VA Funding Fee Explained: What Veterans Pay (and Who’s Exempt) in 2026

The VA home loan is one of the best mortgage programs available to veterans, active-duty service members, and eligible surviving spouses — no down payment, no monthly mortgage insurance, and competitive rates. But the program is not entirely free. Most borrowers pay a one-time fee at closing called the VA funding fee, which funds the program and keeps it self-sustaining. The good news for 2026: the fee can now be deducted on your federal taxes, and for many borrowers, it can be entirely waived. Here is the full breakdown.

What Is the VA Funding Fee?

The VA funding fee is a one-time payment required by the Department of Veterans Affairs on most VA-backed home loans. It is not a closing cost in the traditional sense — it does not go to the lender or the title company. It goes directly to the VA to offset the cost of the program, which is why the VA can offer $0 down and no monthly mortgage insurance without taxpayer subsidies.

The fee is calculated as a percentage of the loan amount, not the purchase price. On a $500,000 loan with a 2.15% funding fee, the fee is $10,750. Most borrowers choose to finance the fee — meaning it gets added to the loan balance rather than paid out of pocket at closing. On that same $500,000 loan, your actual loan becomes $510,750, and your monthly payment is based on the higher amount.

VA Funding Fee Rates for 2026

The fee percentage depends on three factors: whether it is your first time using the VA loan benefit, your down payment amount, and the type of loan (purchase vs refinance). The rates below are current as of 2026.

Purchase and Construction Loans

Refinance Loans

The biggest jump is between first and subsequent use with less than 5% down — the fee goes from 2.15% to 3.30%. That is a difference of $5,750 on a $500,000 loan. If you have used your VA benefit before and are using it again, putting at least 5% down drops the fee to 1.65%, which can save thousands. Putting 10% down drops it further to 1.40%.

Who Is Exempt From the Funding Fee?

Not everyone pays the VA funding fee. The following borrowers are fully exempt — they pay $0 regardless of loan amount, down payment, or whether it is a first or subsequent use:

• Veterans receiving VA disability compensation for a service-connected disability
• Veterans entitled to receive disability compensation (even if not currently collecting, e.g., awaiting processing)
• Active-duty service members who have received a Purple Heart
• Surviving spouses of veterans who died in service or from a service-connected disability
• Surviving spouses of veterans who were totally disabled at the time of death

New for 2026: The Funding Fee Is Now Tax Deductible

Starting in 2026, the VA funding fee is tax deductible for eligible borrowers. Previously, the fee could only be amortized over the life of the loan (on a refinance) or deducted in the year paid (on a purchase, if you itemized). The new rule simplifies and expands the deduction — borrowers who pay or finance the fee can now claim it as part of their mortgage interest deduction on their federal tax return, even if they do not itemize in certain cases.

This does not change the amount of the fee, but it effectively reduces the after-tax cost. For a veteran in the 24% federal bracket paying a $10,750 funding fee, the tax savings could be around $2,580 — making the net cost closer to $8,170. This is not tax advice — always consult your tax professional — but it is a meaningful change that makes the VA loan program even more cost-effective in 2026.

VA Funding Fee vs FHA Mortgage Insurance

Many veterans assume they should compare the VA loan to an FHA loan. The cost structures are fundamentally different:

On a $500,000 loan, the VA funding fee is $10,750 upfront but $0 per month in mortgage insurance. The FHA loan has a lower upfront cost ($8,750) but adds roughly $230–$440 per month in annual MIP — which adds up to $27,600–$52,800 over 10 years. For most veterans, the VA loan is substantially cheaper over time, even with the higher upfront fee.

How to Confirm Your Funding Fee

Your funding fee appears on your Loan Estimate and Closing Disclosure — two documents your lender is legally required to provide. The fee is listed as a line item under "Origination Charges" or as a separate "VA Funding Fee" line. If you are exempt, the fee should show as $0. If it does not, and you believe you are exempt, ask your lender to verify your disability status with the VA before closing.

We confirm every veteran borrower's exemption status during pre-approval — it is one of the first things we check. Too many veterans discover the exemption only after closing, at which point the fee is already baked into the loan and the refund process is slow.

The Bottom Line

The VA funding fee is the cost of accessing one of the best mortgage programs in the country — and in 2026, it is cheaper than ever on an after-tax basis thanks to the new tax deduction. If you receive VA disability compensation, the fee should be $0. If you do not, the fee is a one-time charge that replaces the years of monthly mortgage insurance you would pay on any other low-down-payment loan. We help veterans across DC, Maryland, and Virginia use their benefit correctly — confirming exemptions, comparing VA vs conventional, and making sure the fee does not slip through the cracks. If you have earned this benefit, let us help you use it right.