Who Is Exempt From The VA Funding Fee

The VA funding fee is a one-time cost associated with most VA-backed home loans. However, certain eligible Veterans, service members, and surviving spouses are exempt from paying it. You are exempt from the funding fee if you are receiving VA compensation for a service-connected disability, are rated eligible for such compensation based on a pre-discharge exam, are an active-duty Purple Heart recipient, or are a qualifying surviving spouse. This fee can be paid at closing or financed into your loan amount, but if you meet the exemption criteria, you will not have to pay it at all. Understanding whether you qualify for this funding fee exemption can significantly impact the overall cost of your home loan.

Who Is Exempt from Paying the VA Funding Fee?

The U.S. Department of Veterans Affairs (VA) provides exemptions from the funding fee for specific categories of individuals, primarily those whose service has resulted in a disability. This exemption helps reduce the financial burden for those most affected by their military service. Knowing if you qualify can save you a substantial amount on your home loan.

You are exempt from the funding fee if you fall into one of these categories:

• You are a Veteran receiving compensation from the VA for a service-connected disability.
• You are a Veteran who would be entitled to receive VA compensation for a service-connected disability if you did not receive retirement or active duty pay.
• You are a service member who has been rated eligible for compensation due to a pre-discharge examination or review.
• You are an active-duty service member who has been awarded the Purple Heart.
• You are a qualifying surviving spouse of a Veteran who died in service or from a service-connected disability, and you are receiving Dependency and Indemnity Compensation (DIC).

The exemption is verified by your Certificate of Eligibility (COE), which will indicate if you are not required to pay the funding fee. Even if a disability rating is granted after your loan closes, you may be eligible for a refund of the funding fee you paid. For further details on eligibility requirements for these loans, visit our VA loan requirements page.

The Importance of the Certificate of Eligibility (COE)

Your Certificate of Eligibility (COE) is the official document that confirms your eligibility for a VA-backed home loan and specifies your entitlement. It also plays a crucial role in determining whether you are exempt from the funding fee. This document is issued by the U.S. Department of Veterans Affairs and outlines your service history as it pertains to VA benefits.

You can obtain your COE through the VA's eBenefits portal, by mail using VA Form 26-1880, or often, a mortgage brokerage like Simply Approved Mortgages can help you retrieve it electronically through the VA's WebLGY system. The COE will clearly state whether you have a funding fee exemption. If it indicates you are exempt, you will not be charged this fee during your loan process. For more information on securing your COE, you can visit VA.gov.

How the Funding Fee Generally Works

For those not exempt, the funding fee is a percentage of your loan amount that helps offset the costs of the home loan program for taxpayers. It is a one-time fee, and it can be paid at closing or financed into your loan. Unlike monthly mortgage insurance premiums, which are common with conventional loans when you have less than 20% down, the funding fee is a single charge. (Source: U.S. Department of Veterans Affairs, VA funding fee and closing costs.)

The specific percentage of the funding fee varies based on several factors, including your service history (first-time use versus subsequent use of the VA loan benefit), the type of loan, and your down payment amount for purchase loans. For example, for most purchase loans with less than 5% down, the fee is 2.15% for first-time users and 3.30% for subsequent users. For cash-out refinances, the fee is a flat 2.15% for first-time users and 3.30% for subsequent users, regardless of your equity. An Interest Rate Reduction Refinance Loan (IRRRL) has a lower flat fee of 0.50% for all eligible borrowers who are not exempt. You can find detailed funding fee percentages on the Department of Veterans Affairs website at VA.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/.

Let's look at an example. If you are a Veteran making a subsequent use of your home loan benefit, and you are taking out a $300,000 cash-out refinance, your funding fee would be 3.30% of $300,000, which is $9,900. If you were exempt, this $9,900 would not be added to your loan amount or due at closing. You can easily estimate your own funding fee by trying the calculator on our VA funding fee calculator page. (Source: U.S. Department of Veterans Affairs, VA funding fee and closing costs.)