The VA funding fee in 2026: what you'll pay, what waives it, and how to minimize it.

The VA funding fee is the one cost most VA borrowers can't avoid. It funds the VA loan guaranty program — without taxpayer appropriations — and ranges from 0.5% to 3.3% of the loan amount depending on first-time vs. subsequent use, down payment, and loan type.¹ On a typical San Diego VA purchase, that's between $5,500 and $30,000+. The good news: about a third of all VA borrowers are exempt entirely (most commonly disabled veterans), and even among those who pay, the fee is dramatically lower than the equivalent costs on FHA or low-down-payment conventional loans. Here's the full picture for 2026.

The 2026 fee schedule

VA funding fees vary by loan type, use number, and down payment. The complete current schedule:¹

Purchase loans

Down payment	First use	Subsequent use
Less than 5%	2.15%	3.30%
5% to 9.99%	1.50%	1.50%
10% or more	1.25%	1.25%

Refinance loans

Loan type	First use	Subsequent use
VA IRRRL (streamline refinance)	0.50%	0.50%
VA cash-out refinance	2.15%	3.30%

Two notable points:

• The IRRRL is the cheapest VA loan in any category. 0.5% regardless of prior use. On a $700,000 IRRRL, that's $3,500 — versus $15,050 on the same balance refinanced as a cash-out subsequent-use loan.
• The 5%+ down payment threshold drops the fee to 1.50% regardless of prior use. Even modest down payments meaningfully reduce funding fee costs.

Worked examples on San Diego loan sizes

Loan amount	First use, 0% down	Subsequent use, 0% down	Either, 5% down	Either, 10%+ down
$500,000	$10,750	$16,500	$7,500	$6,250
$700,000	$15,050	$23,100	$10,500	$8,750
$900,000	$19,350	$29,700	$13,500	$11,250
$1,100,000	$23,650	$36,300	$16,500	$13,750

The "subsequent use, 0% down" column is what trips up second-time VA buyers most often. The 3.30% fee on a high-balance San Diego loan — $36,300 on $1.1M — is real money, and it's typically rolled into the loan and paid via 30 years of additional interest.

Who's exempt from the funding fee

Roughly a third of all VA loan borrowers pay nothing.² The exemption categories:

• Veterans receiving VA disability compensation for a service-connected disability (any rating, including 10%, gets full exemption — there's no minimum rating threshold).
• Veterans entitled to receive disability compensation who are receiving retirement or active-duty pay instead of disability pay (but who would otherwise be eligible).
• Surviving spouses of veterans who died in service or from a service-connected disability, who haven't remarried (or remarried after age 57).
• Active-duty Purple Heart recipients on or before the loan closing date.
• Veterans with pre-discharge claim filings for compensation rated as memorandum-rated 10% or higher prior to closing.

The exemption applies to all VA loan types — purchase, IRRRL, and cash-out refinance. A disabled veteran refinancing through an IRRRL pays $0 funding fee instead of 0.5%.

Documenting the exemption

Three documents establish the exemption:

1. Certificate of Eligibility (COE) showing the disability rating or exempt status. Your lender pulls this electronically.
2. VA disability award letter as backup documentation.
3. Power of attorney or surviving spouse documentation if applicable.

The exemption must be reflected on the COE before closing — otherwise the funding fee gets charged. If your disability rating comes through after closing, you can request a refund (more on that below).

The retroactive disability rating refund

One of the most underused VA loan benefits: if you close on a VA loan, pay the funding fee, and later receive an approved service-connected disability rating with an effective date before your loan closing, you're entitled to a full refund of the funding fee paid.¹

Process:

1. Receive your VA disability award letter showing the effective date.
2. Contact your loan servicer with the award letter.
3. Servicer submits the refund request to the VA.
4. Refund check issued by VA, typically 6-8 weeks.

The refund applies even if you've owned the home for years. Veterans who received delayed disability ratings 12-18 months after a VA loan closing have successfully recovered $10,000-$25,000 in funding fees this way. Worth pursuing if the timing applies.

Paying versus financing the fee

You have two options for paying the funding fee:

Pay at closing in cash

• Reduces your overall loan balance.
• Saves long-term interest on the financed amount.
• Requires you to bring the additional cash to closing.

Finance into the loan balance

• Most common approach. No additional cash required at closing.
• Increases your loan balance and your monthly payment.
• Adds substantial interest over 30 years (roughly 80-90% of the fee in additional interest at 6%+ rates).

The financed-fee math on a $700,000 first-use VA loan with $15,050 financed funding fee:

• Total loan: $715,050
• Additional monthly P&I (at 6.23%): $92
• Additional interest over 30 years: roughly $18,200
• Total cost of financing the fee: $33,250 (vs. $15,050 paid in cash)

For most active-duty buyers, financing the fee is the right move — preserving cash for moving costs, reserves, and BAH-funded payments. For buyers with cash to spare and long hold periods, paying it at closing saves real money.

Tax deductibility

The VA funding fee is treated as mortgage insurance for federal tax purposes. As of 2026, it's deductible on Schedule A in the year paid (or amortized over the loan term if financed) for taxpayers who itemize and meet income thresholds.³ The deduction phases out at higher incomes, so verify with your tax advisor.

Strategies to reduce the funding fee

Make a 5%+ down payment

The fee drops from 2.15% to 1.50% (first use) or from 3.30% to 1.50% (subsequent use) at 5% down. On a $700K loan:

• 0% down, first use: $15,050 fee
• 5% down ($35K), first use: $9,975 fee on the $665K loan amount
• Net savings: $5,075 in funding fee

For subsequent-use buyers, the savings are even larger (around $11,000+ on the same example).

Use IRRRL for refinances

If you're refinancing an existing VA loan and don't need cash out, the IRRRL is dramatically cheaper than a cash-out refinance. The 0.5% fee versus 2.15%-3.30% on cash-out is the largest cost differential between VA loan products.

Restore entitlement before subsequent purchases

Subsequent-use funding fees (3.30%) are 53% higher than first-use (2.15%). If you've paid off a prior VA loan but haven't restored entitlement, do so before your next purchase. The restoration process resets you to "first use" pricing.

Apply for disability rating proactively

If you have a service-connected condition that hasn't been rated yet — old injuries, sleep disorders, mental health conditions developed during service — start the rating process. Even a 10% rating triggers full funding fee exemption. The process can take 6-12 months, so plan ahead of any anticipated home purchase.

The honest read

The VA funding fee is real money — $10,000-$30,000+ on typical San Diego loan sizes — but it's a one-time cost that beats virtually every alternative for low-down-payment financing. Disabled veterans pay nothing, surviving spouses pay nothing, and even non-exempt borrowers can dramatically reduce the fee with a 5% down payment. The biggest pitfall: not realizing the IRRRL's 0.5% fee versus the cash-out refinance's 2.15%-3.30% fee, and not pursuing retroactive refunds when disability ratings come through after closing. Verify your COE shows your exemption status before closing. If you're not exempt, decide consciously between cash payment and financing — both are valid; the math depends on your hold period.

VA funding fee rates are set by Congress and can change. Always verify current rates with the VA or your lender. Educational content only — not legal, tax, or financial advice.

References

1. U.S. Department of Veterans Affairs. (n.d.). VA funding fee and loan closing costs. Retrieved April 28, 2026, from https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/
2. Veterans United. (2026). VA funding fee: 2026 charts and exemptions. Retrieved April 28, 2026, from https://www.veteransunited.com/valoans/va-funding-fee/
3. Internal Revenue Service. (2024). Publication 936: Home mortgage interest deduction. Retrieved April 28, 2026, from https://www.irs.gov/publications/p936