The VA Funding Fee and Who's Exempt

Do I have to pay the VA funding fee if I have a disability rating?

By Kyle Melvin · NMLS #1486450 · REV Mortgage · Published Sep 17, 2026

Short answer

No. A veteran receiving VA compensation for a service-connected disability is exempt from the funding fee, and so is a veteran who is entitled to compensation but receiving retirement pay instead, a surviving spouse receiving Dependency and Indemnity Compensation, and an active-duty Purple Heart recipient. Everyone else pays a one-time fee calculated as a percentage of the loan amount, which most borrowers finance into the loan. The fee replaces the monthly mortgage insurance that FHA and low-down-payment conventional loans carry.

The funding fee exists so the VA loan program funds itself rather than drawing on taxpayers for every default. It is a one-time charge, set by statute as a percentage of the loan amount, and its size depends on three things: how much you put down, whether you have used the benefit before, and whether the loan is a purchase, a cash-out refinance, or a streamline refinance. It is not a closing cost in the usual sense — it can be financed on top of the loan — and it has no monthly component. That last point is why a VA loan with the fee financed is still usually cheaper over time than an FHA loan without one.

Who is exempt

The VA Lenders Handbook, Chapter 8, and the statute behind it exempt the following borrowers from the fee entirely:

Veterans receiving VA compensation for a service-connected disability, at any rating percentage
Veterans entitled to receive compensation but receiving military retirement pay or active-duty pay instead
Veterans with a pre-discharge disability rating (a proposed or memorandum rating) at the time of closing
Surviving spouses of veterans who died in service or from a service-connected disability, and who are receiving Dependency and Indemnity Compensation
Active-duty service members who have been awarded the Purple Heart

The exemption status is printed on the Certificate of Eligibility. If the COE says "exempt," the lender does not collect the fee. If it does not, and you believe it should, that has to be corrected before closing — or refunded after it, which is slower.

How the percentage is set

The fee is a percentage of the loan amount. It steps down as the down payment rises, and it is higher for subsequent use when the down payment is under 5%.

Loan type	Down payment	First use	Subsequent use
Purchase or construction	Less than 5%	2.15%	3.30%
Purchase or construction	5% to less than 10%	1.50%	1.50%
Purchase or construction	10% or more	1.25%	1.25%
Cash-out refinance	n/a	2.15%	3.30%
Interest Rate Reduction Refinance (IRRRL)	n/a	0.50%	0.50%
Assumption of an existing VA loan	n/a	0.50% of the balance	0.50% of the balance

These percentages are set by federal statute and change occasionally. The structure — a step-down at 5% and 10% down, a premium for subsequent use — has been stable for years. The dollar amount depends on your loan and is not something this site will quote.

When a rating lands after closing

This is the case that generates the most refunds and the most confusion. A veteran closes while a disability claim is pending, pays the fee, and the rating is later granted with an effective date before the closing date. In that case the veteran was exempt at closing, and the fee is refundable. The lender or the veteran requests the refund through the VA Regional Loan Center; if the fee was financed, the refund reduces the loan balance rather than arriving as a check. The key fact is the effective date of the rating, not the date the letter arrived. If the effective date is after closing, no refund is due.

The practical advice, from the loan side: if you have a claim pending, tell the lender before closing. A pre-discharge or pending rating can sometimes be documented in time to apply the exemption up front, which is far simpler than a refund.

How the fee fits with the rest of the loan

The fee is one input into whether a VA loan beats the alternatives. With full entitlement — see entitlement explained — there is no down payment and no monthly mortgage insurance, so the fee is the entire cost of the guaranty. On a subsequent use with less than 5% down, the higher percentage is worth comparing against putting 5% down to reach the lower tier. And on a refinance, the IRRRL fee is a fraction of the purchase fee, which is part of why the streamline refinance is as cheap to do as it is. For the broader picture of how the program works, start with the VA loan guidelines hub.

Questions people also ask

Can the VA funding fee be rolled into the loan?

Yes. The funding fee can be financed on top of the loan amount, and the guaranty covers the total. Most borrowers finance it rather than paying it at closing.

Does the funding fee go up the second time I use a VA loan?

Yes, for purchases with less than 5% down. Subsequent use with less than 5% down carries a higher percentage than first use. With 5% or more down the percentage is the same for first and subsequent use.

Is the funding fee refundable?

It is refundable when a veteran was entitled to an exemption at the time of closing but the exemption was not applied — most commonly when a disability rating is granted after closing with an effective date before it. Refunds go through the VA Regional Loan Center, and if the fee was financed the refund is applied to the loan balance.