Funding Fee Rates & Tax Savings

When refinancing your home using a Department of Veterans Affairs (VA) loan, one of the primary upfront costs you will encounter is the VA funding fee. This mandatory one-time fee is required by law to help defray the cost of the loan program to taxpayers and ensure future generations of veterans can continue taking advantage of VA home benefits.

While the fee adds to your initial costs, understanding how it is calculated, who qualifies for exemptions, and its tax implications can save you thousands of dollars over the life of your mortgage.

What Is the VA Funding Fee?

The VA funding fee is a government fee applied to both VA purchase loans and VA refinance loans. Unlike traditional private mortgage insurance (PMI), which requires monthly payments for years, the VA funding fee is a one-time charge.

How You Can Pay the Fee

• Pay at Closing: You can pay the total fee in cash at your loan closing.
• Roll It Into Your Loan: Most borrowers choose to finance the fee by rolling it directly into their total loan balance, eliminating out-of-pocket costs at closing.

Are VA Funding Fees Tax Deductible?

Starting in 2026, Veterans, active-duty service members, and surviving spouses can deduct VA funding fees on their taxes when utilizing their VA-guaranteed home loan benefits.

This tax deduction provides a valuable financial offset to your refinancing costs. Be sure to consult a qualified tax professional or CPA when filing your annual return to ensure you maximize your eligible mortgage deductions.

Key Takeaways Before You Refinance

1. Calculate Your Total Cost: Decide whether paying the fee out of pocket or financing it into your loan balance aligns better with your long-term monthly cash flow.
2. Check Your Eligibility Status: If you have a service-connected disability rating, verify that your funding fee waiver is reflected on your Loan Estimate.
3. Compare Refinance Programs: If you don’t need cash back, sticking with an IRRRL keeps your funding fee at just 0.5% while delivering a quick closing timeline.