Texas VA Funding Fee 2026: When Veterans Can Get It Waived

Texas VA Funding Fee 2026: When Veterans Can Get It Waived

Is the VA Funding Fee Standing Between You and a Zero-Down Home?

For most Texas veterans, the VA home loan is the single most powerful home-buying tool they will ever use. No down payment. No monthly mortgage insurance. Competitive rates. But every first-time VA borrower encounters the same question when they receive their Loan Estimate: why does it show a fee worth thousands of dollars when the VA loan is supposed to be a benefit?

TL;DR / Quick Answer: The VA funding fee in 2026 ranges from 0.5% to 3.3% of the loan amount. For a first-time buyer with no down payment purchasing a $350,000 home in Texas, the fee is $7,525 (2.15%). It can be financed into the loan, so it may not come out of pocket. Veterans with a service-connected disability rating, active-duty Purple Heart recipients, and surviving spouses receiving DIC pay zero. The fee is now tax-deductible in 2026, and every dollar put toward a 5% or 10% down payment meaningfully lowers it.

Why the VA Funding Fee Exists

The VA home loan program has guaranteed more than 28 million home loans since 1944 without requiring a down payment or monthly mortgage insurance. The program is self-sustaining because of the funding fee: a one-time charge remitted to the Department of Veterans Affairs that covers the cost of guaranteeing loans and absorbing defaults.

Unlike FHA mortgage insurance, which benefits the lender, the VA funding fee goes directly to the Department of Veterans Affairs to keep the program available for future generations of veterans. The program's solvency means Congress has not had to appropriate general fund dollars to cover VA loan defaults, making it a rare self-funded federal benefit.

The funding fee is not a profit center for lenders. Your lender receives the same origination income from VA loans as from other products. The fee is paid to the VA at or after closing, typically via the title company.

The 2026 VA Funding Fee Rate Schedule

The current fee schedule has been in effect since April 7, 2023, and remains unchanged as of May 2026, per Freedom Mortgage's 2026 fee overview and confirmed by the VA's official funding fee page.

Purchase and Construction Loans

Source: VA.gov Funding Fee and Closing Costs, effective April 7, 2023.

Refinance Loans

The IRRRL (Interest Rate Reduction Refinancing Loan) carries a flat 0.5% fee regardless of how many times the borrower has used their VA entitlement. This makes streamline refinancing inexpensive relative to a cash-out transaction.

Dollar-Amount Impact: What the Fee Actually Costs in Texas

The fee is calculated on the loan amount, not the purchase price, which matters when buyers make a down payment.

Scenario 1 - First-time buyer, $350,000 purchase, 0% down: - Loan amount: $350,000 - Funding fee: 2.15% x $350,000 = $7,525 - Financed loan balance if rolled in: $357,525

Scenario 2 - First-time buyer, $350,000 purchase, 5% down: - Loan amount: $332,500 - Funding fee: 1.5% x $332,500 = $4,988 - Down payment: $17,500 - Total upfront: $22,488 (vs. $17,500 with 0% down, but fee drops $2,537)

Scenario 3 - Subsequent use, $400,000 purchase, 0% down: - Loan amount: $400,000 - Funding fee: 3.3% x $400,000 = $13,200 - This is the highest-fee scenario and the one where a 5% down payment has the most value

Scenario 4 - IRRRL on $300,000 balance: - Funding fee: 0.5% x $300,000 = $1,500 - This low fee makes the IRRRL one of the most cost-effective refinance products available

Who Is Exempt from the VA Funding Fee?

This is where the post-separation and on-active-duty distinction is critical. According to Veterans Affairs exemption guidelines and confirmed by Veterans United's 2026 exemption summary, the following individuals pay zero VA funding fee:

1. Veterans receiving VA compensation for a service-connected disability. Any rating, from 0% to 100%, qualifies, as long as the veteran is actively receiving compensation. If a veteran is eligible for compensation but receives retirement pay instead, they still qualify for the exemption.

2. Veterans who would receive disability compensation but are receiving retirement or active-duty pay instead. This covers a significant population of retired military in Texas who have concurrent retirement and disability claims.

3. Surviving spouses receiving Dependency and Indemnity Compensation (DIC). A surviving spouse whose veteran partner died in service or from a service-connected condition, and who receives DIC from the VA, is exempt. This exemption applies to every VA loan the surviving spouse uses.

4. Service members with a proposed or memorandum rating before closing. If the VA has issued a proposed rating - even before final determination - prior to the loan closing date, the exemption applies. This benefits veterans transitioning out of active duty who have claims in process.

5. Active-duty Purple Heart recipients. Active-duty service members who have received a Purple Heart and present evidence of the award on or before the loan closing date pay zero funding fee. Per VA Loan Network's Purple Heart exemption guide, the Purple Heart alone triggers the exemption for active-duty members without any disability rating required.

The Purple Heart Nuance: Active Duty vs. Separated Veterans

This distinction trips up many Texas veterans and their lenders:

The exemption saves between $7,500 and $13,000 or more on a typical Texas home purchase, and applies to every VA loan the borrower uses for life, per VA Loan Network's analysis.

Disability Rating Thresholds: There Is No Minimum Percentage

A common misconception is that a veteran needs a 50% or 70% rating to qualify for the exemption. This is incorrect. The VA funding fee exemption requires only that the veteran be receiving compensation for a service-connected disability, per VA.gov guidance. A 10% rating with active monthly compensation qualifies exactly as much as a 100% rating.

The only rating-related complexity: if a veteran has a pending claim but no award letter yet, they need the proposed or memorandum rating specifically issued before the loan closing date. A pending claim alone does not trigger the exemption.

Veterans unsure of their current rating status should log into VA.gov's My HealtheVet portal or contact their regional VA office. In Texas, regional offices are located in Houston (6900 Almeda Rd, Houston TX 77030), Waco, and San Antonio.

Surviving Spouse Exemption: DIC vs. Other VA Survivor Benefits

Not all surviving spouses qualify. The exemption applies specifically to spouses receiving Dependency and Indemnity Compensation (DIC), which is a tax-free monetary benefit paid to eligible survivors of service members who died in the line of duty or from a service-connected disability. Spouses receiving only Survivors Benefit Plan (SBP) payments through the Department of Defense, without DIC, do not automatically qualify for the funding fee exemption.

A surviving spouse who remarried after age 57 may still be eligible for VA home loan benefits under updated rules. Confirm current eligibility with a VA-approved lender or by contacting the VA Benefits Administration.

Texas-Specific VA Lending Realities

The Houston Metro

Harris County, Fort Bend County, Brazoria County, and Montgomery County collectively host one of the largest concentrations of active-duty personnel, veterans, and military retirees in the country. Ellington Field Joint Reserve Base in Clear Lake and the Texas Military Department facilities in the area generate significant VA loan volume. The 2026 VA loan limit for all four counties is $832,750, per VALoans.com's Texas county limit data, which covers virtually every home purchase in the metro.

Texas veterans with full entitlement (no active VA loans and no prior defaults) face no VA-imposed loan ceiling regardless of purchase price. The $832,750 figure applies primarily to veterans with partial entitlement who want to purchase without a down payment.

Fort Hood (Fort Cavazos) and Killeen / Bell County

The Bell County VA loan limit is $832,750 for 2026, per VA Loan Network's Killeen guide. Fort Cavazos (formerly Fort Hood) is the largest active-duty military installation in the United States by acreage, and its surrounding communities in Killeen, Harker Heights, and Copperas Cove see high VA loan volumes. Median home prices in Killeen range from approximately $200,000 to $280,000 for a typical 3/2 or 4/2, making the $832,750 ceiling essentially irrelevant for most local buyers.

Lackland AFB / Joint Base San Antonio

Joint Base San Antonio, which encompasses Lackland AFB, Randolph AFB, and Fort Sam Houston, anchors the San Antonio metro's veteran population. VA loan activity in Bexar County is among the highest in Texas. The 2026 VA limit for Bexar County is also $832,750, and San Antonio's median home prices remain below that ceiling for the vast majority of inventory.

Texas Veterans Land Board (VLB) Loans

Texas veterans have an additional state-level resource: the Texas Veterans Land Board Housing Assistance Program, which offers land loans, home improvement loans, and home purchase loans at below-market interest rates. VLB home loans can be layered with VA benefits in some structures, and VLB loans do not carry a federal VA funding fee. This is a separate program from the federal VA-guaranteed loan and worth exploring for Texas veterans who qualify.

How to Pay the VA Funding Fee

The VA gives borrowers two options:

1. Finance it into the loan. The funding fee is added to the loan balance at closing. For a $350,000 purchase at 2.15%, this adds $7,525 to the loan, increasing the balance to $357,525. The fee is then paid over the life of the loan through normal monthly payments. Financing the fee means paying interest on it, but it eliminates the upfront cash burden entirely.

2. Pay it in cash at closing. Paying the fee upfront avoids interest accumulation. On a $350,000 first-use loan over 30 years at 6.5%, financing $7,525 adds approximately $47 per month and about $16,900 in total interest over the life of the loan. Paying upfront saves that interest cost if the borrower keeps the loan long enough.

Can the seller pay the funding fee? Yes. The VA allows sellers to pay all or part of the funding fee as part of the 4% seller concession allowance. The fee counts toward the 4% cap along with other seller-paid costs. A seller willing to cover the full funding fee on a $350,000 first-use transaction is effectively giving the veteran a $7,525 benefit.

The 2026 Tax Deductibility Restoration

In a significant development for 2026, the VA funding fee is now tax-deductible for eligible veterans, service members, and surviving spouses who itemize deductions. Per VA News reporting from February 2026, the deduction was restored for tax year 2026 after having expired in 2021. The fee is reported as a mortgage insurance premium on Schedule A of Form 1040.

Freedom Mortgage confirms that the funding fee deduction is available to veterans who itemize, meaning the benefit is most valuable for those whose combined itemized deductions exceed the 2026 standard deduction. For a veteran in the 22% federal bracket who pays a $7,525 funding fee and itemizes, the tax savings are approximately $1,655. Texas has no state income tax, so there is no additional state-level deduction benefit.

Veterans who financed the funding fee into the loan should work with a tax professional to determine the deductible amount for the year of closing.

Purchase vs. Refinance: Fee Strategy

The decision to refinance with a VA IRRRL often hinges on whether the rate savings justify the 0.5% fee. Consider this example:

IRRRL on $300,000 balance, 30-year loan, current rate 7.0%, new rate 6.25%: - Monthly payment reduction: approximately $148/month - IRRRL funding fee (0.5%): $1,500 - Break-even point: $1,500 / $148 = roughly 10 months - Any borrower who plans to stay in the home more than 10 months benefits from the refinance

Veterans who are exempt from the funding fee face a lower bar still: the break-even drops to the closing costs alone (escrow, title, recording), often recouped in 6 to 12 months.

For a cash-out refinance at subsequent-use rates (3.3%), the math is different. A $300,000 balance generates a $9,900 fee. Whether tapping equity makes sense depends on the rate differential, the use of funds, and the total interest cost over the remaining loan term.

Comparison: VA Loan vs. FHA vs. Conventional for Texas Buyers

For most Texas veterans buying their first home with no down payment, the VA loan's zero-PMI structure still produces a lower monthly payment than FHA even after accounting for the funding fee, because FHA borrowers pay 0.55%/year in ongoing MIP that never cancels on loans below 10% down until refinanced.

Frequently Asked Questions

Does putting 5% down actually save money if I have the cash?

Yes, significantly in some scenarios. On a first-use VA loan, putting 5% down reduces the funding fee from 2.15% to 1.5%, a savings of 0.65 percentage points. On a $400,000 purchase, that is $2,600 in savings. You also reduce the loan balance by $20,000 (the down payment), which lowers monthly principal and interest. The trade-off is reduced liquidity. Veterans who have cash reserves but want to keep them for improvements, emergencies, or investments often opt for 0% down and finance the fee, since the 2.15% spread over 30 years is relatively modest.

How do I prove my disability exemption to the lender?

Lenders verify funding fee exemption through the VA's automated systems during the loan origination process. The VA issues a Certificate of Eligibility (COE) that indicates whether the borrower is exempt. Veterans should also provide their VA award letter showing current disability compensation. For pre-discharge borrowers with a proposed or memorandum rating, the rating document itself (dated before closing) is required. If your COE does not reflect your exemption but you believe you qualify, contact the VA Eligibility Center at 1-888-244-6711 to resolve the discrepancy before closing.

Can I get a refund of the funding fee if my disability claim is approved after closing?

Yes. If a veteran pays the funding fee and is later awarded a disability rating that is service-connected and dated retroactively to before the closing date, they are entitled to a full refund of the funding fee. The refund process involves submitting documentation to the VA and lender. This scenario is more common than many buyers realize: veterans often close on homes while a pending claim is under review, then receive a rating weeks or months later. The refund can amount to thousands of dollars and is worth pursuing.

What is the VA funding fee for a second VA loan used simultaneously with the first?

If you have an active VA loan and purchase a second property using remaining entitlement (sometimes called "bonus entitlement"), the second loan is treated as a subsequent use, triggering the 3.3% rate if less than 5% is put down. This situation is common among active-duty Texas service members who move to a new duty station and purchase at the new location while renting out the original home. The key is confirming how much remaining entitlement is available through the COE before proceeding.

Does Texas offer any state-level funding fee reduction or waiver?

Texas does not have a state-level analog to the federal VA funding fee. However, the Texas Veterans Land Board offers separate state-funded loan programs (home loans, land loans, home improvement loans) that do not carry a federal VA funding fee because they are not backed by the federal VA guarantee. VLB rates are set by the Texas Legislature and are often at or below market. Veterans who combine a VLB loan with a standard purchase may be able to avoid the federal funding fee entirely on the VLB-financed portion, depending on loan structure.

If I am a National Guard or Reserve member, do I pay the same funding fee rates?

Yes, as of August 2, 2022, the Blue Water Navy Vietnam Veterans Act provisions extended uniform funding fee rates to National Guard and Reserve members. They pay the same rates as regular veterans and active-duty service members on the chart above. Previously, Guard and Reserve members paid slightly higher rates. The same exemptions apply: receiving VA disability compensation or DIC, active-duty Purple Heart, or pre-discharge rating all waive the fee regardless of component.

Plan Your VA Purchase With an Agent Who Knows the Texas Market

The VA funding fee is manageable when you understand the schedule, know your exemption status, and structure the transaction correctly from the start. A VA-experienced real estate agent helps ensure the contract is written to maximize your seller concession potential, account for the VA appraisal process, and avoid the non-allowable fees that can create last-minute friction at closing.

Erick Harbert with The Harbert Real Estate Group at Realty Right has guided veteran buyers throughout the greater Houston area, from Spring and The Woodlands to Katy, Pearland, and Sugar Land. Erick understands the VA loan process and works directly with VA-approved lenders to keep transactions clean from contract to closing.

Reach out to Erick and his team:

• Phone: (281) 305-2520
• Email: [email protected]
• Office: 6605 Cypresswood Dr Ste 300, Spring TX 77379
• Web: harbertgroup.com

The Harbert Real Estate Group at Realty Right proudly serves Texas veterans and their families. Call or email to discuss your VA loan eligibility, entitlement status, and how to structure your next purchase.

Related reading: - Texas Home Buyer Closing Costs 2026: Complete Breakdown by Loan Type - Texas Homestead Exemption and Property Tax Guide 2026 - Buying a Home in The Woodlands 77382 in 2026 - Killeen VA Loans: Guide for Fort Cavazos Veterans