VA Funding Fee FAQs

1. What is the VA funding fee?

The VA funding fee is a one time charge on many VA backed home loans. It helps support the VA home loan program and allows eligible Veterans to access benefits such as no down payment in many cases and no monthly mortgage insurance. Merchants Home Lending can review your loan scenario to determine whether you are required to pay the fee and what your applicable funding fee may be. 

2. How much is the VA funding fee in 2026?

For VA purchase and construction loans, the current funding fee is 2.15% for first use with less than 5% down, 1.5% with 5% or more down, and 1.25% with 10% or more down. For subsequent use, the fee is generally 3.3% with less than 5% down, 1.5% with 5% or more, and 1.25% with 10% or more. Your exact fee depends on your loan details. 

3. Who has to pay the VA funding fee?

Most borrowers using a VA backed loan are required to pay the funding fee unless they meet one of the VA's exemption requirements. The fee can apply when buying, building, improving, repairing, or refinancing a home. Merchants Home Lending can review your eligibility and loan type to determine whether the funding fee applies to you. 

4. Who is exempt from the VA funding fee?

You may be exempt if you receive VA compensation for a service connected disability, are eligible for that compensation but receive retirement or active duty pay instead, receive certain Dependency and Indemnity Compensation, have an applicable pre discharge disability rating, or are an active duty service member with a qualifying Purple Heart. Merchants Home Lending can help identify whether your documentation supports a funding fee exemption. 

5. Do disabled Veterans have to pay the VA funding fee?

Not necessarily. Veterans receiving VA compensation for a qualifying service connected disability may be exempt from the funding fee. Eligibility depends on the VA's determination and the borrower's circumstances. If you believe you qualify for an exemption, Merchants Home Lending can help you understand what documentation may be needed before closing. 

6. What VA disability rating makes you exempt from the funding fee?

There is not a simple minimum disability percentage that automatically determines exemption. The VA exemption is based on whether you are receiving or eligible to receive VA compensation for a service connected disability and other qualifying circumstances. Merchants Home Lending can review your situation, but the VA determines eligibility for the exemption. 

7. Do I have to pay the VA funding fee if I receive 100% VA disability?

If you receive VA compensation for a service connected disability, you generally qualify for an exemption from the VA funding fee. The important factor is your qualifying VA compensation status rather than simply the percentage alone. Merchants Home Lending can verify the applicable exemption documentation as part of your loan process. 

8. Is the VA funding fee higher the second time you use a VA loan?

It can be. For VA purchase and construction loans with less than 5% down, the current funding fee is generally 2.15% for first use and 3.3% for subsequent use. The fee can be reduced to 1.5% with a 5% or greater down payment and 1.25% with a 10% or greater down payment. Merchants Home Lending can calculate the applicable fee based on your previous VA loan usage and down payment. 

9. Can a down payment lower my VA funding fee?

Yes. For VA purchase and construction loans, making a down payment of at least 5% can reduce the funding fee to 1.5%, while a down payment of at least 10% can reduce it to 1.25%. Merchants Home Lending can compare your estimated loan costs with different down payment amounts so you can understand the impact before choosing your financing structure. 

10. Can I finance the VA funding fee into my loan?

Yes. Eligible borrowers can generally finance the VA funding fee by adding it to the loan amount rather than paying it separately at closing. This can reduce the cash you need at closing, but it also increases the amount you finance and the interest paid over time. Merchants Home Lending can show you the difference between financing the fee and paying it at closing. 

11. Can I pay the VA funding fee upfront?

Yes. You can pay the funding fee at closing instead of financing it into your mortgage. Paying it upfront means you do not add the fee to your loan balance. Merchants Home Lending can help you compare the upfront cost with the long term impact of financing the fee. 

12. Can the seller pay the VA funding fee?

A seller may provide certain credits or concessions that can help cover eligible buyer costs, including the VA funding fee, subject to VA rules and transaction requirements. Merchants Home Lending can review the purchase contract and explain how seller contributions may apply to your particular transaction. 

13. Can I get a VA funding fee refund?

You may qualify for a refund if you paid the funding fee and are later awarded VA compensation for a service connected disability with an effective date that is retroactive to before your loan closing date. A proposed or memorandum rating received after closing does not by itself create eligibility for a refund. 

14. How do I get a VA funding fee refund?

If you believe you qualify for a refund because your VA disability compensation was awarded retroactively, you should contact the VA regarding the refund process. Merchants Home Lending can help you understand how the funding fee was handled on your loan and what documentation may be relevant to your situation. 

15. Is the VA funding fee refundable if I become disabled after closing?

Not automatically. The key issue is whether your VA disability compensation has an effective date that is before your loan closing date. If the compensation is awarded with a qualifying retroactive effective date, you may be eligible for a refund. 

16. Does the VA funding fee apply to VA refinance loans?

Yes, but the amount depends on the type of refinance. A VA backed cash out refinance currently has a funding fee of 2.15% for first use and 3.3% for subsequent use, while an IRRRL has a 0.5% funding fee. Merchants Home Lending can determine which refinance program applies and calculate the applicable funding fee. 

17. Is the VA funding fee tax deductible?

Beginning in 2026, eligible Veterans, service members, and surviving spouses can deduct VA funding fees associated with qualifying VA guaranteed home loans on their federal taxes. Tax treatment depends on individual circumstances, so Merchants Home Lending recommends consulting a qualified tax professional for advice about your specific situation. 

18. Does the VA funding fee increase my monthly mortgage payment?

It can. If you finance the funding fee instead of paying it at closing, the fee becomes part of your loan balance. That means you will generally pay interest on the additional amount and your mortgage payment can be higher than it would be without the financed fee. Merchants Home Lending can show you the estimated payment difference before you close. 

19. How is the VA funding fee calculated?

The funding fee is calculated as a percentage of the applicable loan amount. The percentage depends on factors such as the loan type, whether it is your first or subsequent VA loan use, and for purchase or construction loans, the amount of your down payment. Merchants Home Lending can calculate the estimated funding fee for your specific loan scenario. 

20. How can I avoid paying the VA funding fee?

The main way to avoid the VA funding fee is to qualify for a VA exemption. Veterans receiving qualifying service connected disability compensation are among those who may be exempt. If you do not qualify for an exemption, making a down payment can reduce the funding fee on a purchase or construction loan, but it does not eliminate it unless you meet the applicable exemption requirements. Merchants Home Lending can review your eligibility and help determine your available options.

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