What Is the VA Funding Fee — And Who Doesn't Have to Pay It?

A Mortgage Tool Bus Guide for Colorado Springs Military Families

🚌 Stop #1: What the VA Funding Fee Actually Is — And What It Isn't

The VA loan program gives eligible service members and veterans something almost no other loan program offers: zero down payment with no monthly mortgage insurance. That's a genuinely powerful combination. The funding fee is how the program sustains itself — it goes directly to the Department of Veterans Affairs, not to your lender, and it offsets the cost to taxpayers of backing loans without requiring PMI.

It is not a lender fee. It is not negotiable. Every lender in the country charges the same percentage because the U.S. government sets the rate by law — you can't shop around for a lower funding fee the way you shop for a lower interest rate.

What you can do is understand it, plan for it, and — if you qualify — get it waived entirely.

🚌 Stop #2: The Full 2026 Fee Chart

Source: VA.gov, effective April 7, 2023, confirmed current through 2026. Always verify at VA.gov or with your loan officer before closing, since Congress can change these rates.

A few things worth noting:

The fee applies to the loan amount after your down payment — not the full purchase price.

Reservists and National Guard members pay the same rates as regular military as of 2020.

Once you cross 5% down, first-time and subsequent users pay the same 1.50% rate. That makes a down payment worth running the math on, especially for second-time users jumping from 3.30% to 1.50%.

The IRRRL (streamline refinance) at a flat 0.50% is one of the cheapest refinance options available, period.

🚌 Stop #3: What This Looks Like in Real Colorado Springs Dollars

The median home sale price in Colorado Springs was approximately $450,000 as of March 2026 (Redfin). Here's what the funding fee looks like at different scenarios:

Based on Colorado Springs median home price of approximately $450,000 (Redfin, March 2026). Fee applies to loan amount after down payment, not the purchase price.

*On that second-time buyer scenario with no down payment — $14,850 is real money. That's the number that makes putting 5% down worth seriously running the math on, even for buyers who could technically go zero down.

🚌 Stop #4: Who Doesn't Have to Pay It — The Complete Exemption List

This is the section most people skip past, and it's where real money gets left on the table. The VA fully waives the funding fee for five categories of borrowers. Here they are, exactly as stated on VA.gov.

The five VA funding fee exemptions (source: VA.gov):

Receiving VA compensation for a service-connected disability — any active compensation award, no minimum rating percentage specified by VA.gov

Eligible to receive VA compensation for a service-connected disability but currently receiving military retirement or active-duty pay instead

Surviving spouse receiving Dependency and Indemnity Compensation (DIC) — DIC specifically, not all surviving spouses

Service member with a proposed or memorandum disability rating on or before the loan closing date

Active-duty service member who received a Purple Heart on or before the loan closing date

Exemption status is verified through your Certificate of Eligibility (COE). Your lender can pull your COE. If you believe you qualify, make sure it's reflected on your COE before you close — catching a mistake here is far easier before funding than after.

🚌 Stop #5: The Refund Almost Nobody Knows About

This one comes directly from VA.gov: if you paid a funding fee at closing and were later awarded VA disability compensation with an effective date retroactive to before your closing date, you may be eligible for a refund of the funding fee.

This is more common than people think. Many service members file disability claims while still on active duty, and the VA's processing timeline means the award sometimes comes through after the loan has already closed— but the effective date on the award may predate the closing.

If this applies to you: contact the VA regional loan center directly. If the fee was rolled into your loan, the refund is typically applied to your loan balance rather than sent as a check. On a $450,000 purchase at 2.15%, that's $9,675 back — worth making the call.
Helpful Tools

VA Loan Information → mortgagetoolbus.com/va-loan

Monthly Payment Tool → mortgagetoolbus.com/monthlypaymenttool

All Loan Options → mortgagetoolbus.com/loan-options

Common Questions → mortgagetoolbus.com/homebuyer-faq

Frequently Asked Questions

Can the seller pay my VA funding fee?

Yes — the VA allows sellers to cover the funding fee as a seller concession. VA rules cap seller concessions at 4% of the home's appraised value, and the funding fee counts toward that cap. On a $450,000 home the 4% cap is $18,000, so a first-time buyer's $9,675 fee fits comfortably. It's a negotiating point worth raising with your real estate agent, especially in a buyer-friendly market.

Does the VA funding fee affect my interest rate?

No — the funding fee is a one-time charge, not an ongoing cost. It doesn't change your interest rate. If you roll it into the loan it slightly increases your loan balance and therefore your monthly payment, but it has no effect on the rate your lender offers you.

I'm PCSing to Fort Carson — do I pay a first-time or second-time rate if I've had a VA loan before?

If you've previously used a VA loan — even if you sold that home and paid it off — you pay the subsequent-use rate of 3.30% with no down payment, or 1.50%/1.25% with 5%/10% down. Restoring your entitlement after paying off the prior loan makes your entitlement available again for qualifying purposes, but it does not reset your funding fee tier back to first-use rates.

Is the VA funding fee tax deductible in 2026?

Possibly — the deduction for mortgage insurance premiums (which the funding fee falls under for tax purposes) was revived for 2026 after having lapsed. Whether it benefits you depends on whether you itemize deductions and your adjusted gross income. Confirm with a tax professional before filing, since individual circumstances vary.

What if I think I'm exempt but my lender doesn't flag it?

Ask directly — don't wait for them to bring it up. Your COE should reflect your exemption status, but processing delays or documentation gaps can mean it isn't showing yet. If you have an active VA disability compensation award, bring your VA award letter to your lender. As your PCS Guide puts it: "If any of those apply and your lender hasn't mentioned it, you've got the wrong lender — or at minimum, you need to ask the question yourself."

❤️ Let’s Go Home

— Kat Fish
Mortgage Tool Bus
NMLS #2609071