The VA funding fee, a charge for most VA loans, can be waived for eligible individuals. VA Funding Fee Exemptions apply to veterans with service-connected disabilities, those eligible for disability but receiving retirement pay, surviving spouses, Purple Heart recipients, and those with a 10%+ pre-discharge disability rating. To claim an exemption, obtain a Certificate of Eligibility and provide supporting documents to your lender. Exemptions can save thousands.
What Is the VA Funding Fee?
The VA funding fee is a percentage of the total loan amount, calculated based on factors like:
- Whether you’re a first-time or repeat VA loan user
- The size of your down payment
- The type of loan (e.g., purchase, cash-out refinance, etc.)
VA Funding Fee Rates
Here’s a closer look at typical VA funding fee rates:
- First-time VA borrower with no down payment: 2.15% funding fee
- Subsequent VA borrower with no down payment: 3.3% funding fee
- 10% down payment or higher: 1.25% funding fee
- Cash-out refinance loans: 2.15% for first-time use and 3.3% for subsequent use
- VA Interest Rate Reduction Refinance Loan (IRRRL): 0.5%
Why Is the Funding Fee Important?
The funding fee helps offset the costs of the VA loan program, ensuring long-term benefits for eligible service members.
Who Qualifies for a VA Funding Fee Exemption?
Certain groups of veterans, service members, and surviving spouses may qualify for an exemption. You may be eligible if you meet one of these conditions:
✅ Receiving VA Compensation for a Service-Connected Disability
- Veterans currently receiving disability compensation from the VA are exempt from the funding fee.
✅ Eligible for Disability Compensation but Receiving Retirement Pay
- Veterans who qualify for disability benefits but opt for retirement pay instead are also exempt.
✅ Surviving Spouses
- Surviving spouses of veterans who died in service or from a service-connected disability are exempt.
✅ Active Duty Service Members Awarded the Purple Heart
- Purple Heart recipients actively serving are eligible for an exemption.
✅ Pre-Discharge Rating of 10% or Higher
- Veterans with a proposed or memorandum rating of at least 10% disability from the VA are also exempt.
How to Apply for a VA Funding Fee Exemption
Follow these steps to confirm your exemption status and avoid unnecessary charges:
1. Verify Your Eligibility
Request your Certificate of Eligibility (COE) from the VA. This document will indicate if you qualify for an exemption.
The COE can be obtained through:
- The VA’s eBenefits portal
- Your VA-approved lender
- A mailed request using VA Form 26-1880
2. Gather Supporting Documents
Prepare relevant documentation such as:
- VA disability award letters
- Purple Heart documentation (for active-duty recipients)
- Proof of survivor benefits (if applicable)
3. Notify Your Lender
- Share your COE and supporting documents with your lender. They will ensure the exemption is applied correctly before loan closing.
4. Monitor Your Closing Disclosure
- Review your Closing Disclosure to confirm the VA funding fee is marked as “Exempt.”
What Happens if an Exemption Is Incorrectly Applied?
In some cases, lenders may mistakenly charge the VA funding fee even if you qualify for an exemption. If this happens:
- Contact Your Lender Immediately: Ask them to submit a correction to the VA.
- Request a Refund: The VA will refund the fee if you were eligible for an exemption at the time of closing. This may take 3-4 weeks to process.
Common Mistakes to Avoid
❌ Assuming Your Lender Will Automatically Apply the Exemption: Always confirm your exemption status before closing.
❌ Failing to Obtain a COE Early in the Process: This delay could impact your timeline.
❌ Misunderstanding Disability Ratings: A pending disability claim won’t automatically qualify you unless you receive an official VA decision.
How Much Can You Save With a VA Funding Fee Exemption?
The savings are significant, especially on larger loans:
$250,000 home purchase:
- Without exemption: ~$5,375 (2.15%)
- With exemption: $0
$400,000 home purchase:
- Without exemption: ~$8,600 (2.15%)
- With exemption: $0
$600,000 home purchase:
- Without exemption: ~$12,900 (2.15%)
- With exemption: $0
Given these savings, it’s crucial to confirm your eligibility and avoid overpaying.
Additional Tips for VA Loan Success
✔️ Check your eligibility early to avoid surprises during closing.
✔️ Consult a VA-approved lender for guidance throughout the process.
✔️ Contact the VA directly if you encounter issues confirming your exemption status.
✔️ Review VA resources such as their official website for updated rates and policy changes.
✔️ Work with a knowledgeable real estate agent familiar with VA loans to simplify the process.
Conclusion
Understanding VA funding fee exemptions can significantly reduce your home-buying costs. By knowing who qualifies, gathering the right documents, and proactively communicating with your lender, you can ensure you don’t pay more than necessary. For additional insights on VA loans, exemptions, or related financial strategies, consult a trusted real estate professional or visit the VA’s official website.
Frequently Asked Questions
Can I request a refund if I paid the funding fee by mistake?
Yes, if you were eligible for an exemption at the time of closing, you can request a refund by contacting your lender or the VA directly.
What if my disability claim is still pending when I close on my home?
If your claim is approved after closing, you may still qualify for a refund. Submit your updated status to the VA as soon as possible.
Are National Guard and Reserve members eligible for exemptions?
Yes, if they meet the same disability or survivor status criteria.
Can I qualify for a partial exemption if I have a lower disability rating?
No, VA funding fee exemptions are granted in full based on eligibility criteria — there’s no partial exemption.