VA Funding Fee Exemption: Who Doesn't Pay, Refunds, and What It Means on a New Home
In this article
You don't pay the VA funding fee if you receive VA compensation for a service-connected disability, if you're eligible for it but receive retirement or active-duty pay instead, if you're a surviving spouse receiving Dependency and Indemnity Compensation, if you have a pre-discharge proposed or memorandum rating before closing, or if you're on active duty and show proof of a Purple Heart by closing. Everyone else pays a one-time fee of 1.25% to 3.3% of the loan on a purchase, and it can be rolled into the loan.
Who is exempt from the VA funding fee?
The U.S. Department of Veterans Affairs lists five cases. You won't have to pay a VA funding fee if any of these is true:
""You're receiving VA compensation for a service-connected disability""
""You're eligible to receive VA compensation for a service-connected disability, but you're receiving retirement or active-duty pay instead""
""You're receiving Dependency and Indemnity Compensation (D.I.C.) as the surviving spouse of a Veteran""
""You're a service member who has received a proposed or memorandum rating before the loan closing date that says you're eligible to get compensation because of a pre-discharge claim""
""You're an active-duty member of the Armed Forces, and on or before your loan closing date you provide evidence that you received a Purple Heart""
If none of these fits, you pay the fee, either at closing or financed into your loan.
What does the law say about the exemption?
The exemption comes from federal law, 38 U.S.C. 3729(c). It says a fee ""may not be collected"" from a veteran who is receiving compensation, from a qualifying surviving spouse, or from an active-duty member ""who provides, on or before the date of loan closing, evidence of having been awarded the Purple Heart.""
The law also covers service members who are still on their way out. A veteran rated eligible for compensation from a pre-discharge exam, or from a pre-discharge review that ""results in the issuance of a memorandum rating,"" is ""treated as receiving compensation"" as of the date of the rating. That is why the timing of your rating matters so much.
How much is the VA funding fee if you're not exempt?
VA's purchase and construction loan chart has been in effect since April 7, 2023. Federal law sets these rates for loans closed before June 9, 2034.
Your down payment | First use | After first use |
|---|---|---|
Less than 5% | 2.15% | 3.3% |
5% or more | 1.5% | 1.5% |
10% or more | 1.25% | 1.25% |
The fee is a percentage of the loan amount, not the price. VA's own example: a first-time user buying a $200,000 home with $10,000 down pays ""a VA funding fee of $2,850, or 1.5% of the $190,000 loan amount.""
Here is the same chart applied to an example $400,000 home price:
Example | Loan amount | Fee rate | Funding fee |
|---|---|---|---|
First use, no down payment | $400,000 | 2.15% | $8,600 |
First use, 5% down | $380,000 | 1.5% | $5,700 |
First use, 10% down | $360,000 | 1.25% | $4,500 |
After first use, no down payment | $400,000 | 3.3% | $13,200 |
Exempt veteran, any down payment | Any | 0% | $0 |
VA notes that if you used a VA loan only to buy a manufactured home in the past, you still pay the first-time fee.
Can you get a VA funding fee refund?
Sometimes. VA says: ""You may be eligible for a refund of the VA funding fee if you're later awarded VA compensation for a service-connected disability. The effective date of your VA compensation must be retroactive to before the date of your loan closing.""
There is an important limit. VA says that ""if you get a proposed or memorandum rating after your loan closing date, you'll still need to pay the funding fee,"" and you won't be eligible for a refund based on that rating.
If you think you qualify, VA says to call your VA regional loan center at 877-827-3702. The line is open Monday through Friday, 8:00 a.m. to 6:00 p.m. ET.
Should you pay the fee up front or roll it into the loan?
VA lets you do either: ""Include the funding fee in your loan and pay it off over time (called financing), or pay the full fee all at once at closing.""
On a purchase, the funding fee is the only cost you can finance. VA says, ""On a purchase or construction/permanent loan, you can finance only the VA funding fee into the loan amount. You must pay all other fees and charges when your loan closes.""
Rolling it in adds to your payment. As an example only, financing an $8,600 fee at 7.24%, Freddie Mac's 30-year fixed average for the week of October 29, 2026, adds about $58.61 a month in principal and interest. Kept for all 30 years, that is about $21,100 in payments. VA loan rates vary by lender, so ask yours for an exact figure.
Can a builder or seller pay the VA funding fee?
Yes, as a credit, but it counts toward a limit. VA allows sellers and builders to offer credits for closing costs and doesn't limit those credits, but it does ""limit seller's concessions to no more than 4% of your home's reasonable value."" VA lists ""credits for the VA Funding Fee"" as one kind of concession.
So if a builder offers to cover your funding fee, that credit uses up part of the 4%. Our guide to seller concession limits explains how the different loan types compare.
What this means for new-construction buyers
A new home can take months to finish, and that time can matter if you have a disability claim in progress. The exemption depends on what is in place by your closing date. A refund later depends on an award with an effective date before closing, and VA says a rating issued after closing won't earn a refund.
A few steps to take before you close:
Ask your lender to confirm your funding fee status well before closing day.
If you are on active duty and have a Purple Heart, get the evidence to your lender on or before closing.
Read builder incentives carefully. A credit toward the funding fee counts as a seller's concession under VA's 4% limit. See builder closing cost incentives.
Compare your total closing costs with our new-construction closing costs guide.
For VA's rules on builders, warranties and appraisals, read using a VA loan on new construction. For today's numbers on a specific home, call 561-704-0091.
Common Questions
Who is exempt from the VA funding fee?
VA says you don't pay it if you receive VA compensation for a service-connected disability, are eligible for that compensation but receive retirement or active-duty pay instead, receive Dependency and Indemnity Compensation as a surviving spouse, have a proposed or memorandum rating before closing from a pre-discharge claim, or are on active duty and show proof of a Purple Heart on or before closing.
How much is the VA funding fee in 2026?
On a first-use purchase loan, VA's chart is 2.15% with less than 5% down, 1.5% with 5% or more down, and 1.25% with 10% or more down. After first use, it is 3.3% with less than 5% down, and the same 1.5% and 1.25% with larger down payments.
Can I get a refund of the VA funding fee?
You may, if you are later awarded VA compensation for a service-connected disability and the effective date of that compensation is retroactive to before your loan closing date. VA says to call your regional loan center at 877-827-3702, Monday through Friday, 8:00 a.m. to 6:00 p.m. ET.
What if my disability rating comes after I close?
VA says that if you get a proposed or memorandum rating after your loan closing date, you still need to pay the funding fee and won't be eligible for a refund based on that rating. A refund depends on an award of compensation with an effective date before closing.
Can I roll the VA funding fee into my loan?
Yes. VA says you can include it in your loan or pay it all at once at closing. On a purchase loan, the funding fee is the only cost you can finance into the loan amount.
Can a builder pay my VA funding fee?
A builder or seller can give you a credit for it, but VA counts a credit for the funding fee as a seller's concession. VA limits seller's concessions to 4% of the home's reasonable value.
Ready to take the next step?
Call 561-704-0091 to talk with a National House Search specialist, or Schedule a visit.
Related reading: Can you use a VA loan on new construction? · Seller concession limits · New-construction closing costs
Sources: VA funding fee and closing costs · 38 U.S.C. 3729 · Freddie Mac PMMS
This is general information, not financial, tax or legal advice. Figures checked November 5, 2026.