The VA Funding Fee in 2026 Rates, Exemptions, and How It Really Works

How much is the VA funding fee?

For a 2026 purchase or construction loan with less than 5% down, the fee is 2.15% of the loan amount on first use and 3.30% on subsequent use, per the VA.gov funding fee chart. Larger down payments and streamline refinances cost less. Here's the full chart:

Why is the fee higher the second time you use the benefit?

With less than 5% down, first use costs 2.15% and subsequent use costs 3.30%, per VA.gov. Congress set the higher subsequent-use rate to keep the self-funding program sustainable for repeat use.

Two details soften it. First, the higher rate only applies at the lowest down-payment tier: put 5% or more down and first and subsequent use cost the same. Second, exempt veterans pay nothing on any use. If you're planning a second VA purchase, this is a math conversation, not a dealbreaker, and it connects to your remaining entitlement, which I cover in the entitlement and loan limits section of my VA guide.

Who is exempt from the VA funding fee?

Per VA.gov, you're exempt if any of these apply:

• Veterans receiving VA disability compensation (10% rating or higher)
• Surviving spouses receiving Dependency and Indemnity Compensation (DIC)
• Purple Heart recipients serving on active duty

Exemption isn't a lender favor or something you negotiate: it comes from your VA status, and your Certificate of Eligibility documents it. If you believe you should be exempt but your COE doesn't show it, we sort that out with the VA before closing, not after. And if your disability claim is still pending when you close, keep the paperwork: a later award with an effective date before closing may make the fee refundable.

Can you finance the funding fee into the loan?

Yes. Most borrowers roll the funding fee into the loan amount instead of paying it in cash at closing, per VA.gov. Your loan grows by the fee; your cash-to-close doesn't.

Here's the honest math on a sample purchase, computed from the 2026 chart above:

• Loan amount: $400,000 (first use, $0 down)
• Funding fee: $400,000 x 2.15% = $8,600
• Total financed if you roll it in: $408,600

Financing the fee means you pay interest on it over the life of the loan. That's usually still the right call for buyers who'd rather keep cash for moving, reserves, or repairs, but it's a trade, and I'll show you both versions, not just the comfortable one. This example is an estimate for illustration, not a quote.

Does the funding fee apply to an IRRRL or cash-out refinance?

Yes to both, at different rates. A VA IRRRL streamline refinance carries a flat 0.50% fee, and a VA cash-out refinance carries the purchase-loan rates: 2.15% first use, 3.30% subsequent, per VA.gov.

The same exemptions apply to refinances, so exempt veterans pay no fee on an IRRRL or cash-out either. One thing I won't do is call an IRRRL "free": the 0.50% fee and closing costs are real, which is exactly why the VA requires the refinance to recoup its costs through savings within 36 months under 38 U.S.C. 3709. If the math doesn't clear that bar, I'll tell you to keep the loan you have.

Is the VA funding fee tax deductible?

It may be. The funding fee is a form of mortgage insurance for tax purposes, and the deductibility of mortgage insurance premiums has changed several times as Congress extended or let that provision lapse.

I'm a loan officer, not a tax professional, and this one genuinely depends on the tax year and your situation. Take your closing disclosure to a tax professional and ask about the funding fee specifically. What I can do is make sure the fee is documented cleanly so your tax pro has what they need.