VA Funding Fee Exemption: Who Doesn't Have to Pay It
The categories the VA lists, and what an exemption is worth in dollars.
The VA funding fee is a one-time charge on most VA-backed home loans, and it can be thousands of dollars. Some borrowers do not have to pay it at all. Here is who the VA says is exempt and how to see what that is worth to you.
Who is exempt
According to the VA, you do not pay the funding fee if any of these apply:
- You receive VA compensation for a service-connected disability.
- You are eligible for that compensation but receive retirement or active-duty pay instead.
- You are a surviving spouse receiving Dependency and Indemnity Compensation (DIC).
- You have a pre-discharge proposed or memorandum rating before your loan closes.
- You are an active-duty service member who has received a Purple Heart on or before loan closing.
What an exemption is worth
The fee is charged on the loan amount, not on the home price. On a $350,000 loan with nothing down, a first-time borrower would pay 2.15%, or $7,525, and a borrower using the benefit again would pay 3.30%, or $11,550. An exempt borrower pays $0 in both cases. If you finance the fee, exemption also means a smaller loan and a lower monthly payment.
Check your own numbers by ticking the exemption box in the VA funding fee calculator.
What the exemption saves at different loan sizes
Figures assume a purchase with less than 5% down. The last column shows how much lower the monthly payment is at 6.25% over 30 years when there is no first-use fee to finance.
| Loan amount | First-use fee (2.15%) | Subsequent-use fee (3.30%) | Monthly payment saved (first use) |
|---|---|---|---|
| $200,000 | $4,300 | $6,600 | $26.48 |
| $300,000 | $6,450 | $9,900 | $39.71 |
| $400,000 | $8,600 | $13,200 | $52.95 |
| $500,000 | $10,750 | $16,500 | $66.19 |
If your disability rating comes after closing
Disability claims can take months. If you close on a VA loan, pay the funding fee, and later receive a disability rating that is effective on or before the closing date, the VA says you may be eligible for a refund of the fee. Keep your closing documents, and contact your VA regional loan center if this happens to you. It is also worth telling your lender about a pending claim before closing, since a proposed or memorandum rating issued before closing can make you exempt.
Common mix-ups
- Having a rating is not always the same as being entitled to compensation. The exemption is tied to compensation, so ask the VA or your lender how your rating is treated.
- Retirees who would receive disability compensation if they were not receiving retired pay can be exempt. The COE should reflect it.
- The exemption follows you, not the loan type. It applies to purchases and refinances alike.
How to confirm your status
Your lender confirms whether you are exempt, typically starting from your Certificate of Eligibility. If you think you may qualify but your lender says otherwise, ask what documentation they need and contact the VA. Our guide to VA loan requirements explains how to request the COE.
Frequently asked questions
Does receiving VA disability compensation make me exempt?
Yes. The VA says you do not pay the funding fee if you are receiving VA compensation for a service-connected disability.
Are surviving spouses exempt?
The VA lists surviving spouses who receive Dependency and Indemnity Compensation (DIC) among those who are exempt.
Are Purple Heart recipients exempt?
The VA lists active-duty service members who received a Purple Heart on or before loan closing.
Does the exemption apply to refinances?
The VA's exemption list applies to the funding fee in general, and the fee is also charged on refinances. Ask your lender to confirm how it applies to your specific loan.
How much can the exemption save?
It depends on your loan amount. On a $350,000 loan with no down payment it saves $7,525 on first use or $11,550 on subsequent use.
Sources
This page is educational and is not legal, tax or financial advice. Rules and rates can change, so confirm the details with the VA and your lender.