VA Handbook Chapter 8: Borrower Fees and Charges and the VA Funding Fee, Explained in Plain English

Last reviewed: October 6, 2026
Primary source: VA Pamphlet 26-7 (VA Lenders Handbook), Chapter 8: Borrower Fees and Charges and the VA Funding Fee. The chapter text below was verified against a complete verbatim copy (Change 21, November 8, 2012, with Topics 3 through 6 carrying Change 15, November 8, 2010). The funding fee tables in the 2012 chapter were superseded by later law. The current rates and the Purple Heart exemption in this article come from VA Circular 26-19-30 (Blue Water Navy Vietnam Veterans Act of 2019) and VA’s funding fee charts effective April 7, 2023, which remain current. Every source is linked in the Sources section.

How this post works: We go through Chapter 8 in the VA’s own order, all eight topics. For each section: what the handbook says (with direct quotes in the blue boxes), what that means in plain English, and where lenders commonly add their own requirements or bend the rules. The story boxes are illustrations based on situations I see in my pipeline. Names and identifying details are changed, and no story describes any one borrower’s file.

Read this first (the three sentences that matter most)

One: on a VA loan you can pay VA’s itemized fees, a 1% lender flat charge, and reasonable discount points. That is the whole list of what can be charged to you. Two: if you see processing fees, underwriting fees, or document preparation fees charged to you as separate line items on top of the 1%, that is not how VA’s rules work. Those belong inside the lender’s 1% flat charge. Three: the VA funding fee is the one fee that goes to VA, not your lender. It can be financed into the loan, and the 2026 rates are 2.15% for first use with zero down, 3.3% for subsequent use, 0.5% for an IRRRL, and 2.15% or 3.3% for a cash-out. Veterans with a service-connected disability rating, active-duty Purple Heart recipients, and certain surviving spouses do not pay it at all.

The rest of this article separates what VA actually requires from what individual lenders add on top. Now here is the whole chapter, in order.

Topic 1: VA Policy on Fees and Charges Paid by the Veteran-Borrower

What this section says

What that means

This topic is the chapter’s philosophy in two sentences. Because the VA loan is a benefit you earned, VA caps what anyone can charge you to use it. That is the whole reason Chapter 8 exists: to draw a line around your wallet.

Two things to carry with you. First, “lenders must strictly adhere” is strong language. VA is not suggesting; it is telling lenders the fee limits are not optional. Second, the funding fee goes to VA to run the program, not to your lender as profit. And Congress changes the rates from time to time, which is why the 2012 rates printed in this chapter are not the rates you pay today. The current tables are in Topic 8 below.

Where lenders add overlays

The policy topic does not invite much overlay, but it invites something subtler: framing. Some lenders present their own fee schedule as if VA approved it. VA approves fee categories, not lender price lists. When a lender says “this is what VA allows us to charge,” check whether they mean the category (allowed) or the amount (VA only requires it be reasonable and customary, and caps the lender’s flat charge at 1%). The distinction matters most in Topic 2.

Topic 2: Fees and Charges the Veteran-Borrower Can Pay

What this section says

Topic 2 is the allowed list. It starts with the formula:

The itemized fees and charges list (VA regulations at 38 CFR 36.4312): appraisal and compliance inspections (the VA appraiser’s fee and VA compliance inspectors; a second appraisal if the veteran requests reconsideration of value; but the veteran cannot pay for an appraisal requested by the lender or seller for reconsideration of value, or appraisals requested by parties other than the veteran or lender); recording fees and recording taxes; the credit report (plus a $50 evaluation fee in lieu of the credit report charge for automated underwriting cases, and the merged credit report charge for “Refer” cases); prepaid items (that portion of taxes, assessments, and similar items for the current year chargeable to the borrower, plus the initial tax and insurance escrow deposit); hazard insurance (including flood insurance if required); flood zone determinations by a third party that guarantees accuracy (including life-of-the-loan service; no fee may be charged for a determination made by the lender or a VA appraiser); a survey if required by the lender or veteran (with VA prior approval needed for a survey charge on a condo loan); title examination and title insurance (including the cost of an environmental protection lien endorsement if the lender decides one is needed); special mailing fees for refinancing loans only (FedEx, Express Mail, or similar, when the saved per diem interest cost exceeds the cost of the special handling); the VA funding fee (unless exempt); the MERS fee; and other fees authorized by VA for local variances (the lender can submit a written request to the Regional Loan Center if the fee is normally paid by the borrower in the jurisdiction and considered reasonable and customary).

Two guardrails sit inside the itemized list. First, the actual-cost rule:

Second, no duplicate fees: the borrower may not pay a duplicate fee for services already paid for by another party. The handbook’s examples: if the same Notice of Value (NOV) is used for a second purchaser, the lender may not charge the second purchaser an appraisal fee when no second appraisal was ordered; and a survey or flood zone determination fee may not be charged if the lender elects to use an existing one.

Then the 1% flat charge:

The subsection continues with the list of items that cannot be charged to the veteran as “itemized fees and charges” and must be covered out of the lender’s flat fee: lender’s appraisals; lender’s inspections (except in construction loan cases); loan closing or settlement fees; document preparation fees; preparing loan papers or conveyancing fees; attorney’s services other than for title work; photographs; interest rate lock-in fees; postage and other mailing charges, stationery, telephone calls, and other overhead; amortization schedules, pass books, and membership or entrance fees; escrow fees or charges; notary fees; commitment fees or marketing fees of any secondary purchaser of the mortgage (and preparation and recording of assignment of mortgage to such purchaser); trustee’s fees or charges; loan application or processing fees; fees for preparation of truth-in-lending disclosure statements; fees charged by loan brokers, finders, or other third parties whether affiliated with the lender or not; and tax service fees.

Finally, construction loans get special treatment:

The handbook’s own examples: itemized fees plus a three percent flat charge plus discount points (when the lender supervises), or itemized fees plus a two percent flat charge plus discount points (when the lender does not supervise). This provision also applies to supplemental loans.

What that means

This is the chapter’s core deal, and it is worth memorizing the shape of it: itemized third-party fees (at actual cost, no markup, no duplicates) plus up to 1% from the lender plus reasonable discount points. That is the maximum that can be charged to you. Everything else the lender spends to make the loan is the lender’s problem, paid out of the 1%.

The long “cannot be itemized” list is where borrowers get real protection. Processing fees, underwriting fees, document preparation fees, application fees, closing fees: these are all things lenders genuinely spend money on, and on a conventional loan they are routinely charged to the borrower. On a VA loan, the handbook says no. They come out of the 1% flat charge, or the lender eats them. When you see a Loan Estimate with a 1% origination charge AND a $495 processing fee AND a $995 underwriting fee, the math does not work under this topic. That is three bites at the same apple, and the handbook only allows one bite: the 1%.

The third-party actual-cost rule is small but powerful. Your lender cannot mark up the credit report, the appraisal, or the flood certification. What the vendor charged is what you pay. And the 1% is calculated on the loan amount including the funding fee (when the funding fee is financed), except on IRRRLs, which use the worksheet.

On construction loans, the handbook lets the lender charge more (up to 2% extra when supervising construction, 1% extra when not), because construction lending involves inspections and draw administration. That is the one place the flat charge legitimately grows.

Where lenders add overlays

• The double-charge on the 1%. This is the most common violation pattern I see: a lender charges the full 1% flat charge and then itemizes processing, underwriting, application, or document prep fees on top. The handbook’s list is explicit that these cannot be charged to the veteran as itemized fees. Some of this is sloppy software (the fee worksheet auto-populates), and some of it is intentional. Either way, it does not comply.
• “Reasonable and customary” as a ceiling, not a floor. VA allows reasonable and customary amounts for itemized fees, which means unusually high charges can be challenged. If your appraisal fee or title charges look out of line with your market, ask.
• Discount point padding. “Reasonable discount points” is the only discount-point standard VA sets in this chapter. Points that produce no real rate benefit (or that quietly duplicate the 1% flat charge) are worth questioning. On IRRRLs the chapter caps includable points at two (Topic 7).
• Charging the veteran for the lender’s own appraisal. The veteran can pay for the VA appraiser and for compliance inspections, but “lender’s appraisals” are on the unallowable-as-itemized list. A lender-ordered second valuation for its own risk review is the lender’s cost.
• Tax service fees. These appear on almost every conventional closing disclosure, and they are on the handbook’s unallowable list for VA loans. Some lenders still try to pass them through. Flag it.

Illustration based on situations I see in my pipeline.

Topic 3: Fees and Charges the Veteran-Borrower Cannot Pay

What this section says

Topic 3 covers the items that cannot be paid by the veteran at all, but can be paid out of the lender’s flat charge or by some other party. (The long itemized-fee list in Topic 2, subsection d is the companion to this topic.)

The handbook adds that closing documents should clearly indicate the attorney’s fee is not being charged by the lender, but is being paid by the veteran as part of an independent arrangement with an attorney.

Finally, in proposed construction cases where the dwelling was constructed under HUD supervision, the cost of inspections or re-inspections must be borne by the builder or sponsor and is not chargeable to the veteran-purchaser. That includes re-inspections by VA or HUD of onsite or offsite work for which an escrow agreement was established, and any additional re-inspections VA deems necessary.

What that means

Topic 3 is the “not your bill” list. The lender cannot charge you for its attorney (though you can pay for title work, and you can hire your own attorney if you want one). Real estate commissions cannot be charged to you, period, even if you hired a buyer’s agent yourself. Prepayment penalties on an old loan cannot be paid from your VA refinance proceeds, and you cannot be asked to pay the penalty to clear the seller’s liens on a purchase. And on HUD-supervised new construction, inspection and re-inspection costs belong to the builder.

The real estate commission rule is the one that surprises people, because it cuts against how most buyers think. On a VA purchase, the veteran-buyer cannot be charged a brokerage fee or commission “under any circumstances.” That protection is why the seller side of the transaction normally absorbs the commission. (Note: this chapter’s rule is about who can be charged. Market practice and listing agreements decide who actually pays.)

Where lenders add overlays

• Attorney fees relabeled as title work. Title examination and title insurance are legitimate itemized charges. General legal fees for the closing are not. If an “attorney fee” line appears on your VA Loan Estimate, ask whether it is title work (allowable) or the lender’s legal cost (not chargeable to you). The closing documents should make the distinction clear, per the handbook.
• Buyer-broker fees in the post-settlement world. Real estate commission structures have changed since this chapter text was written. The handbook’s rule has not: the veteran-purchaser may not be charged a brokerage fee or commission. If your purchase contract tries to assign a buyer-broker fee to you, that conflicts with this topic, and it needs to be resolved before closing (usually by the seller or listing side absorbing it, or by restructuring).
• Prepayment penalties discovered late. Some older mortgages and land contracts carry prepayment penalties. On a VA refinance, those cannot come out of the loan proceeds. Find them during the application, not at the closing table, because somebody still has to pay them, and it cannot be the new loan.

Topic 4: Other Parties’ Fees and Charges for the Veteran-Borrower

What this section says

What that means

This is one of the shortest topics in the chapter and one of the most generous. VA limits what can be charged to you. It does not limit what other people can pay for you. The seller can pay your closing costs. The lender can give you a credit. A family member can contribute. There is no cap on that generosity, with exactly one exception: seller concessions over 4% (Topic 5).

In practice, this is how many veterans close with very little out of pocket. The seller pays the buyer’s normal closing costs (which, per Topic 5, do not count as concessions), the seller adds concessions up to 4% for the funding fee and prepaids, and a lender credit covers the rest. Every dollar comes from someone other than the veteran, and the chapter blesses all of it.

Where lenders add overlays

Lenders sometimes impose their own caps on interested-party contributions that are stricter than VA’s. VA’s only limit is the 4% seller concession rule. If a lender tells you the seller “can only contribute 3%” or that lender credits are capped at some figure, that is the lender’s or investor’s policy, not this chapter. Also watch for lenders who count normal seller-paid closing costs toward the 4% concession limit. Topic 5 explicitly says not to do that.

Topic 5: Seller Concessions

What this section says

The handbook’s own example of market-appropriate points: if the market dictates a rate of 7.5% with two discount points, the seller’s payment of the two points is not a concession. If the seller paid five points, three of those points would be a concession.

Then the limit:

The handbook also explains why the rule exists: in some localities, builders or sellers offer concessions as a competitive tool, and in extreme cases the concessions can entice unwary and unqualified veterans into mortgages they cannot afford, disguising the veteran’s inability to qualify.

What that means

A seller concession is anything extra the seller throws in that they were not already expected to pay: your funding fee, your prepaid taxes and insurance, extra discount points beyond what the market calls for, money to pay off your credit card balances or a judgment so you can qualify, even a television. The 4% limit is measured against the property’s established reasonable value (the appraised value), not the purchase price.

The critical distinction: the seller paying your normal closing costs is not a concession at all. Neither are market-rate discount points. So a seller can pay all of your title, appraisal, and recording costs, plus up to 4% of the value in true concessions, and the loan is fine. On a $300,000 appraised value, that is $12,000 in concessions on top of all normal closing costs. That is a lot of room, and it is why VA purchases can close with the veteran bringing almost nothing.

Why does VA care? Because concessions can mask unaffordability. If a builder is throwing in $20,000 of extras to get you to sign, VA wants to make sure the loan itself still makes sense without the sweeteners. The 4% line is where VA draws it.

Where lenders add overlays

• Counting closing costs as concessions. The most common error. The handbook says plainly not to include normal discount points and the buyer’s closing costs when testing the 4% limit. Some lenders’ worksheets lump everything the seller pays into one bucket and then flag the file. If your concessions look over 4%, ask for the breakdown.
• 4% of price versus 4% of value. The limit is four percent of the established reasonable value (the appraisal), not the contract price. On an appraisal that comes in low, the concession room shrinks with it.
• Builder incentives on new construction. Builders love design-center credits, rate buydowns, and closing-cost packages. Each piece has to be classified: normal closing costs (not concessions), market points (not concessions), and everything else (concessions, counted toward 4%). Get the builder’s incentive sheet classified early, not the week before closing.
• Payoff of debts to qualify. The handbook expressly lists payoff of credit balances or judgments on the buyer’s behalf as a concession. It is allowed, and it counts toward the 4%. If a judgment payoff eats most of the 4%, there may be no room left for the funding fee or prepaids.

Illustration based on situations I see in my pipeline.

Topic 6: What Happens to Fees and Charges If the Loan Never Closes

What this section says

What that means

Two rules, and they cut in opposite directions. Money already spent on third-party work is gone: if the appraisal was ordered and the credit report was pulled, you do not get those back when the deal dies. But the lender’s 1% flat fee is different. If the lender collected it upfront and the loan does not close, for any reason, the lender must refund it. Even if you took your business to another lender. Even if the deal fell apart because of you.

The logic is clean. The appraisal fee paid a real appraiser for real work. The 1% flat charge was for the lender’s costs of originating a loan that never originated. There is nothing to cover, so it comes back.

Where lenders add overlays

This topic is mostly about enforcement, not overlays. The practical issue: some lenders collect “application fees” or “commitment fees” upfront that are really pieces of the 1% flat charge under another name. If the loan does not close and the lender keeps those, the handbook’s refund rule is being dodged by relabeling. Ask upfront which fees are refundable if the loan does not close, and get it in writing. Also note the interaction with Topic 2: an “application fee” charged to the veteran as an itemized fee is unallowable in the first place.

Topic 7: Fees and Charges That Can Be Included in the Loan Amount

What this section says

On cash-out refinances: allowable fees and charges and discount points may be paid from the cash proceeds of the loan, but only the VA funding fee (and the cost of any energy efficiency improvements) can be added to increase the loan amount.

On IRRRLs:

On other refinancing loans (construction loans, installment land sales contracts, loans assumed by the veteran at a higher rate): the loan amount may include any allowable fees and charges from Topic 2 plus reasonable discount points, subject to maximum loan limits. The maximum loan amount is the lesser of the outstanding balance of the loan being refinanced plus allowable fees and charges (other than the funding fee) plus discount points, or the VA reasonable value of the property plus the VA funding fee plus the cost of any energy efficiency improvements.

What that means

On a purchase, exactly one fee can be rolled into the loan: the VA funding fee. Not the appraisal, not the title work, not the 1% flat charge, not discount points. Those are paid in cash at closing or paid by someone else (seller, lender credit). This is why “zero down” does not always mean “zero cash to close”: the down payment is zero, but the closing costs still have to come from somewhere.

Refinances are more flexible because there is no seller and the equity is already yours. An IRRRL can roll in the itemized closing costs, the funding fee, and the lender’s flat charge, with the one cap that no more than two discount points can be financed (you can pay more points, but in cash). A cash-out refinance can pay allowable fees and points from the cash proceeds, but only the funding fee and energy improvement costs can push the loan amount higher.

Where lenders add overlays

• “We can roll your closing costs into the purchase loan.” On a regular VA purchase, no, they cannot, except for the funding fee. If a lender’s worksheet shows closing costs being added to a purchase loan amount, something is misclassified. (Energy efficiency improvements are the narrow exception discussed in the handbook’s energy provisions.)
• IRRRLs with more than two points financed. The two-point cap on financed discount points is IRRRL-specific and easy to miss. A lender can charge more points, but the excess has to be cash from the borrower, not added to the loan.
• Cash-out: fees from proceeds versus fees increasing the loan. These are different mechanics. Paying fees from cash proceeds reduces the cash you walk away with. Adding the funding fee to the loan amount increases what you owe. Both are allowed on a cash-out, but they do different things to your bottom line, and the Loan Estimate should make clear which is which.

Topic 8: The VA Funding Fee

What this section says

The lender’s job, in the handbook’s words:

Who is exempt. The chapter lists: veterans receiving VA compensation for service-connected disabilities; veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay; veterans rated by VA as eligible to receive compensation as a result of a pre-discharge disability examination and rating (or a pre-discharge review of existing medical evidence, including service medical and treatment records, that results in issuance of a memorandum rating); veterans entitled to receive compensation but not presently in receipt because they are on active duty; and surviving spouses of veterans who died in service or from service-connected disabilities (whether or not the surviving spouses are veterans with their own entitlement, and whether or not they are using their own entitlement on the loan).

One exemption is newer than this chapter and does not appear in its text. The Blue Water Navy Vietnam Veterans Act of 2019 added a waiver for members of the Armed Forces serving on active duty who provide, on or before the date of loan closing, evidence of having been awarded the Purple Heart. That comes from Congress (Public Law 116-23), implemented through VA Circular 26-19-30.

How exempt status is verified: a properly completed and signed VA Form 26-8937 (Verification of VA Benefits) indicating exempt status; for a veteran who elected service retirement pay instead of VA compensation, a copy of the original VA notification of disability rating plus documentation of service retirement income; or indications on the Certificate of Eligibility (COE) that the borrower is entitled as an unmarried surviving spouse. The lender submits a copy of the verification documentation with the closing package, except when the borrower is an eligible surviving spouse or the documentation was already provided to VA with the loan application.

If exempt status cannot be verified before closing:

How the fee is calculated: for all loans except IRRRLs, apply the appropriate percentage from the funding fee tables to the loan amount. If the funding fee is paid from loan proceeds, apply the percentage to the loan amount without the funding fee added to it. For IRRRLs, the funding fee is calculated on VA Form 26-8923, the IRRRL Worksheet. For joint loans, see the funding fee calculation in Chapter 7.

How to use the tables: check the COE for the service category (regular military versus Reserves/National Guard) and for subsequent use (an entitlement code of “5” indicates subsequent use, as does a loan number entered in the “Loan Number” column); identify the loan type (purchase or construction, IRRRL, or cash-out); and determine whether the veteran is making a down payment of at least 5% or 10% (for construction loans only, equity in the secured property counts as a down payment).

A critical currency note. The funding fee tables printed in this chapter (Change 21, 2012) were extended by law only through September 30, 2017, and have been superseded twice since. The Blue Water Navy Act temporarily raised rates for loans closed January 1, 2020 through December 31, 2021, then rates reverted. The tables below are VA’s current funding fee charts, effective April 7, 2023 and still in effect, and they apply identically to regular military, Reserves, and National Guard borrowers (the old Reserve/Guard surcharge in the 2012 chapter no longer applies).

Current rates: VA funding fee charts effective April 7, 2023 (see Sources). The full tables, including Native American Direct Loan rates, are in Appendix C of the VA Buyers Guide PDF.

On remittance:

On refunds:

What that means

The funding fee is the price of the VA guaranty, and it is the one fee in this chapter that does not go to your lender. On a $300,000 purchase with zero down and first-time use, it is $6,450 (2.15%). On subsequent use, it is $9,900 (3.3%). Most borrowers finance it into the loan, which is explicitly allowed, and the 1% flat charge is then calculated on the loan amount including the fee.

Three things about the fee catch people off guard. First, the down payment tiers: putting 5% down drops the first-use fee from 2.15% to 1.5%, and 10% down drops it to 1.25%. On subsequent use, the 5% and 10% tiers erase the subsequent-use surcharge entirely (1.5% and 1.25%, same as first use). A small down payment can pay for itself in fee savings.

Second, the exemptions are broader than most people think. It is not only veterans already receiving disability compensation. It includes veterans who would be receiving it but for retirement pay, pre-discharge ratings, active-duty members entitled but not yet in receipt, active-duty Purple Heart recipients, and surviving spouses of veterans who died in service or from a service-connected disability. The lender has to verify the status, and if it cannot be verified before closing, the fee gets collected and VA sorts it out afterward.

Third, the refund rule has a trap in it. If your disability claim was pending at closing and VA later grants compensation retroactive to a date before your closing, you get the fee back. But the retroactive date has to be before the loan closed. A rating that takes effect after closing does not earn a refund of the fee you already paid. That timing detail is where veterans lose thousands, and it is exactly what the story below illustrates.

Where lenders add overlays

• Charging the fee to exempt borrowers “just in case.” The handbook’s rule is clear: if exempt status cannot be verified before closing, collect the fee and let VA refund it. That is the procedure, and it protects the lender. What is not acceptable is a lender failing to check at all: not pulling the COE, not asking about pending claims, not requesting the VA Form 26-8937. The verification steps are the lender’s affirmative duty under subsection a.
• Wrong table, wrong rate. I still see quotes using the 2012 chapter’s Reserve/Guard surcharge (2.4%) or the temporary 2020-2021 rates (2.3% / 3.6%). The current chart is uniform across service categories. If your Loan Estimate shows a Reserve/Guard funding fee different from the regular military rate, the lender is using a stale table.
• Subsequent-use misclassification. “Subsequent use” is determined by the COE (entitlement code 5 or a prior loan number), not by whether you still own the old house. Borrowers who sold the prior home and had entitlement restored are sometimes still coded subsequent use incorrectly, or vice versa. The COE decides.
• The manufactured-home and assumption rates. Niche, but real: 1.0% for manufactured homes not permanently affixed, 0.5% for assumptions and IRRRLs. These do not vary by first or subsequent use.
• Late remittance is the lender’s problem, until it is not. The 4% late fee and interest charges for late FFPS remittance fall on the lender automatically. But a lender that is sloppy with VA remittance is often sloppy elsewhere in the file. Worth noticing.

Illustration based on situations I see in my pipeline.

Frequently asked questions

These are the questions Chapter 8 itself answers: what you can and cannot be charged, how seller concessions work, and how the funding fee is calculated. If your question is about your specific situation, the quiz link above is the fastest way to get an answer.

What is the maximum a lender can charge me on a VA loan?

Topic 2’s formula: reasonable and customary amounts for VA’s itemized fees and charges, plus a 1% lender flat charge, plus reasonable discount points. That is the maximum that can be charged to you. Anyone can pay costs on your behalf beyond that (Topic 4), but what is charged to you stops there.

What is the 1% flat charge?

The lender’s origination charge, capped at 1% of the loan amount (calculated after adding the funding fee, when the funding fee is financed; IRRRLs use the worksheet). It is intended to cover all of the lender’s costs and services that are not reimbursable as itemized fees. On construction, alteration, improvement, or repair loans, the lender can charge an additional 1% to 2% on top, depending on whether it supervises construction.

Can my lender charge me processing, underwriting, or document prep fees?

Not as separate itemized charges on top of the 1%. The handbook lists loan application or processing fees, document preparation fees, and similar lender costs as items that cannot be charged to the veteran as itemized fees. They must be covered out of the lender’s 1% flat charge. If your Loan Estimate shows the 1% plus these fees, ask the lender to reconcile it with Topic 2.

What closing costs CAN I pay on a VA loan?

The itemized list: appraisal and compliance inspections, recording fees, the credit report, prepaid taxes and insurance escrows, hazard insurance, flood zone determinations, surveys, title examination and insurance, special mailing fees on refinances, the VA funding fee (unless exempt), the MERS fee, and VA-authorized local variance fees. Third-party charges are limited to the vendor’s actual cost, with no markup and no duplicate fees.

Can the seller pay my closing costs?

Yes. Topic 4: the seller, lender, or any other party may pay fees and charges, including discount points, on your behalf. VA limits what can be charged to you, not what others can pay for you. The one exception is excessive seller concessions (Topic 5).

What is the 4% seller concession limit?

Seller concessions (anything of value the seller adds that they were not customarily expected to pay: your funding fee, prepaid taxes and insurance, extra points, payoff of your debts, gifts) cannot exceed 4% of the property’s established reasonable value (the appraised value). The seller’s payment of your normal closing costs and market-rate discount points does not count toward the 4%.

Can the seller pay my VA funding fee?

Yes. Payment of the buyer’s VA funding fee is on the handbook’s own list of seller concession examples. It counts toward the 4% limit, but it is expressly allowed.

What happens to my fees if the loan never closes?

Third-party costs already incurred (appraisal, credit report) are not refunded. But if the lender already collected the 1% flat fee, the lender must refund it. This applies to a loan that does not close for any reason, including you going to another lender.

Can closing costs be rolled into my VA loan?

On a purchase, only the VA funding fee can be added to the loan amount. Other closing costs must be paid in cash or paid by someone else. On an IRRRL, allowable closing costs, the funding fee, and the lender’s flat charge can be included, with no more than two discount points financed. On a cash-out refinance, allowable fees and points can be paid from the cash proceeds, but only the funding fee (and energy improvement costs) can increase the loan amount.

How much is the VA funding fee in 2026?

Purchase and construction: first use 2.15% with less than 5% down, 1.50% with 5% or more down, 1.25% with 10% or more down; subsequent use 3.30%, 1.50%, 1.25%. Cash-out refinance: 2.15% first use, 3.30% subsequent use. IRRRL: 0.50%. Loan assumptions: 0.50%. Manufactured homes not permanently affixed: 1.00%. Same rates for regular military, Reserves, and National Guard. (VA charts effective April 7, 2023.)

Who does not have to pay the funding fee?

Veterans receiving VA compensation for service-connected disabilities; veterans who would be entitled but for receipt of retirement pay; veterans with a pre-discharge disability rating; veterans entitled to compensation but not yet in receipt because they are on active duty; active-duty servicemembers who provide evidence of a Purple Heart award before closing; and surviving spouses of veterans who died in service or from a service-connected disability.

Can the funding fee be financed into the loan?

Yes. The handbook states the funding fee may be paid from loan proceeds or cash from the borrower. Most borrowers finance it. Note the percentage is applied to the loan amount without the funding fee added, and the 1% flat charge is then calculated on the loan amount including the fee.

Can I get a funding fee refund?

A refund is appropriate if an exempt veteran paid the fee or the fee was miscalculated. The classic case: your disability claim was pending at closing and VA later grants compensation retroactive to a date before your closing. Then the fee comes back: as cash if you paid cash, or applied to your loan’s principal balance if you financed it. A rating effective after closing does not earn a refund.

Do Reservists and National Guard members pay a higher funding fee?

Not anymore. The 2012 chapter text shows higher Reserve/Guard rates (2.4% versus 2.15%), but the Blue Water Navy Act aligned them, and VA’s current charts apply the same rates to regular military, Reserves, and National Guard. If a lender quotes you a Reserve/Guard surcharge, they are using a stale table.

Related reading

Chapter 8 is the fee rulebook. These guides cover the pieces around it:

• VA Handbook Chapter 2: Veteran’s Eligibility and Entitlement, Explained in Plain English: how the COE shows first versus subsequent use, which sets your funding fee rate.
• VA Handbook Chapter 3: The VA Loan and Guaranty, Explained in Plain English: reasonable value (the 4% concession limit is measured against it) and maximum loan amounts.
• VA Handbook Chapter 5: Processing VA Loans, Explained in Plain English: how the loan moves from application to closing, where these fees get collected.
• VA Handbook Chapter 6: Refinancing Loans, Explained in Plain English: the IRRRL worksheet (VA Form 26-8923) that calculates the funding fee and the 1% on a streamline.
• VA Handbook Chapter 7: Special Underwriting Situations, Explained in Plain English: joint loans, which have their own funding fee calculation rules.
• VA Handbook Chapter 12: Minimum Property Requirements, Explained in Plain English: what the VA appraisal (one of your itemized fees) is actually judging the property against.
• VA Buyers Guide (PDF): the official VA guide’s Appendix C carries the full funding fee tables.

Sources

• VA Pamphlet 26-7 (VA Lenders Handbook), Chapter 8: Borrower Fees and Charges and the VA Funding Fee. Chapter text verified against a complete verbatim copy at https://patriotpacificmlo.com/wp-content/uploads/2023/01/Chapter_8_Borrower_Fees_and_Charges_and_the_VA_Funding_Fee.pdf (cross-checked against the UNT web archive copy at https://webarchive.library.unt.edu/web/20130215061003mp_/http://www.benefits.va.gov/WARMS/docs/admin26/handbook/ChapterLendersHanbookChapter8.pdf). Topic 1, Topic 2, Topic 7, and Topic 8 carry Change Date November 8, 2012 (Change 21); Topics 3 through 6 carry Change Date November 8, 2010 (Change 15). The official chapter title and the eight official topic names come from the chapter’s own overview table.
• VA Circular 26-16-11, “Itemization of Fees and Charges on the TRID Closing Disclosure,” April 11, 2016: https://benefits.va.gov/HOMELOANS/documents/circulars/26_16_11.pdf. Confirms the 1% flat charge framework under 38 CFR 36.4313(d) and the handbook’s unallowable-as-itemized list.
• VA Circular 26-19-30, guidance implementing the Blue Water Navy Vietnam Veterans Act of 2019: https://Benefits.Va.gov/HOMELOANS/documents/circulars/26_19_30.pdf. Source for the Purple Heart active-duty funding fee waiver (amending 38 U.S.C. 3729(c)(1)) and the temporary January 1, 2020 to January 1, 2022 funding fee rate changes.
• VA Blue Water Navy Vietnam Veterans Act of 2019 information page: https://www.benefits.va.gov/benefits/blue-water-navy.asp (funding fee waiver for active-duty Purple Heart recipients; Reserve/Guard rate alignment; removal of loan limits).
• Current VA funding fee charts (effective April 7, 2023): rates in Topic 8 verified against VA’s published chart as reported by multiple current lender publications: https://www.bestmoney.com/mortgage-loans/articles/how-does-a-va-loan-work, https://kentuckymortgageblog.com/2026/09/26/kentucky-va-closing-costs-funding-fee/, https://www.rate.com/mortgage/resource/va-loan-funding-fee, https://www.blackrockmortgage.com/va-funding-fee/, and Carlos Scarpero’s own September 2026 funding fee guide at https://medium.com/@mr_leads/the-va-funding-fee-in-2026-rates-exemptions-and-how-to-get-a-refund-9ad26aa22d13.
• VA Buyers Guide PDF (funding fee tables in Appendix C): https://scarpero.com/wp-content/uploads/2026/10/VA-Buyers-Guide.pdf.
• Note on currency: the chapter’s 2012 funding fee tables (extended by law only through September 30, 2017) are superseded. Where the chapter and current law conflict (funding fee rates, Reserve/Guard surcharge, Purple Heart exemption), this article follows current law as shown in the sources above. Whether Circular 26-19-30’s interim guidance has since been finalized was not verified for this article. KnowVA could not be read directly (its pages are JavaScript-gated), so the chapter text was verified against the full verbatim PDF copies linked above instead.

I am a mortgage loan originator, not the VA. This article walks through the VA Lenders Handbook as of the last-reviewed date above. Story illustrations are based on situations I see in my pipeline, and no story describes any one borrower’s file. Only VA determines program requirements, lender requirements vary, and final approval always depends on the lender underwriting your file.