VA Funding Fee Guide 2026: Who Pays, Exemptions, and How It Works

The VA funding fee is one of the most misunderstood parts of a VA loan. Some veterans don't realize it exists until closing. Others pay it without knowing they were exempt from day one.

Here's the full picture on how it works in 2026, what you'll owe, and who doesn't have to pay it at all.

What Is the VA Funding Fee?

The VA funding fee is a one-time charge paid to the Department of Veterans Affairs at closing. It helps keep the VA loan program self-sustaining so it doesn't depend on annual Congressional appropriations to function.

Every VA purchase loan, refinance, and IRRRL carries this fee unless the borrower qualifies for an exemption. It is not a lender fee, and it does not go to your loan officer or servicer.

2026 VA Funding Fee Rates

The rate you pay depends on three things: your loan type, whether this is your first VA loan use or a subsequent use, and how much you put down.

Purchase Loans

Down Payment	First Use	Subsequent Use
Less than 5%	2.15%	3.30%
5% or more but less than 10%	1.50%	1.50%
10% or more	1.25%	1.25%

Refinance Loans

Loan Type	Funding Fee
IRRRL (VA Streamline Refinance)	0.50%
Cash-Out Refinance (first use)	2.15%
Cash-Out Refinance (subsequent use)	3.30%

Example: A veteran buying their first home in Orlando at $400,000 with no down payment pays 2.15% of $400,000, which is $8,600. That can be financed into the loan or paid at closing.

Who Is Exempt from the VA Funding Fee?

This is where things get critical. A significant percentage of VA loan borrowers qualify for a full exemption and never need to pay the fee. If you're exempt and your lender charges it anyway, that's an error that needs to be corrected before closing.

You are exempt from the VA funding fee if you:

• Receive VA disability compensation for a service-connected disability
• Are rated as having a service-connected disability but not currently receiving compensation because you're receiving active duty pay or retirement pay
• Are a surviving spouse of a veteran who died in service or from a service-connected disability, and you're receiving Dependency and Indemnity Compensation (DIC)
• Are a Purple Heart recipient currently on active duty
• Are a veteran who would receive disability compensation but is receiving retirement or active duty pay instead

The disability rating does not need to be at a specific percentage. Any service-connected disability rating with compensation makes you exempt.

How the VA Confirms Your Exemption

Your Certificate of Eligibility (COE) will show whether you are exempt. The lender pulls your COE through the VA portal during the application process. If your disability is new or recently approved, the COE may not reflect it yet. In that case, you'll need to provide a disability award letter from the VA directly to your lender.

Do not assume your lender will catch this automatically. If you have any service-connected disability, confirm your exemption status in writing before closing.

How to Pay the Funding Fee

You have two options:

Finance It Into the Loan

Most VA borrowers roll the funding fee into the loan balance. This means you're not paying it out of pocket at closing, but you're paying interest on it over the life of the loan.

Example: $400,000 purchase with a 2.15% funding fee of $8,600. Your loan balance becomes $408,600. At a 7% rate over 30 years, financing that $8,600 adds roughly $57 to your monthly payment and about $20,000 in total interest over the full term.

Pay It at Closing

You can pay the fee upfront at closing like any other closing cost. This keeps your loan balance lower and reduces your monthly payment. If you have the cash and plan to stay in the home long-term, paying it upfront makes sense.

Does a Down Payment Lower the Fee?

Yes. A down payment of 5% or more reduces the first-time fee from 2.15% to 1.50%. At 10% or more, it drops to 1.25%.

Whether a down payment makes sense depends on your full financial picture. Run the numbers before assuming a down payment always saves money. On a $350,000 loan:

• No down: 2.15% funding fee = $7,525
• 5% down ($17,500): 1.50% funding fee = $4,988 on the remaining $332,500
• 10% down ($35,000): 1.25% funding fee = $3,938 on the remaining $315,000

The funding fee savings at 5% down is about $2,500. But you're also putting $17,500 out of pocket. The math depends on your cash reserves and how long you keep the loan.

Subsequent Use: What It Means and When It Applies

If you've used a VA loan before and are using your benefit again, you're considered a subsequent user. The rate jumps to 3.30% with less than 5% down.

Subsequent use applies in situations like:

• You sold a home with a VA loan and are buying again
• You have a VA loan on one property and are using remaining entitlement on another
• You refinanced a non-VA loan into a VA loan previously

If you previously had a VA loan but it was paid off or assumed by a veteran who substituted their entitlement, your entitlement is restored and you may qualify for first-use rates again. This is worth confirming before you apply.

VA Funding Fee on IRRRLs

The IRRRL (Interest Rate Reduction Refinance Loan) carries a reduced funding fee of 0.50%. It is also financeable into the new loan balance. This low fee is one reason the IRRRL is one of the most borrower-friendly refinance products available.

Exemptions apply to IRRRLs the same way they apply to purchase loans. If you're service-connected disabled, no funding fee on the streamline either.

VA Funding Fee vs. PMI: The Real Comparison

Critics of VA loans sometimes point to the funding fee as a hidden cost. That framing misses the full picture.

On a $400,000 conventional loan with 5% down and a 720 credit score, private mortgage insurance (PMI) typically runs 0.5% to 0.8% of the loan balance annually. That's $1,700 to $2,700 per year, every year, until you reach 20% equity.

The VA funding fee is paid once. At 2.15% on a $400,000 loan, you're paying $8,600 once. On the conventional loan, you'd reach $8,600 in cumulative PMI within 3 to 5 years, and it keeps going until you hit 20% equity.

For most VA borrowers who keep their loan beyond five years, the funding fee is the better outcome.

What Happens If You're Rated Disabled After Closing?

If you paid a VA funding fee and are later awarded a service-connected disability rating, you may be entitled to a refund.

The VA will automatically process the refund if the disability rating is backdated to before your closing date. If the rating is not backdated, you may need to submit a refund request. Your lender or a VA-accredited claims agent can help navigate this process.

Do not ignore this. On a $400,000 loan, that refund could be $8,600.

Florida-Specific Context

Florida has one of the highest concentrations of veterans and active duty families in the country, with major installations at NAS Jacksonville, MacDill AFB in Tampa, and Patrick SFB near Orlando. VA loan volume in Florida is consistently among the highest nationally.

With median home prices in Orlando around $370,000 to $420,000 in 2026, the funding fee on a typical purchase runs $7,900 to $9,000 for first-time users with no down payment. Factoring this into your total closing cost budget is important, especially if you're also looking at Florida closing costs beyond the loan itself.

Common Mistakes to Avoid

• Assuming you'll be charged when you're exempt: Confirm your COE status before closing if you have any disability rating.
• Not checking if a refund applies: If your disability was approved after a prior VA closing, review your eligibility for a refund.
• Ignoring the subsequent use rate: Using VA for the second time without knowing the 3.30% rate can catch borrowers off guard. Ask about this early.
• Confusing the funding fee with origination fees: These are separate charges. The funding fee goes to the VA; origination fees go to the lender.