VA Funding Fee Exemption in 2026
VA funding fee rules
Eligibility basics
VA Lender’s Handbook
Funding fee refund process
Yes, many Disabled Veterans are exempt from the VA funding fee. In most cases, a service connected disability rating of 10% or higher at closing removes the funding fee entirely. The key is getting the exemption reflected in your file early, usually through your COE, so you are not charged the fee by mistake.
Who is exempt from the funding fee
- Disabled Veterans: If you receive VA compensation for a service connected disability, you are generally exempt, including ratings at or above 10% when verified at closing.
- Paid differently but eligible: If you are entitled to disability compensation but receive retirement pay or active duty pay instead, you may still qualify for the exemption.
- Pre discharge ratings: A proposed or memorandum rating tied to a pre discharge exam can support an exemption when it is valid and documented in the file.
- Other exempt groups: Some Purple Heart recipients on active duty and certain surviving spouses receiving DIC can also qualify for a funding fee exemption.
How exemption is verified in the loan file
- COE is the primary flag: Lenders verify exemption through the Certificate of Eligibility, which should show whether the funding fee is required or exempt.
- Fix COE mismatches early: If your COE does not reflect disability status, provide your VA award documentation early so the lender can resolve the discrepancy before closing.
- Timing is everything: Exemption is based on what is confirmed at the time of closing, not what you expect to be approved later.
- Review your disclosures: Check the Loan Estimate and Closing Disclosure for a funding fee line item so you can catch errors before you sign.
Pending claims, refunds, and what to do
- If your claim is pending: You may be charged the fee at closing if VA has not granted compensation yet, since the lender must follow verified status.
- Refund can be possible: If VA later awards disability with an effective date on or before your closing date, you can request a refund of the funding fee.
- Refund process uses VA channels: Refunds are typically handled through the VA regional loan center process and lender servicing, with VA forms and documentation.
- Keep your records: Save your Closing Disclosure and proof of the final funding fee amount so the refund request has clean supporting evidence.
Rates for non exempt borrowers in 2026
- Standard purchase, zero down, first use: A common funding fee rate is 2.15% of the loan amount for first time use on a purchase when you are not exempt.
- Standard purchase, zero down, later use: A common funding fee rate is 3.3% of the loan amount for subsequent use on a purchase when you are not exempt.
- Down payment can reduce it: Putting money down on a purchase can lower the percentage tier, which can save real dollars even if you are not exempt.
- It is based on loan amount: The fee is calculated from the total loan amount, and many borrowers choose to finance it into the loan balance.
FAQs
What disability rating makes me exempt from the VA funding fee?
What if my COE does not show the funding fee exemption?
Can I get the funding fee refunded if my disability is approved after closing?
Key Takeaways
- Disabled Veterans with a service-connected rating of 10% or higher are typically exempt from the funding fee.
- Active-duty Purple Heart recipients qualify; lenders must verify documentation and eligibility effective dates.
- If benefits become effective after closing, request a refund when the effective date predates your settlement date.
- Provide your disability award letter early so Loan Estimate and Closing Disclosure correctly show a zero funding fee.
- Qualifying surviving spouses may also be exempt; confirm status during pre-approval to avoid refund steps.
- Savings scale with loan size, lowering upfront cash, monthly payments, and lifetime interest on larger balances.
What is the VA Funding Fee?
If you’re new to the VA loan process, you’ll quickly encounter the VA funding fee. This one-time charge helps sustain the program’s $0-down, no-PMI benefits for future Veterans. Percentages generally range from about 2.15% to 3.3% of the loan amount, depending on your specific situation and loan structure.
- First use vs. subsequent use: VA prices first-time usage differently than reuse. Subsequent-use loans often carry a higher percentage, which can materially change costs and strategy when you’ve used your benefit before.
- Loan purpose and product: Purchases, cash-out refinances, IRRRL streamlines, and jumbos do not share identical fee schedules. Each purpose triggers distinct rules and percentages your lender must follow precisely.
- Down payment choices: Contributing 5% or 10% down can reduce the percentage significantly. Even modest down payments can generate thousands in savings compared with zero-down scenarios on the same property price.
For example, on a $350,000 loan, a first-time funding fee of 2.15% amounts to $7,525. While that may sound substantial, the VA loan’s advantages—no down payment, no private mortgage insurance (PMI), and competitive interest rates—often make it an outstanding path to homeownership for Veterans.
Explore VA Funding Fee Resources
These articles cover costs, exemptions, refunds, deductions, and smart ways to handle the VA funding fee at closing.- VA Funding Fee: Complete Guide — Who pays, how it’s calculated, key examples.
- Disabled Veterans: VA Funding Fee Exemption — Eligibility by rating and required documents.
- VA Funding Fee Refund: How It Works — When refunds apply and how to request.
- Surviving Spouses: Funding Fee Exemptions — Qualifying cases, proof, and application steps.
- Is the VA Funding Fee Tax-Deductible? — When deductible and where it appears.
- Can the Seller Pay the VA Funding Fee? — Concession rules, 4% cap, negotiation tips.
- Finance the Funding Fee or Pay at Closing? — Compare total cost and cash flow.
Why Does the VA Charge a Funding Fee?
Veterans often wonder why there’s any fee at all. The funding fee is a self-funding mechanism designed to keep the benefit strong for the next generation, reducing taxpayer burden while preserving $0-down access, no monthly mortgage insurance, and favorable underwriting standards across varied market cycles.
- Offer zero down payments: The revenue helps offset program risk so qualified Veterans can purchase with little to no cash due at closing, even in competitive markets with rising prices and limited inventory.
- Eliminate private mortgage insurance: Unlike many conventional loans, VA does not require PMI. The funding fee substitutes for ongoing insurance premiums, reducing monthly costs over the life of the mortgage.
- Preserve long-term entitlements: Sustained funding keeps reuse, refinancing options, and flexible entitlement rules available, supporting mobility, PCS moves, and evolving family needs throughout a Veteran’s housing journey.
It’s essentially a program-sustaining contribution that keeps benefits robust without shifting significant costs to taxpayers. Disabled Veterans are exempt, providing a well-deserved financial advantage at closing.
Why Disabled Vets Get the Exemption
By waiving the funding fee for eligible disabled Veterans, VA recognizes both service and sacrifice while reducing barriers to stable housing. The exemption lowers upfront costs, improves monthly affordability, and preserves cash for emergencies, household needs, and long-term goals such as maintenance or improvements.
- Cuts upfront costs dramatically: Avoiding the fee can save several thousand dollars on day one, freeing resources for inspections, reserves, essential furnishings, or upcoming repair projects after move-in.
- Reduces monthly payment pressure: Rolling the fee into the mortgage increases principal and interest; eliminating it keeps payments leaner, enabling easier budgeting during the first critical months in your new home.
- Supports long-term stability: Preserved cash can strengthen your emergency fund, accelerate principal reduction, or cover adaptive improvements that meaningfully improve safety, access, and daily living comfort.
Who’s Eligible to Skip the Fee?
Not every borrower automatically qualifies. VA outlines specific circumstances where the fee is waived. Confirm your status early, since documentation timing determines whether the exemption appears on your Loan Estimate or requires a refund request after closing once a decision becomes effective.
- Service-connected disability rating of 10% or higher: Provide an official VA disability award letter confirming compensation. Lenders must verify eligibility before final documents to remove the charge from closing figures.
- Pending disability claim at closing: If your rating becomes effective retroactively, you can typically seek a full refund of the fee after the VA issues its final decision and effective date.
- Active-duty Purple Heart recipients: Documentation of the Purple Heart generally qualifies you for an immediate waiver, even without a numeric disability rating recorded at the time of underwriting.
How Do You Prove You’re Exempt?
Start by sharing a VA disability award letter reflecting an eligible rating or, for Purple Heart recipients, proof of the medal. Lenders use this documentation to mark your file “exempt” so the fee is removed from both the Loan Estimate and the Closing Disclosure automatically.
If you’ve misplaced your award letter, request a copy through eBenefits or your regional VA office. If your claim is pending when you close, you may pay the fee initially; once VA finalizes an eligible rating effective before closing, you can apply for a full refund.
VA Funding Fee Rates
Percentages vary by first or subsequent use, down payment tier, and loan purpose. Purchases typically reduce the fee at five and ten percent down, while IRRRL and cash-out refinances follow distinct schedules. Always verify your exact percentage on your disclosures and with your loan officer.
| Loan Type | First Use | Subsequent Use | Exempt (Disabled) |
|---|---|---|---|
| Purchase ($350K) | 2.15% ($7,525) | 3.3% ($11,550) | $0 |
| Cash-Out Refi ($350K) | 2.15% ($7,525) | 3.3% ($11,550) | $0 |
| Jumbo ($600K) | 2.15% ($12,900) | 3.3% ($19,800) | $0 |
How the Exemption Changes Your VA Loan Game
Waiving the fee meaningfully reshapes affordability. You save upfront cash, reduce financed balance, and keep monthly payment growth in check. Those changes compound over time, improving amortization, refinance flexibility, and equity build—especially valuable when rates, taxes, or insurance costs rise.
- Immediate savings you can redeploy: On a $350,000 loan, skipping a 2.15% fee saves $7,525 immediately, potentially covering inspections, reserves, moving costs, or initial repairs without straining household cash flow.
- Lower payment and long-term interest: Avoiding a financed fee reduces principal, trimming monthly payments and total interest over time, while providing more room for future refinance opportunities if market rates improve.
- Increased buying confidence: Retained cash may strengthen underwriting reserves, ease appraisal gaps, and improve offer terms, making your purchase more resilient in fast-moving or competitive housing markets.
What If You Paid the Fee Already?
Sometimes the disability decision arrives after closing. If the effective date predates your closing, you can typically request a full refund. Coordinate with your lender, gather documentation, and follow VA’s instructions to ensure accurate processing and timely reimbursement.
- Obtain your official rating decision: Wait for the VA’s final determination showing a 10% or higher service-connected rating, including the effective date that applies to your loan’s closing timeline.
- Submit VA Form 26-8986 with proof: Provide the award letter and any lender-requested items so the servicer and VA can confirm eligibility and calculate the exact amount due back to you.
- Receive the refund or principal credit: Depending on servicing, funds may arrive as a lump-sum reimbursement or be applied as a principal reduction that lowers your outstanding mortgage balance.
The timeline can range from a few weeks to a few months, depending on VA workload and how quickly supporting documents are received and validated by the lender or servicer.
Exemption Savings by Loan Size
Dollar savings scale with loan amount. Larger balances translate into bigger waived fees and lighter monthly payments if you would otherwise finance the charge. Use these examples as directional estimates; your exact impact depends on rate, term, and property-specific closing costs.
| Loan Amount | Standard Fee (2.15%) | Exempt Savings | Monthly Impact |
|---|---|---|---|
| $300,000 | $6,450 | $6,450 | $25 less |
| $400,000 | $8,600 | $8,600 | $35 less |
| $600,000 | $12,900 | $12,900 | $50 less |
How to Lock in Your Exemption
Treat documentation like a closing-critical task. Verify your rating early, gather records, and communicate clearly with a VA-savvy lender. Correct setup avoids last-minute surprises, ensuring the exemption appears on disclosures rather than requiring post-closing refund steps.
- Confirm your disability rating: Ensure it’s at least 10% and note the effective date. Monitor pending claims closely so you understand whether a refund or upfront waiver will apply.
- Gather essential documents: Collect your DD-214, VA Disability Award Letter, and any Purple Heart documentation. Store digital copies securely for fast lender and underwriter review.
- Select a VA-experienced lender: Choose a team that routinely handles exemptions, understands overlays, and can coordinate quickly with underwriting when documentation arrives near critical milestones.
- Submit proof immediately: Share your disability letter or Purple Heart records early so the Loan Estimate and Closing Disclosure accurately show a $0 fee line item.
- Verify closing figures carefully: Before signing, confirm the exemption is reflected on the final documents, preventing a financed fee or cash charge that would otherwise require a refund process.
Why This Matters
VA mortgage rates and home values affect affordability and savings. The exemption can buffer rising costs by lowering principal, reducing interest over time, and preserving liquidity—advantages that compound, especially for larger loans or competitive purchase scenarios.
- Savings scale with prices: As home values rise, a percentage-based fee represents more dollars. Waiving it preserves cash for closing, moving, or repairs that improve safety and livability immediately.
- PMI-free advantage remains unmatched: Conventional buyers often pay PMI for years. VA’s structure avoids that expense entirely, improving monthly affordability for many Veterans across market cycles.
- Large-loan impact is substantial: With higher entitlement ceilings in many areas, waiving the fee on bigger balances can translate into five-figure savings and meaningfully lower lifetime interest paid.
What Could Trip You Up?
The process is straightforward, yet timing and paperwork still matter. Missing documents, unresolved claims, or misunderstandings about effective dates can delay the exemption or force post-closing refunds. Proactive preparation prevents stress and keeps your closing on schedule.
- Misplaced disability letter: Replacements from VA or eBenefits may take time. Start early so underwriting can verify eligibility and update disclosures well before your scheduled signing appointment.
- Pending claim at closing: If the decision arrives later, you’ll likely pay the fee first. A refund request is usually available, but it adds additional steps and follow-up after funding.
- Documentation gaps or mismatches: Missing Purple Heart proof or inconsistent names and dates can stall verification. Cross-check all documents against your application to avoid avoidable underwriting conditions.
Real-Life Wins with the Exemption
Many Veterans successfully leverage the exemption to free cash, lower payments, and build equity faster. The examples below mirror common scenarios and illustrate how the waiver or a later refund can materially improve outcomes across a range of loan sizes.
- $300K purchase, 10% rating: Saved $6,450 upfront, directing funds to inspections, reserves, and minor repairs that boosted safety and comfort during the first year of homeownership.
- $600K jumbo, 30% rating: Waived a $12,900 fee, using the preserved cash for accessibility upgrades and furniture, while keeping the mortgage balance lower for future refinance flexibility.
- $350K refinance, rating finalized later: Paid initially, then received a $7,525 refund after the effective date backdated before closing, which was applied to reduce principal and interest costs.
What If You’re Not Sure About Your Rating?
If you have a 0% rating or believe your condition warrants a change, consider pursuing a re-evaluation. Updated decisions can unlock the waiver or a refund, but preparation and documentation quality strongly influence timelines and results.
- Start at official channels: Request re-evaluation on VA.gov or through your regional VA office, following instructions carefully to avoid processing delays from incomplete applications or missing forms.
- Organize medical evidence: Gather physician reports, diagnostic results, and service-related records. Clear documentation helps adjudicators assess your claim accurately and establish the correct effective date.
- Plan for administrative timelines: Decisions take time. Set realistic expectations and keep your lender informed so they can plan disclosures or post-closing refund steps if eligibility changes later.
Why It’s Worth Digging Into
Confirming exemption status is more than a line item—it affects cash, payments, and flexibility for years. The earlier you validate eligibility, the easier it becomes to structure offers, compare scenarios, and protect your long-term housing budget.
- Build equity faster: A lower principal from day one reduces interest paid and accelerates amortization, creating options for future renovations, emergencies, or investment in family priorities.
- Lower monthly obligation: Avoiding a financed fee trims principal and interest, increasing breathing room for utilities, maintenance, and savings—especially useful during the first year in a new home.
- Reinvest preserved cash: Direct savings toward improvements, accessibility updates, or a robust emergency fund that safeguards your household from unexpected costs after closing.
In 2026, approximately 43% of Veterans may opt for VA loans. If you qualify as disabled, it’s a prime chance to leverage your hard-earned benefits.
Frequently Asked Questions
1. Are disabled Veterans exempt from paying the VA funding fee?
Yes. Veterans with a service-connected disability rating of 10% or higher typically do not pay the funding fee, which can save you thousands.
2. What disability rating qualifies for the exemption?
A service-connected disability rating of 10% or higher. If you have a pending claim that’s approved later, you can request a refund.
3. How do I prove I’m exempt?
You must show your VA disability award letter or Purple Heart documentation to your lender so the fee is removed from your closing costs.
4. What if my disability rating is pending?
You may pay the fee initially. After the VA approves your rating, you can apply for a full refund by submitting VA Form 26-8986 with your award letter.
5. Does having a Purple Heart waive the fee?
Yes. Active-duty service members with a Purple Heart are exempt, even without a formal disability rating.
6. Can I get a refund if I paid the fee but later received a disability rating?
Absolutely. Once you have your final rating, submit the necessary paperwork to the VA and you’ll be reimbursed.
7. Does the exemption apply to jumbo VA loans?
Yes. The exemption applies to all VA loans, including larger “jumbo” loans, potentially saving tens of thousands of dollars.
8. What if I can’t find my disability letter before closing?
Contact the VA or use eBenefits to request a copy. If you can’t provide it in time, you’ll pay the fee at closing and can later seek a refund if your rating qualifies.
9. Does partial entitlement affect my fee exemption?
No. The exemption remains in effect regardless of whether you have full or partial entitlement, as long as you meet the disability or Purple Heart criteria.
10. Why does the VA funding fee exemption matter for Veteran homebuyers?
It can save you thousands in upfront costs, lower your monthly payments, and help you build equity more quickly—hugely beneficial for disabled vets in a market with rising interest rates and housing prices.
Additional Resources
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