The VA funding fee is one of the most Googled VA loan questions — and one of the most misunderstood. Some people assume it's enormous and avoidable. Others assume it's unavoidable and plan around it. The reality is more nuanced than either.
Here's a straightforward breakdown of what the VA funding fee actually is in 2026, what you'll pay based on your specific situation, and — critically — who pays nothing at all.
What the VA Funding Fee Is
The VA funding fee is a one-time fee paid to the Department of Veterans Affairs on VA-backed purchase loans, refinances, and construction loans. It's not paid to your lender. It goes directly to the VA and helps fund the program for future generations of veterans — which is part of why VA loans don't require private mortgage insurance.
The fee is calculated as a percentage of the loan amount. On a $400,000 purchase, a 2.15% funding fee means $8,600. That sounds like a lot until you factor in what you're not paying: no down payment and no PMI, which on a conventional loan at the same price would run $200–$400 per month for years.
2026 VA Funding Fee Rates by Situation
The rate you pay depends on three things: whether it's your first time using the VA loan benefit, your down payment amount, and whether you're active duty/veteran or a Reservist/National Guard member.
For purchase loans with zero down in 2026:
First-time use, active duty or veteran: 2.15%. First-time use, Reservist or National Guard: 2.4%. Subsequent use, active duty or veteran: 3.3%. Subsequent use, Reservist or National Guard: 3.3%.
Putting money down reduces the fee. At 5% down or more, the rate drops to 1.5% for first-time and subsequent use alike. At 10% down or more, it drops further to 1.25%.
For IRRRL refinances (VA streamline), the fee is 0.5% regardless of use history. For cash-out refinances, it's 2.15% for first use and 3.3% for subsequent use.
Who Pays Zero
This is the part that matters most and that a surprising number of veterans don't know going into closing.
You pay no VA funding fee if you receive VA compensation for a service-connected disability. It doesn't matter what percentage — any rating that results in active disability compensation qualifies. You also pay nothing if you're a surviving spouse of a veteran who died in service or from a service-connected disability.
Veterans who are eligible for disability compensation but haven't yet filed a claim, or whose claim is still pending at the time of closing, may still owe the fee at closing. If your rating is approved after closing, you can request a refund. That refund process is worth pursuing — on a $400,000 loan the difference is thousands of dollars.
Purple Heart recipients who are active duty are also exempt.
Rolling the Fee Into the Loan
Most VA buyers roll the funding fee into the loan rather than paying it out of pocket at closing. This is allowed regardless of the loan-to-value ratio. Rolling it in means your loan balance is slightly higher than the purchase price, but it avoids a large cash outlay at closing.
On a $400,000 purchase with a 2.15% fee, rolling it in adds $8,600 to your loan balance — making your financed amount $408,600. At a 6.5% rate over 30 years, that costs roughly an extra $54/month compared to paying the fee upfront. Most buyers find that tradeoff acceptable.
How to Make Sure You're Not Overpaying
The two most common mistakes I see with the VA funding fee are buyers paying it when they're actually exempt, and buyers not checking their disability status before closing.
If you have a service-connected disability rating — or if you've recently filed a claim — tell your lender before closing. They'll request your Certificate of Eligibility, which shows your exemption status. If your COE shows an exemption, the funding fee should not appear on your closing disclosure. If it does, flag it immediately.
The related posts below cover the exemption and waiver process in more detail. If you're buying near Fort Carson and want to make sure your funding fee situation is handled correctly before you get to the closing table, reach out through the contact form.
Frequently Asked Questions
What is the VA funding fee for 2026?
For first-time VA loan users with zero down, the fee is 2.15% for active duty and veterans, and 2.4% for Reservists and National Guard members. Subsequent use is 3.3%. Putting 5% or more down reduces the fee to 1.5%, and 10% or more reduces it to 1.25%.
Do I have to pay the VA funding fee?
Not if you receive VA disability compensation for a service-connected condition, or if you're a qualifying surviving spouse. Any active disability compensation rating qualifies — there's no minimum percentage required.
Can the VA funding fee be rolled into the loan?
Yes. Most VA buyers roll the funding fee into the loan amount rather than paying it at closing. This is permitted regardless of your loan-to-value ratio.
What if my disability claim is pending at closing?
You may still owe the fee at closing. However, if your disability rating is approved retroactively to a date before your closing, you can request a refund of the funding fee from the VA. This is worth pursuing — the refund amount on a typical Colorado Springs purchase is several thousand dollars.
Is the VA funding fee tax deductible?
The VA funding fee was reinstated as a tax-deductible mortgage insurance premium for 2026 per current IRS guidance. Consult a tax professional for your specific situation, as deductibility can depend on your income level and how the fee was paid.
How does the VA funding fee compare to PMI on a conventional loan?
On a $400,000 purchase, a 2.15% funding fee is $8,600 — typically rolled into the loan. PMI on a conventional loan with zero down runs $200–$400 per month and continues until you reach 20% equity. Over five years, PMI costs $12,000–$24,000. The funding fee is almost always the cheaper option over any reasonable time horizon.
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