VA Loan vs Conventional in Kansas City: When the Funding Fee Tips the Math
By Joe Nelson — Retired Air Force, Nelson Home Group Team Leader and Mortgage Loan Originator
The VA loan is one of the most powerful benefits a veteran can use to buy a home, but it is not automatically the right move on every transaction in Kansas City. The funding fee, your hold period, your down payment options, and your VA disability rating all change the math. For some veterans, especially those carrying a 10 percent or higher disability rating, the answer is obvious. For others, a small down payment, a conventional loan with PMI, or a different financing structure entirely is the smarter long-term play. The goal of this post is to make sure you understand what you are actually choosing before you sign.
What is the VA loan funding fee, and why does it matter?
The VA funding fee is a one-time charge the Department of Veterans Affairs collects on every VA-guaranteed purchase loan unless the veteran qualifies for an exemption. It is the cost of running the program, and it is what makes the zero-down, no-PMI benefit possible. Most veterans pay it by rolling it into the loan amount, which means the fee gets financed at the same interest rate as the rest of the mortgage for the next 30 years.
The 2026 rates from the Department of Veterans Affairs are straightforward. A first-time VA loan user with zero down pays 2.15 percent. A first-time user putting at least 5 percent down pays 1.5 percent. With 10 percent or more down, it drops to 1.25 percent. A subsequent-use borrower, meaning a veteran using their VA loan a second time or later, jumps to 3.3 percent at zero down. That last number is the one that catches people off guard. On a $400,000 loan, a 3.3 percent fee is $13,200 instead of the $8,600 first-time users pay at the same purchase price.
On a $300,000 zero-down VA loan, you owe $306,450 the day you move in. The market has to do real work before you have equity to sell into.
Free resource: We put together a VA Home Buying Guide for Kansas City that walks through funding fee scenarios, lender questions to ask, and the things most VA buyers miss. Get it sent to you here.
When does the VA loan funding fee put you upside down?
The funding fee is not free money. When you finance it into the loan, you owe more than the purchase price the moment you close. On a $300,000 zero-down first-use VA purchase, the funding fee adds roughly $6,450 to your loan balance. You move in owing $306,450 on a house that just sold for $300,000. On a $400,000 purchase, that climbs to about $408,600. For a subsequent-use buyer on the same $400,000 home, you are at $413,200 owed at closing.
This is fine if you plan to live in the house for seven or more years and let appreciation, principal pay-down, and a normal Kansas City market do their job. It becomes a problem when you sell early. To break even when you list, you need to recover the loan balance plus closing costs plus typical seller commissions, which generally run in the 5 to 6 percent range. On a $300,000 sale at 6 percent total commission, that is $18,000 right off the top. Add the financed funding fee, and the market has to deliver roughly 8 percent appreciation just to get you to zero.
That math has gotten harder. Kansas City appreciation has moderated from the post-COVID surge. We covered the deeper version of this in our video, “The Hidden VA Loan Cost That’s Putting Veterans Upside Down in 2026.” If your timeline is short, financing the full funding fee on a zero-down purchase is the part of the deal that quietly traps people.
How can Kansas City veterans cut the VA loan funding fee down?
Most veterans do not realize that the funding fee is not a flat charge. It scales with down payment, and the breakpoint is much lower than people assume. A first-time VA borrower who puts down 5 percent drops their funding fee from 2.15 percent to 1.5 percent. On a $400,000 purchase, that is the difference between roughly $8,170 and $5,925 financed onto the loan. Ten percent down drops it further to 1.25 percent. None of that requires 20 percent down. The biggest break comes at the very first 5 percent threshold.
There is a bigger lever, though. A veteran with a service-connected disability rating of 10 percent or higher is exempt from the funding fee entirely. Not reduced. Eliminated. Surviving spouses of veterans who died in service or from a service-connected disability are also typically exempt.
A 10 percent VA disability rating eliminates the funding fee. Every veteran who served should pursue their rating the day they retire.
Here is the part I wish I could go back and tell myself. I waited several years after retiring before I went through the VA disability rating process because it felt tedious and I had a million other things going on. That was a mistake. The rating is income I earned, that I had coming to me every month, that I missed out on for years I will never get back. And if I had bought a house in that window, I would have paid a funding fee I did not have to pay. If you served, get rated. Even a 10 percent rating changes your home loan math, your monthly income, and your access to care. You gave the time. Take what you earned.
When does conventional with PMI actually beat a VA loan?
Here is the scenario most agents and lenders never walk through. A first-time VA borrower in Kansas City puts 5 percent down on a $350,000 home. The VA funding fee at 1.5 percent adds about $4,988 onto the loan. They live there 4 years and sell. The funding fee is gone, sunk, financed into the balance and largely unrecovered.
On a conventional loan with 5 percent down, that same buyer pays private mortgage insurance instead, but PMI has a feature the funding fee does not: it goes away. Federal law requires lenders to drop it automatically once the loan balance reaches 78 percent of the original value, and you can request removal at 80 percent. In a normal appreciating market, that can happen in 2 to 4 years. After that, the conventional payment is lower for the rest of the loan. On a short hold, the math sometimes lands closer than veterans expect, or even tilts conventional.
There are other scenarios where conventional makes sense. A veteran putting 20 percent or more down has no PMI on either loan, but still pays a 1.25 percent VA funding fee unless they are exempt. In a competitive Kansas City offer, especially on a tight starter-home price point, a conventional offer sometimes presents cleaner to a listing agent who has been burned by a bad VA appraisal. We do not love that reality, but it is real. We handle it by pre-briefing listing agents on the actual mechanics, the funding fee math, and the appraisal process. You can read more about how we structure VA offers on our veterans page.
What does a great VA lender actually do for you?
Most lenders run a VA prequalification, print a letter, and move on. They never lay the alternatives next to each other. They never ask how long you plan to live in the house. They never run the funding fee against the PMI break-even or show you what 5 percent down would do to your fee tier. That is not service. That is paperwork.
Most lenders run a VA prequal and call it a day. A real lender shows you the 30-year cost of every path.
As both a licensed Realtor and a licensed mortgage originator, we run both sides of the deal. We can sit with you for an hour, build the actual VA scenario and the actual conventional scenario, compare 30-year totals, factor in your likely hold period, and check whether you should pursue or update your VA disability rating before you buy. Run the numbers on our mortgage calculator to start. Then come talk to us and we will go deeper than any calculator can.
Frequently Asked Questions
What is the VA loan funding fee in 2026?
In 2026, first-time VA loan borrowers pay 2.15 percent of the loan amount with zero down, 1.5 percent with 5 to 9.99 percent down, and 1.25 percent with 10 percent or more down. Subsequent-use borrowers pay 3.3 percent with zero down, then drop to 1.5 percent and 1.25 percent at the same down payment thresholds. Veterans with a 10 percent or higher VA disability rating are exempt from the funding fee entirely.
Can the VA loan funding fee be waived?
Yes. Veterans receiving VA disability compensation, veterans who would receive compensation but for retirement pay, Purple Heart recipients on active duty, and surviving spouses of veterans who died in service or from a service-connected disability are typically exempt from the funding fee. A service-connected disability rating of 10 percent or higher is the most common path to the exemption.
Is a VA loan always better than a conventional loan?
No. The VA loan is often the best option, especially for veterans with no down payment or those exempt from the funding fee. But for buyers with significant down payment money, a short expected hold period, or specific competitive-offer dynamics, a conventional loan with PMI that drops off at 78 percent loan-to-value can sometimes produce a better long-term result. The right answer depends on your hold period, your down payment, your disability rating, and current rate spreads.
Does the VA loan funding fee get added to the loan?
In most cases, yes. The funding fee can be paid in cash at closing or financed into the loan balance. Most veterans choose to finance it, which means the fee is rolled into the principal and paid back with interest over 30 years. This is why understanding the long-term cost of financing the fee, rather than just the upfront cost, matters when you are deciding between loan products.
Should I get my VA disability rating before I buy a home?
If you have a service-connected condition that may qualify, yes, start the process as early as possible. A 10 percent or higher rating eliminates the VA loan funding fee, which can save thousands of dollars on a purchase. It also provides monthly disability compensation, which veterans earned through their service. The rating process takes time, so the earlier you begin, the better positioned you will be when you are ready to buy.
Ready to Talk?
Whether you are a veteran weighing VA versus conventional, trying to understand the funding fee, or just want a lender who will actually run the numbers with you, we want to hear from you. Call, email, or scroll down to the Contact form at the bottom of this page, whichever is easiest. You do not need to have everything figured out before reaching out. That is what the conversation is for.
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