VA Funding Fee in Arizona: Who Pays It and When You’re Exempt

If you are using a VA loan to buy a home in Arizona, the funding fee is one of the few line items that surprises buyers most often. It is not really a closing cost. It is not a tax. It is not optional in most cases. And for some buyers, it is not owed at all.

Understanding the VA funding fee in Arizona matters because the answer changes how much loan you are taking out, how much your monthly payment is, and in some cases whether the loan should be structured differently entirely.

The VA funding fee in Arizona is a one-time fee charged by the Department of Veterans Affairs that helps keep the VA loan program self-funded. For most first-time use purchase loans with no down payment, the fee is 2.15% of the loan amount. The fee is usually financed into the loan rather than paid at closing, and several categories of buyers are fully exempt — most commonly veterans receiving compensation for a service-connected disability.

Whether you are PCSing to Luke AFB, retiring out of service, or making your next move in the West Valley, the funding fee rules are the same. This guide walks through who pays, who is exempt, the current 2026 rates, and how the refund process works.

Who is this article for?

This article is for VA-eligible buyers planning a purchase, construction loan, or refinance in Arizona — active duty, veterans, Guard, Reserve, surviving spouses receiving DIC, and military spouses using their service member’s entitlement. The funding fee rules come from the VA and apply nationwide, but the Arizona context matters for one reason in particular: Arizona offers a property tax exemption for veterans with a service-connected disability, and the same VA rating that triggers funding fee exemption often opens that door too.

If you want the broader cost picture, our VA Loan Closing Costs in Arizona article covers everything that is not the funding fee.

What is the VA funding fee?

The VA funding fee is a one-time payment that a veteran, service member, or surviving spouse pays on a VA-backed or VA direct home loan. The fee helps keep the VA loan program self-sustaining, which is part of how the VA can offer no down payment, no monthly mortgage insurance, and competitive rates without taxpayer cost going up over time.

The fee is set as a percentage of the loan amount, not the purchase price. So on a $400,000 home with no down payment, the loan amount is $400,000, and a 2.15% first-use funding fee would be $8,600.

The fee is charged once per loan. If you refinance later or use your entitlement again on a different home, a new funding fee is calculated for that new loan.

Is the VA funding fee a closing cost?

No. The VA funding fee in Arizona is a one-time fee charged by the Department of Veterans Affairs, and it is separate from standard closing costs. Most buyers finance the fee into the loan rather than paying it at the closing table, so it shows up as part of the loan balance and the monthly payment, not as cash to close.

You can choose to pay the full funding fee at closing if you prefer. Most buyers do not, because paying it upfront removes cash that often has better uses — reserves, moving expenses, or a rate buy-down. But the option exists.

This is one of the most common points of confusion. Buyers see the fee on their Loan Estimate and assume it adds to the cash they need at closing. For most VA purchases, it does not.

VA funding fee rates in 2026

The VA funding fee rates have been in effect since April 7, 2023, and remain current as of 2026. Rates depend on the loan type, whether it is your first use of a VA loan, and how much you put down.

Purchase and construction loans

Use	Down Payment	Funding Fee
First use	Less than 5%	2.15%
First use	5% or more	1.5%
First use	10% or more	1.25%
Subsequent use	Less than 5%	3.3%
Subsequent use	5% or more	1.5%
Subsequent use	10% or more	1.25%

Refinance loans

Loan Type	Funding Fee
Cash-out refinance (first use)	2.15%
Cash-out refinance (subsequent use)	3.3%
Interest Rate Reduction Refinance Loan (IRRRL)	0.5%
VA loan assumption	0.5%

Other loan types

Loan Type	Funding Fee
Native American Direct Loan (purchase)	1.25%
Native American Direct Loan (refinance)	0.5%
Manufactured home (not permanently affixed)	1%
Vendee loan (VA-acquired property)	2.25%

The most important takeaway from these tables: the funding fee drops significantly with a down payment, and it drops even further on an IRRRL. Subsequent use without a down payment carries the highest rate at 3.3%, which is part of why repeat VA buyers often think strategically about whether a down payment makes sense even when zero down is allowed.

Who is exempt from the VA funding fee in Arizona?

This is the section that matters most for many buyers. The VA waives the funding fee entirely for several categories. If any of the following describes you, you do not owe the funding fee.

You are exempt from the VA funding fee if:

• You are receiving VA compensation for a service-connected disability
• You are eligible to receive VA compensation for a service-connected disability, but you are receiving retirement or active-duty pay instead
• You are receiving Dependency and Indemnity Compensation (DIC) as the surviving spouse of a veteran
• You are a service member who has received a proposed or memorandum rating before the loan closing date stating that you are eligible to receive compensation because of a pre-discharge claim
• You are an active-duty service member who has received a Purple Heart and can provide evidence on or before the loan closing date

The most common exemption path is the service-connected disability rating. Any rating from 10% on up qualifies, not just higher ratings. If you have a rating and you are not sure whether it qualifies, your lender can verify it as part of the loan approval process.

Memorandum or proposed rating: A pre-discharge VA determination that you are eligible to receive disability compensation, issued before your discharge is final. If this rating is in hand before your loan closing date, it counts as an exemption.

The memorandum rating exemption is the one most buyers don’t realize exists. It allows separating service members who have a pre-discharge claim already adjudicated to qualify for exemption before their final rating decision is issued — which can be the difference between paying a $9,000 funding fee at closing and not.

What about the VA funding fee refund?

You may be eligible for a refund of the VA funding fee if you are later awarded VA compensation for a service-connected disability and the effective date of that compensation is retroactive to before the date of your loan closing.

This is the part most buyers miss. The effective date of the disability rating has to be earlier than the closing date. If you close in June and your rating later comes through with an effective date in August, you are not eligible for a refund — even if the rating itself is solid.

You will not be eligible for a refund if:

• The effective date of your rating is after your loan closing date
• You receive only a proposed or memorandum rating after closing (this rating type entitles you to exemption only when received before closing)

If you think you are eligible for a refund, the VA’s instructions are to call your regional loan center directly. Your lender can also assist, but the formal refund request goes through the VA.

How does the VA funding fee work in Arizona specifically?

The funding fee rules are federal, so they do not change by state. What does change in Arizona is the way the funding fee can interact with seller concessions and with Arizona’s property tax exemption for disabled veterans.

Seller concessions can cover the funding fee. VA rules allow seller concessions up to 4% of the home’s reasonable value, and the funding fee is one of the items concessions can pay for. On a $400,000 purchase with a financed funding fee of $8,600, a seller concession can be structured to cover that fee instead of leaving it in the loan balance.

Arizona’s disabled veteran property tax exemption is separate but related. Arizona offers a property tax exemption for veterans with a service-connected disability who meet income and assessed value limits. The same VA rating that triggers funding fee exemption is the rating most buyers use to apply for the property tax exemption. If you are working toward a disability rating during your buying process, the rating opens both doors at once.

How this looks in practice

A recent CalzaCo military buyer was separating from service and close to getting his disability rating, but had not received the final decision yet. A property came up that fit his criteria — acreage in an area and budget that rarely produce that combination. Waiting for the rating to finalize was not an option without losing the home.

The path forward was the memorandum rating exemption. We worked with a lender who specializes in VA buyers and who knew how to document the pre-discharge claim so the funding fee exemption could be applied at closing. The lender confirmed the memorandum rating qualified, the exemption was approved, and the buyer closed without paying the funding fee.

We also negotiated seller concessions on the offer, which helped on the total cost side. And because the same disability rating that opened the funding fee exemption also opens Arizona’s property tax exemption for disabled veterans, the buyer was positioned to apply for that tax relief once the final rating came through.

The point of the story is not that we found a workaround. The memorandum rating exemption is a published VA rule. The point is that the lender, the agent, and the buyer all had to know it existed and how to document it before the closing date. That is the difference between paying a funding fee and not. Not every team is built for this.

What are the biggest mistakes buyers make on the VA funding fee?

The biggest mistake is assuming the funding fee adds to your cash to close. It does not, for most buyers. The fee is financed into the loan balance. If a lender or builder is quoting you a “VA loan with $9,000 in extra closing costs,” ask whether the funding fee is included in that number, because it should not be.

The second mistake is not checking exemption status before closing. Some buyers who would qualify under the proposed or memorandum rating path do not know it exists, and pay the fee when they did not have to.

The third is missing the refund window when a disability rating comes through after closing with a retroactive effective date. The VA does not chase you down to refund the fee. You have to call the regional loan center and request it.

The fourth is treating subsequent-use buyers and first-use buyers the same. The subsequent-use rate of 3.3% with no down payment is meaningfully higher than the first-use 2.15%, and the math of putting 5% down changes more for repeat VA buyers than first-time buyers realize.

What to look for in a lender and agent who handle the VA funding fee well

A few things to listen for when you are interviewing teams:

• They ask about your disability rating status without you bringing it up first
• They understand the memorandum rating exemption and can explain it without looking it up
• They can walk you through how seller concessions can cover the funding fee
• They know how to structure a refund request if your rating comes through later
• They have a working relationship with VA-specialized lenders, not just generalist lenders

VA funding fee handling is one of those quiet competence checks. It tells you whether the team has actually moved VA buyers through the process recently or whether they are figuring it out on your transaction.

Where to go from here

If you want the full picture of what a VA Loan purchase could look like over your career check out our in-depth VA Loan Strategy Guide.

If you are PCSing to Luke AFB and just starting to organize the move, our Complete PCS Guide helps you structure the timeline and cover every part of this move and help you think about the next one too.

If you want to talk through your specific situation — disability rating status, funding fee structure, seller concessions, and how the offer should be written — schedule a strategy consultation We will run the math with you before you commit to a direction.

Book a strategy consult.