee into their loan balance rather than paying cash at closing. You can do either — your choice at the time of the loan.
Exempt for Many Veterans
Veterans with a 10% or higher service-connected disability rating pay zero funding fee. This is the most commonly missed exemption — and it is worth thousands of dollars.
The 2026 VA Funding Fee Chart
VA funding fee rates are set by Congress. These are the current rates for 2026. Since January 1, 2020, all veterans — active duty, National Guard, and Reserve — pay the same rate regardless of service component.
Purchase and Construction Loans
| Down Payment | First-Time Use | Subsequent Use |
|---|---|---|
| Less than 5% (including 0%) | 2.15% | 3.3% |
| 5% to less than 10% | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
Refinance Loans
| Loan Type | Fee | Notes |
|---|---|---|
| Cash-Out Refinance — First Use | 2.15% | Using VA for the first time on a refi |
| Cash-Out Refinance — Subsequent Use | 3.3% | Most cash-out refis land here |
| IRRRL (Streamline Refinance) | 0.5% | Lowest fee in the VA program |
| VA Loan Assumption | 0.5% | Paid by the person assuming the loan |
What the Funding Fee Looks Like in Dollars
Percentages are abstract. Here are four common scenarios so you know what to budget before your pre-approval.
The most common scenario for first-time VA loan users.
Putting 5% down saves $2,900 on the funding fee alone.
The subsequent use jump is significant. Budget for it if you have used your VA loan before.
Streamline refinance fees are minimal compared to purchase.
The down payment math: Putting 5% down on a $400,000 purchase saves $2,900 in funding fee and reduces your loan balance by $20,000. If you have cash available, running both numbers helps you decide whether to put it toward down payment or keep it as reserves.
Who Is Exempt From the VA Funding Fee?
A significant number of veterans applying for VA loans qualify for a full funding fee waiver and do not know it. Check every one of these before assuming you owe the fee.
10% or Higher Service-Connected Disability Rating
This is the most common exemption — and the most frequently missed. If your VA disability compensation letter shows any rating of 10% or higher, you pay zero funding fee. On a $400,000 loan with zero down, that is $8,600 saved at closing.
Receiving VA Disability Compensation
Even if you have not received your rating decision letter yet, if you are already receiving disability compensation payments, you qualify for the exemption.
Entitled to Compensation but for Active Duty or Retirement Pay
Some veterans with service-connected conditions do not receive disability compensation because they are still receiving active duty or retirement pay. If you would qualify for compensation once those payments end, you may be exempt.
Purple Heart Recipient on Active Duty
Added under the Blue Water Navy Vietnam Veterans Act. If you received the Purple Heart and are currently serving on active duty, you are exempt.
Surviving Spouse — Veteran Died in Service or from Service-Connected Disability
Surviving spouses using the VA loan benefit through the veteran's service qualify for full exemption from the funding fee.
Surviving Spouse — Veteran Was Permanently and Totally Disabled at Time of Death
Even if the death itself was not service-connected, the veteran's P&T rating at time of death qualifies the surviving spouse for exemption.
How the Funding Fee Is Paid
Most veterans do not pay the funding fee in cash at closing. You have two options and can choose whichever makes more sense for your situation.
Option 1: Finance Into the Loan (Most Common)
The funding fee is added to your loan balance and paid off over the life of the mortgage. You bring no cash to closing for this item specifically.
Example: $400,000 home, 2.15% fee = $8,600. Total loan becomes $408,600.
✓ Preserves cash at closing for inspections, moving, reserves
✕ You pay interest on the fee for up to 30 years (~$10,000 additional on an $8,600 fee at 6.5%)
Option 2: Pay in Cash at Closing
You bring the funding fee amount to closing and it comes directly from your bank account — not added to the loan.
Example: $400,000 home, $8,600 funding fee paid at closing. Loan stays at $400,000.
✓ No interest paid on the fee over time — saves ~$10,000 over 30 years
✕ Higher cash needed at closing — competes with other closing costs
For most veterans, financing the fee is the right call. Preserving closing cash for inspections, moving costs, and reserves is usually worth more than the long-term interest savings. But if you have significant liquid assets and plan to stay in the home long-term, paying it in cash at closing is a legitimate strategy.
First-Time Use vs Subsequent Use
The jump from first-time to subsequent use is the single biggest funding fee surprise I see at closing. On a $500,000 loan, it is the difference between $10,750 and $16,500 — a $5,750 gap.
✓ First-Time Use Applies If:
- You have never used a VA loan before
- You are using your VA entitlement for the very first time
⚠ Subsequent Use Applies If:
- You have used a VA loan before — even if that loan is fully paid off
- You sold the home and no longer own it — still subsequent use
- You have an active VA loan on another property
- You have used your VA entitlement through any VA loan program previously
The confusing part: Even if you paid off your previous VA loan in full years ago and sold the home, your next VA loan is still "subsequent use" and carries the higher 3.3% fee. Prior use of the benefit triggers the higher rate permanently — unless you qualify for a disability exemption, in which case it does not matter.
How to Get the VA Funding Fee Refunded
This scenario comes up more than most veterans realize. You closed on a VA loan, paid the funding fee, and later received a VA disability rating — with an effective date on or before your closing date. That means you should have been exempt but were not, because the rating decision had not yet been issued at closing.
In this situation, you are entitled to a full refund of the funding fee you paid.
Confirm Your Effective Date Is On or Before Your Closing Date
Your rating decision letter will show the effective date — this is the date the VA considers your disability to have started, not the date they issued the letter. This effective date must be on or before your loan closing date to qualify for a refund.
Contact Your Original Lender
Reach out to the lender who originated your VA loan. If that was Texas VA Mortgage, call us at (888) 295-4055. Provide your rating decision letter and loan information.
Lender Submits VA Form 26-8937
The lender submits VA Form 26-8937 (Verification of VA Benefits) along with your rating decision letter to the VA. This initiates the refund review process.
Receive Your Refund
If you paid the fee in cash at closing, the refund is deposited to you directly. If you financed it into the loan, the refund is credited to your loan balance. Timeline: typically 4–6 weeks, but can run 6+ months. The VA processes these on their own timeline.
Important: You cannot get a refund just because you received a disability rating after closing. The rating's effective date must be on or before the closing date. If your effective date is after your closing, no refund is available for that loan — but you would be exempt from the funding fee on any future VA loans.
Common Misconceptions About the VA Funding Fee
The funding fee applies to most VA loans regardless of service length or type. Exemptions are tied to disability rating, surviving spouse status, or Purple Heart status — not general veteran status.
You need a rating of 10% or higher. A 0% rating (service connection acknowledged but no compensation) does not qualify for exemption.
The funding fee is charged on each new VA loan, not once per lifetime. Every new loan triggers a new funding fee unless you are exempt.
Down payments reduce your funding fee percentage but do not eliminate it unless you are disability-exempt. The lowest fee without an exemption is 1.25% at 10%+ down.
PMI is a monthly charge that continues for years. The VA funding fee is a one-time payment. Even including the funding fee, the total cost of a VA loan is almost always lower than a conventional loan with PMI.
No. The funding fee is a federal payment set by law. Your lender has zero authority to reduce or negotiate it.
The funding fee may be treated as prepaid mortgage insurance for tax purposes, which could be deductible depending on your situation and current IRS rules. This is a tax advisor question — not a lender question. Rules change annually.
VA Funding Fee FAQ
For most first-time users buying with zero down, 2.15% of the loan amount. Subsequent users with zero down pay 3.3%. IRRRL refinance is 0.5%. Down payments of 5% or more reduce the fee to 1.5%; 10%+ reduces it to 1.25%.
No. Most veterans finance it into the loan balance rather than paying cash at closing. You can pay in cash if you prefer, but it is not required.
Your VA loan Certificate of Eligibility will show your exemption status. If you have a service-connected disability rating of 10% or higher, are receiving VA disability compensation, are a Purple Heart recipient on active duty, or qualify as a surviving spouse, you are likely exempt.
Yes, in specific circumstances. If you received a VA disability rating with an effective date on or before your loan closing date — but the rating decision arrived after closing so you paid the fee — you can request a full refund.
First-time use is your first VA loan ever. Subsequent use is any VA loan after your first one, even if the prior loan is fully paid off and the property is sold. Subsequent use rates are higher.
No. Since January 1, 2020, all veterans, active duty, National Guard, and Reserve pay the same funding fee rates regardless of service component.
Yes. VA construction loans — including VA One-Time Close construction loans — use the same funding fee schedule as VA purchase loans.
No. Your credit score does not affect the funding fee. It affects your interest rate and approval, but the fee is based solely on loan type, down payment, and whether it is first or subsequent use.
0.5% of the loan balance. Substantially lower than purchase funding fees. Veterans who are exempt from the funding fee due to disability are also exempt from the IRRRL fee.
Yes, if the veteran died in service or from a service-connected disability, or was rated permanently and totally disabled at the time of death.
Typically 4 to 6 weeks in normal processing, but 6 months or longer is not unusual. The VA processes these on their own timeline without a guaranteed turnaround.
Yes. Each new VA loan triggers a new funding fee, unless you are exempt. The IRRRL has a much lower 0.5% fee; purchase and cash-out refinances use the standard schedule.
No. The fee is either fully exempt (full refund) or not (no refund). There is no partial refund based on how much of the loan is paid off or time elapsed.
We Run Your Funding Fee Number Before You Apply
We work through your exact funding fee — or your exemption — during pre-approval. No surprises on closing day.
Texas VA Mortgage | Licensed in Texas | NMLS #355253
Texas VA Mortgage. A division of Security America Mortgage. NMLS #355253. Equal Housing Lender. Not affiliated with the U.S. Department of Veterans Affairs.