VA Loans: How They Work and Qualifications for 2022
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How to Get a VA Funding Fee Exemption

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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 closed on a recent VA loan while your disability claim was pending, you may get a VA funding fee refund to recover some of the cost once your claim is approved.

What is a VA funding fee exemption?

The VA funding fee exemption is a special waiver of the one-time fee VA mortgage borrowers typically pay as part of their closing costs. The VA funding fee is meant to offset the taxpayer cost of the loan program, but the exemption makes an exception for borrowers disabled due to their military service.

If you aren’t eligible for the exemption, the fee varies based on three factors:

  • 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)

The dollar amount of the funding fee is calculated as a percentage of your VA loan amount and based on the three factors mentioned above. Check out the chart below to see how much you could save with a VA funding fee exemption:

VA funding fee chart

Down paymentFirst use of VA loanRepeat use of VA loan
0% to 5%2.30%3.60%
5% or more1.65%1.65%
10% or more1.40%1.40%

Funding fees for VA refinances

If you currently have a VA loan, you can save money with an interest rate reduction refinance loan (IRRRL) and only have to pay a 0.50% funding fee.

You’ll save a bundle if you’re eligible for the exemption on a regular VA refinance or a VA cash-out refinance: The funding fee costs up to 2.30% of your new loan amount if you’re using your VA benefits for the first time, up to 3.60% if you’ve used your VA mortgage benefits to purchase or refinance a home before.

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. Considering VA funding fees range from 0.50% to 3.60% of the loan amount; the exemption could save borrowers $1,500 to $10,800 in VA closing costs on a $300,000 mortgage.

According to VA lending guidelines, you may be exempt from the VA funding fee if:

  • You receive VA disability 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

Online resources are available to help you determine your eligibility for VA disability benefits. The VA makes the final decision based on your disability claim.

How to complete a VA funding fee exemption form

To determine your eligibility for the VA funding fee exemption, your lender completes Form 26-8937 to confirm 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 is sent to the VA for verification.

In many cases, your funding fee status will be reflected 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 a funding fee “exempt” 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.

 

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