How to Get a VA Funding Fee Exemption
If your military service makes you eligible for a loan backed by the U.S. Department of Veterans Affairs (VA), you might save thousands of dollars if you also qualify for a VA funding fee exemption. This exemption is exclusively for VA homebuyers with a service-related disability.
If you recently closed on a VA loan while you had a disability claim pending, you may be entitled to a VA funding fee refund once your claim is approved.
Key takeaways about VA funding fee exemptions
→ You can save thousands of dollars with an exemption, but the exact amount varies depending on your loan amount and loan type, as well as whether you’ve used a VA loan before.
→ You may be eligible for a funding fee refund if you were awarded VA disability compensation after closing on your home.
- Your down payment amount
- Your loan purpose (buying, building, tapping equity or reducing your interest rate)
- Whether you’ve used your VA home loan benefits before (first time versus subsequent use)
Who can get a VA funding fee exemption?
The VA funding fee exemption applies to eligible military service members, veterans or surviving spouses that have a VA-approved disability related to their military service.
You may be exempt from the VA funding fee if:
- You receive VA compensation for a disability related to your military service
- You’re eligible to receive disability income for a service-related disability, but instead receive retirement or active-duty pay
- You’ve received a proposed or memorandum rating dated before your loan closing that states your service entitles you to receive compensation
- You’re an active-duty service member who has received the Purple Heart
- You’re the surviving spouse of a veteran who died while on duty or because of a service-related illness or disability
Are you exempt? The VA offers online resources to help you determine your eligibility for VA disability benefits. The VA can only approve you for a VA funding fee exemption based on your disability claim.
How much can I save with a VA funding fee exemption?
Considering VA funding fees range from 1.25% to 3.30% of the loan amount, the exemption could save borrowers $3,750 to $9,900 in VA closing costs on a $300,000 mortgage.
The funding fee dollar amount is calculated as a percentage of your VA loan amount. Check out the chart below to see how much you could save with a VA funding fee exemption on a home purchase or rate-and-term refinance:
VA funding fee chart: 2024
| Down payment | First use of VA loan | Repeat use of VA loan |
|---|---|---|
| 0% to 5% | 2.15% | 3.30% |
| 5% or more | 1.50% | 1.50% |
| 10% or more | 1.25% | 1.25% |
Source: VA.gov
VA refinance funding fee
Borrowers who take out a VA rate-and-term refinance will pay the same fees as those purchasing a home (listed in the table above).
However, those who have a VA loan already may be eligible to refinance with a VA interest rate reduction refinance loan (IRRRL). These loans come with a big funding fee discount: a flat 0.50%, regardless of whether you’ve borrowed a VA loan before.
VA cash-out refinance funding fee
You can also save a bundle if you’re eligible for the funding fee exemption on a VA cash-out refinance. The funding fee costs up to 2.15% of your new loan amount if you’re using your VA benefits for the first time, and up to 3.30% if you’ve used your VA mortgage benefits before.
How to complete a VA funding fee exemption form
To determine your eligibility for the VA funding fee exemption, your lender will complete Form 26-8937 to verify any disability payments you receive. You may need to provide your VA claim folder number (if you have one) or your service number (if it’s different from your Social Security number). You’ll then certify that you’re receiving those benefits, and the form must be sent to the VA for final verification.
In many cases, your funding fee status will be shown at the top of your certificate of eligibility (COE). Your lender will automatically remove the funding fee from your VA loan costs upon receiving a COE with an “exempt” funding fee status.
How to get a VA funding fee refund
If your VA disability compensation was awarded after your mortgage closing, you might be eligible for a VA funding fee refund. However, your VA disability compensation approval must be effective before your loan closing date to qualify for the refund.
For example, if you closed your loan on Oct. 30, and your disability compensation award is effective retroactively to Oct. 1, you’re eligible for the refund.
Reach out to your mortgage lender directly — or the VA regional loan center at 877-827-3702 — if you believe you’re entitled to a VA funding fee refund.