Is the funding fee tax deductible?

Mortgage insurance deductibility has changed in recent tax years — check with a tax advisor. The funding fee is typically treated as a prepaid finance charge, not interest.

Can I get the funding fee waived after closing?

Yes, if a service-connected disability rating is granted retroactively with an effective date before closing, you can request a refund through your lender or the VA Regional Loan Center.

VA Home Loans

2025-05-15· 4 min read

VA Loan Funding Fee Explained: Rates, Exemptions, and How to Avoid It

The complete plain-English guide to the VA loan funding fee — current rates, who's exempt, how to avoid it, and how to request a refund.

By VA Benefits Help Guide Editorial Team

Quick answer

The VA funding fee is a one-time charge of 1.25%–3.3% of the loan amount, depending on down payment and prior use. Veterans rated 10% or higher service-connected are fully exempt, as are surviving spouses receiving DIC and Purple Heart recipients.

The VA funding fee is the single biggest line item that surprises first-time VA loan users. It's also the most commonly waived — and the most commonly overpaid by accident. This guide covers exactly what you owe, when you don't owe anything, and how to recover money paid in error.

What the Funding Fee Is

The funding fee replaces traditional mortgage insurance. It funds the VA loan program for future veterans and is calculated as a percentage of the loan amount, financed into the loan unless you pay it at closing.

Current Funding Fee Rates (Purchase Loans)

First-use, 0% down: 2.15% (Regular), 2.40% (Reserve/Guard)
First-use, 5–9.99% down: 1.50%
First-use, 10%+ down: 1.25%
Subsequent use, 0% down: 3.30%
Subsequent use, 5–9.99% down: 1.50%
Subsequent use, 10%+ down: 1.25%

Who Is Exempt From the Funding Fee

Veterans receiving VA disability compensation (10% or higher).
Veterans who would be entitled to disability but are receiving retired or active duty pay instead.
Surviving spouses receiving Dependency and Indemnity Compensation (DIC).
Active-duty Purple Heart recipients.
Veterans rated less than 10% but who have a pending claim that later results in a 10%+ rating may be eligible for a refund.

Want to make sure you're not making an avoidable mistake elsewhere in the process?

See Common VA Loan Mistakes

How to Get a Funding Fee Refund

If you paid the funding fee but had a pending or later-approved disability claim with an effective date predating the loan closing, you can request a refund. Contact your lender first — most will process it within 60 days. If unresolved, escalate to the VA Regional Loan Center.

Financing the Fee Into the Loan

Most veterans roll the funding fee into the loan rather than paying out of pocket. On a $300,000 loan with a 2.15% fee, that's an extra $6,450 financed — roughly $40/month at 6.5% over 30 years.

Funding Fee for IRRRL and Cash-Out

Interest Rate Reduction Refinance Loan (IRRRL): 0.5%
Cash-out refinance, first use: 2.15%
Cash-out refinance, subsequent use: 3.3%

Why Putting Money Down Still Lowers the Fee

Even though the VA loan's headline feature is $0 down, the funding fee percentage still drops meaningfully once you put down 5% or more, and again at 10% or more. This is worth factoring into your decision if you have some savings available — a modest down payment can shrink the financed fee enough to offset a meaningful chunk of the upfront cost, even on a loan that doesn't technically require any down payment at all.

Common mistakes to avoid

Paying the funding fee when you qualify for an exemption.
Forgetting to follow up on a pending claim that could trigger a retroactive refund.
Choosing a no-down-payment loan when even 5% drops the fee meaningfully on a large loan.

Frequently asked questions

Conclusion

The funding fee is real, but for most disability-rated veterans it's $0. If you're paying it, make sure the rate matches your situation — and check your eligibility for a refund if your disability rating changes after closing.