Two separate developments are quietly reshaping how veterans buy homes in 2026 — and most VA loan borrowers haven’t caught up with either of them.
The first is straightforward: VA funding fees are now tax-deductible. Starting January 1, 2026, veterans and service members who purchase a home using a VA-guaranteed loan can deduct the funding fee on their federal return. The deduction applies to tax year 2026, meaning it shows up on returns filed in early 2027. It does not apply retroactively to funding fees paid in 2025 or earlier.
The authority comes from Section 70108 of the One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025. The law permanently restored the mortgage insurance premium deduction — which had expired after the 2021 tax year — and extended it to VA funding fees, FHA mortgage insurance premiums, and USDA guarantee fees beginning this year.
What the Deduction Is Actually Worth
VA funding fees run 2.15% for first-time users with no down payment, and 3.3% for subsequent users with no down payment. On a $200,000 loan, a first-time borrower finances roughly $4,300 in funding fees. That full amount is potentially deductible — but only if you itemize on Schedule A (Form 1040) and report it as an upfront mortgage insurance premium.
The deduction applies in the tax year in which the fee was paid, whether you paid the fee at closing or financed it into the loan. However, if you rolled the fee into the loan, the IRS may require you to amortize the deduction over the life of the loan rather than taking it all in year one — this remains a possible interpretation, and a qualified tax professional can advise on how it applies to your situation. Your Closing Disclosure, page 2, shows the exact fee — keep that document permanently.
Income matters here too. At higher adjusted gross income levels, the benefit phases down. And with only an estimated 14.2% of taxpayers projected to itemize in 2026 under current law, veterans whose itemized deductions don’t exceed the standard deduction will see no benefit regardless. A qualified tax professional can run the numbers before you file.
One group this doesn’t affect at all: veterans receiving VA disability compensation at any rating level. Roughly 6 million of the 18 million living veterans are already exempt from the funding fee entirely, which makes the deduction moot for them. If you think you qualified for an exemption that wasn’t applied at closing, file VA Form 26-8937 with your Closing Disclosure and VA decision letter. A disability effective date on or before your closing date can recover the full fee.
Hamadeh’s Reform Letter — Four Specific Asks
The second development is legislative. On approximately April 26, 2026, Congressman Abraham Hamadeh (R-AZ-08) sent a formal letter to VA Secretary Doug Collins calling for four targeted fixes to the VA Home Loan Guarantee Program. The letter was publicly posted April 24.
Hamadeh’s four recommendations:
- Crack down on origination fee stacking — Lenders are charging the full 1% origination cap and then layering on separate processing and underwriting fees. Hamadeh wants strict enforcement of the existing cap to stop the double-dip.
- Modernize underwriting — VA loans currently average roughly 10 business days to close due to heavy reliance on manual underwriting. FHA’s semi-automated system closes straightforward loans in 2–7 days. Hamadeh wants VA to close that gap.
- Raise the seller concessions cap — VA caps seller concessions at 4% of the home’s reasonable value. FHA and USDA allow 6%. In competitive markets, that 2-point gap is costing veterans deals.
- Fix the appraiser shortage — VA has identified 436 counties across 31 states with appraiser shortages. VA requires 3–5 years of experience for certification; FHA and USDA require only 12–18 months. Aligning standards would expand the appraiser pool and cut wait times.
“We must find ways to eliminate the unnecessary administrative costs of the VA Home Loan program.” — Congressman Van Orden, invoked by Congressman Abraham Hamadeh (R-AZ-08) in his letter to Secretary Doug Collins, April 2026
Hamadeh invoked those remarks from fellow veteran and House committee member Congressman Van Orden, who made similar arguments about administrative cost reduction at a recent VA hearing — a signal that this is gaining traction beyond a single member’s letter.
What to Do Right Now
If you closed on a VA loan in 2026 and paid a funding fee, pull your Closing Disclosure and flag the exact dollar amount before tax season. Talk to a tax professional about whether itemizing beats your standard deduction. Received a disability rating that backdates to before your closing? File VA Form 26-8937 immediately — a refund of the full funding fee may be waiting.
On the reform side, Hamadeh’s letter is a starting point, not a finish line. Secretary Collins has not yet responded publicly. Watch for any VA rulemaking notices or Congressional Budget Office scoring on H.R. 1815 — the VA Home Loan Reform Act — which is separate, already-enacted legislation that passed unanimously and took effect in July 2025, introducing a partial claim foreclosure-prevention program and permanently allowing veterans to pay their real estate agents. Hamadeh’s recommendations represent a distinct, subsequent reform push that has not yet been enacted.
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