Carlos Scarpero, Senior Loan Originator Specializing in VA Loans
Most VA borrowers pay a one-time VA funding fee at closing, a percentage of the loan amount that helps fund the VA home loan program and lower its cost for taxpayers. The rate depends on whether it's your first use of the benefit, your down payment, and the loan type. Veterans with a service-connected disability rating, among a few other categories, are exempt from paying it entirely. If you're exempt or later become entitled to be exempt, you may be due a refund, but only if the timing works out a specific way.
Here's the current rate table, who is exempt, how the refund rule actually works (including the trap that costs veterans money), and what to do next.
VA HANDBOOK EXCERPT
“In order to defray the cost of administering the VA Home Loan program, each veteran must pay a funding fee to VA at loan closing.”
This is the whole reason the fee exists. It isn't profit for your lender. It funds the program for future veterans, and Congress sets the rate.
Source:
The rates below match VA's published funding fee page, effective April 7, 2023 and current as of this writing. They apply the same way to regular military, Reserve, and National Guard borrowers.
| Use | Down payment | Funding fee |
|---|---|---|
| First use | Less than 5% | 2.15% |
| First use | 5% or more | 1.5% |
| First use | 10% or more | 1.25% |
| After first use | Less than 5% | 3.3% |
| After first use | 5% or more | 1.5% |
| After first use | 10% or more | 1.25% |
| Loan type | Funding fee |
|---|---|
| IRRRL (streamline refinance) | 0.5% |
| Cash-out refinance, first use | 2.15% |
| Cash-out refinance, after first use | 3.3% |
| Loan assumption | 0.5% |
| Manufactured home, not permanently affixed | 1% |
Two things stand out in that table.
First, the jump from 2.15% to 3.3% on subsequent use with nothing down is significant. On a $400,000 loan that's $13,200 instead of $8,600. Putting just 5% down drops the rate to 1.5% on either first or subsequent use. If you're on your second VA loan and you have some cash available, a 5% down payment saves $7,200 in fee on that same $400,000 loan compared to zero down. Run that math before you default to putting nothing down. For a closer look at how down payment choices interact with your overall numbers, see our guide to VA closing costs.
Second, cash-out refinance rates don't drop with equity the way purchase rates drop with a down payment. It's 2.15% or 3.3%, period, regardless of how much equity you have. If you're weighing a cash-out refinance against an IRRRL, our comparison of the IRRRL and the VA cash-out refinance walks through when each one makes sense.
VA HANDBOOK EXCERPT
“For all types of VA loans, the loan amount may include the VA funding fee.”
You don't have to write a check for the fee at closing. It can be added to your loan balance instead, which is what most borrowers choose to do.
Source:
A note on Reserve and National Guard rates. The VA Lender's Handbook chapter on this topic still lists separate, slightly higher funding fee rates for Reserve and National Guard borrowers (2.4% first use with no down payment, versus 2.15% for regular military). VA's current published funding fee page, last updated January 2026, shows one unified rate table that applies the same way to veterans, active-duty service members, and National Guard and Reserve members. The rates in the tables above reflect that current, unified VA.gov table. If your certificate of eligibility (COE) shows a Reserves/National Guard notation, confirm your exact fee with your lender rather than relying on the older handbook table.
Take the 30 second mortgage quiz to see if you qualify
You're exempt if you're receiving VA compensation for a service-connected disability, if you'd be entitled to that compensation but you're getting retirement or active-duty pay instead, if you have a qualifying pre-discharge rating, or if you're a surviving spouse receiving benefits tied to a veteran who died in service or from a service-connected disability.
VA HANDBOOK EXCERPT
“Veterans receiving VA compensation for service-connected disabilities.”
This is the most common exemption. It applies at any disability rating percentage, there's no minimum threshold. A 10% rating exempts you just as fully as a 100% rating.
Source:
The full exemption list from the handbook also includes veterans entitled to compensation but not currently receiving it because they're on active duty, and veterans rated eligible for compensation through a pre-discharge exam or a memorandum rating based on existing medical records.
VA's current funding fee page adds one more exemption category that isn't spelled out in this handbook chapter: an active-duty service member who provides evidence of a Purple Heart on or before the closing date. That's a real, current exemption, just sourced to VA's public guidance rather than this chapter of the handbook.
If your lender can't verify your exemption before your loan closes, you still pay the fee at closing, even if you believe you're exempt and even if you have a pending disability claim. That's not optional and it's not a lender choosing to be difficult. The handbook is direct about this: if you have a pending disability compensation claim at the time of loan closing, the fee still has to be collected as if you weren't exempt.
This is where veterans lose real money without realizing it. You may be eligible for a refund of the funding fee if you're later awarded VA compensation for a service-connected disability. But there's a condition: the effective date of that compensation has to be retroactive to before your loan closing date.
So if you filed a claim in January, closed on your house in June, and got a rating in October with an effective date of January, you're due a refund. If that same rating carries an effective date of September, you're not, because September comes after your June closing.
Here's the trap. If you receive a proposed or memorandum rating after your loan closing date, you still owe the funding fee and that rating alone doesn't make you eligible for a refund. The timing of the paperwork controls, not the timing of when your condition started.
VA HANDBOOK EXCERPT
“Advise the veteran to contact the VA RLC to request a refund if it is later determined that the veteran is entitled to compensation retroactively to a date prior to loan closing.”
If you think you might be owed a refund, the VA Regional Loan Center (RLC), not your lender's back office, is who you contact to start that process.
Source:
If you have a pending claim, tell your loan officer early so your file reflects it accurately. That won't change the fee you owe at closing if the exemption can't be confirmed yet, but it puts a paper trail in place for a future refund request. If you're navigating a claim alongside credit or income complications, our guide to VA manual underwriting covers how lenders evaluate files that don't fit a standard automated approval.
Take the 30 second mortgage quiz to see if you qualify
You can roll the funding fee into the loan amount or pay it in cash at closing. Most borrowers finance it.
Financing it means you pay interest on that amount for as long as you keep the loan, which raises the total cost over time. Paying cash keeps your loan balance and your equity position lower from day one, but it ties up cash you might need for reserves or moving costs. There's no universally right answer. If your cash reserves are thin, financing the fee is usually the more practical choice. If you want to see how either choice affects your monthly numbers, our VA mortgage payment calculator can run both scenarios.
One correction worth flagging clearly: the VA funding fee is not currently tax deductible. The IRS treats it the same way it treats other loan-related service charges, not as deductible interest or points. If you've heard otherwise, check with a tax preparer before you assume it applies to your return.
There's an active legislative proposal that would raise the IRRRL funding fee substantially. The Sharri Briley and Eric Edmundson Veterans Benefits Expansion Act (introduced in the House as part of a larger veterans benefits package sometimes referred to as the Take Care of America's Veterans Act) would create a new supplemental allowance for veterans with catastrophic injuries and pay for part of it by raising the upfront fee on Interest Rate Reduction Refinance Loans (IRRRLs).
To put a number on it: on a $325,000 loan, the current IRRRL fee at 0.5% is $1,625. Under the proposal, that fee would be roughly three times higher.
As of this writing, the bill has not become law and nothing has changed for your loan today. Track its status directly on Congress.gov's page for H.R. 6047 before assuming any change is final. If your IRRRL timing might be sensitive to this, our VA streamline refinance (IRRRL) guide explains how the current process and costs work.
On a purchase, it's 2.15% for first use with less than 5% down, 3.3% for subsequent use with less than 5% down, 1.5% with 5% or more down, and 1.25% with 10% or more down. IRRRLs and loan assumptions are 0.5%. Cash-out refinances are 2.15% first use and 3.3% subsequent use, regardless of equity.
Veterans receiving VA compensation for a service-connected disability, veterans entitled to that compensation but receiving retirement or active-duty pay instead, veterans with a qualifying pre-discharge rating, surviving spouses tied to a veteran's service-connected death, and, per VA's current guidance, active-duty members who document a Purple Heart before closing.
Only if the effective date of your VA compensation is retroactive to before your loan closing date. A proposed or memorandum rating received after closing does not, by itself, make you eligible for a refund.
Yes. Any service-connected disability compensation qualifies for the exemption under the handbook. There's no minimum rating percentage required.
No, not currently. The IRS treats VA funding fees the way it treats other lender-charged service fees, not as deductible mortgage interest or points. Confirm your specific situation with a tax professional.
VA's current published rate table applies the same fee schedule to veterans, active-duty service members, and National Guard and Reserve members. An older table in the VA Lender's Handbook still lists slightly higher rates for Reserve and National Guard borrowers on some scenarios, so confirm your exact rate with your lender rather than relying on either table alone.
Take the 30 second mortgage quiz to see if you qualify
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H.R. 9237 would raise the VA IRRRL funding fee. What the bill text actually says, where it stands as of August 15 2026, and what it means for your refinance.
Take the 30 second mortgage quiz to see if you qualify
