The Quick Read: An unremarried surviving spouse whose Veteran died in service, or from a service-connected disability, and who receives Dependency and Indemnity Compensation (DIC), is generally exempt from the VA funding fee, including on a cash-out refinance. The exemption is not automatic. It has to show up on your own Certificate of Eligibility (COE), or the lender must hold VA’s verification form, before you close. Exemption is subject to VA’s rules and the lender’s full file review.
(One note on search results: this page is about the VA home loan funding fee. It is not about property-tax exemptions for surviving spouses.)
Key Takeaways
- The exemption removes one line from the cash-out: the VA funding fee. Appraisal, credit, income and occupancy rules still apply.
- Your COE is issued in your own name. It is the main proof.
- If the COE is silent or wrong, the lender needs a signed VA Form 26-8937 showing exempt status.
- Fix the status before closing. VA tells lenders not to suggest “close now, get a refund later.”
- Remarriage can end eligibility, with a narrow exception tied to age 57.
What Is the Exemption, and Why Does It Matter on a Cash-Out?
The VA funding fee is a one-time charge that helps fund the program. On a cash-out refinance, it is 2.15% of the loan amount for a first use of the benefit and 3.3% for later uses. Most borrowers finance it, which means it gets added to the balance. Exempt borrowers pay nothing.
That matters more on a cash-out than on most loans. The VA cash-out refinance program reaches up to 100% of the appraised value, and the financed fee counts inside that ceiling. A fee that is not charged is room that stays with you. It either becomes cash or stays as equity.
Think of a surviving spouse who owns a home with a non-VA mortgage. She wants to pay that loan off and pull out cash for repairs. The cash-out can refinance any loan type into a VA loan. Her eligibility comes from her own COE, not from the loan she is replacing. If her COE shows exempt status, the funding fee line is zero.
Who Qualifies, and What Proves It?
Qualifying and proving are two steps. A spouse can be eligible for the VA home loan and still not be exempt from the fee. Home loan eligibility starts with being an unremarried surviving spouse of a Veteran who died in service or from a service-connected condition. The fee exemption centers on receiving DIC.
| Situation | What must be true | What proves it |
|---|---|---|
| Death in service | Unremarried spouse, DIC in payment | COE showing exempt, or Form 26-8937 |
| Service-connected death | Unremarried spouse, DIC in payment | COE showing exempt, or Form 26-8937 |
| Other eligibility paths | Eligible for the loan, but exemption is not assumed | Exempt status shown on the COE itself |
That last row trips people up. Some spouses reach home loan eligibility through other paths, such as a Veteran who was rated totally disabled before death or a prisoner-of-war or missing-in-action status. Do not assume the fee waiver follows. The exemption in the statute is tied to a service-connected death and DIC. If your path is one of these, get the exemption confirmed on the COE before you plan around it.
The Documents You Need
Across the wholesale programs Lendmire places VA files with, the documents that matter are few. The trouble is usually that one of them is missing, outdated or in conflict with another.
| Document | What it shows | Where it comes from |
|---|---|---|
| Your COE | Eligibility and funding fee status | VA, requested in your name |
| VA Form 26-8937 | Verified exempt status | Completed and signed through VA |
| DIC award letter | That DIC is in payment | VA |
| Death and marriage records | The relationship and cause of death | Vital records offices |
The VA Lenders Handbook puts the verification duty on the lender. The lender must confirm the status of any borrower who may be exempt. For exempt borrowers, the lender must obtain either a completed, signed Form 26-8937 showing exempt status or an indication on the COE that the borrower qualifies as an unmarried surviving spouse. If the status is unclear or the documents conflict, the Handbook says to consult VA.
The Handbook also says the lender submits the exemption documentation with the closed-loan package. It carves out an exception for eligible surviving spouses, or for cases where VA already received the documents with the application. That is why a spouse’s file may show no separate exemption item at closing. It does not mean the paperwork can be skipped. The COE or the 26-8937 still has to be right.
Step by Step: Documenting the Exemption on a Cash-Out
Here is the sequence as it works in practice.
1. Get your own COE. A surviving spouse’s COE is issued in the spouse’s name, not the Veteran’s. VA Form 26-1817 is the request form for unmarried surviving spouses of Veterans whose death was service-connected, per the archived VA form text. Check va.gov for the current version. If you are not yet receiving DIC, that claim comes first.
2. Read the funding fee line on the COE. VA Circular 26-23-19 says that on purchase and non-IRRRL refinance loans, exemption status shows on the COE.
3. If it says non-exempt and you disagree, stop and fix it. The lender should ask what is pending and what the award letter shows. VA Circular 26_19_17 describes a pending-compensation follow-up. The lender pulls an updated COE close to closing, with timing that varies by file and lender. That text is written about Veterans, so lenders apply the idea to spouses carefully. A corrected COE or Form 26-8937 is the safe target.
4. Get Form 26-8937 if the COE is silent or conflicts with your DIC status. This is the document the Handbook names.
5. Run the cash-out like any VA loan. A VA appraisal sets the value. Credit and income get full review. A net tangible benefit test applies, and you certify that you will occupy the home. Seasoning rules apply too. The exemption changes the funding fee treatment and nothing else.
6. Check the disclosures. Your Loan Estimate and Closing Disclosure should reflect the exemption status shown on your documents. Send the award letter early so the numbers are built correctly from the start. Review both documents line by line before closing.
7. Let the lender carry the proof. For an exempt borrower, the file holds the proof of exemption.
Does the Exemption Change the Cash and the Balance?
Yes, in direction if not in size. The Handbook allows the funding fee to be financed into the loan amount. An exempt borrower skips that addition. The balance is smaller than it would be with the fee, so the payment is somewhat lower and more equity stays in the home.
Here is a no-dollar picture. Suppose two borrowers each have a home worth the same amount and each uses the full 100% of appraised value. The non-exempt borrower has the fee stacked into that ceiling. The exempt borrower does not. For the same ceiling, the exempt borrower has either more cash to take out or a smaller loan for the same cash.
The fee is separate from the lender’s own closing charges. Those do not go away because of the exemption. Closing costs on a cash-out are not zero for an exempt spouse. One big line is.
Timing: Before You Close, Not After
The rule is simple and strict. Exemption status should be established before closing. Circular 26_19_17 change 1 says so directly. Circular 26-23-19 adds that lenders should not tell a borrower who believes she is exempt to close and request a refund later, because refund decisions are specific to each Veteran and cannot be guaranteed.
A related instruction sits in VA Circular 26_21_11. Lenders must not tell a potentially exempt borrower to finance the fee and effectively take cashback after closing. Both shortcuts exist for a reason. Both are discouraged for a reason.
| Stage | What to do |
|---|---|
| Before you apply | Request your COE and gather the DIC award letter |
| During underwriting | Confirm the COE funding fee line; request Form 26-8937 if needed |
| Before closing | Review the Closing Disclosure for a zero funding fee |
| After closing | Treat any refund as unreliable, not a plan |
If you were charged the fee in error, that is a different problem with its own steps.
When Something Goes Wrong
Most problems fall into a few patterns. The fix is nearly always paper, and nearly always before closing.
| Problem | Likely fix |
|---|---|
| COE shows non-exempt, but DIC is in payment | Ask the lender to obtain Form 26-8937 or a corrected COE |
| DIC claim is filed but not decided | Raise it at the start; the COE may need an update as the status changes |
| Lender quotes a fee anyway | Hand over the award letter and ask the lender to show the proof they hold |
| Documents conflict | The lender consults VA before proceeding |
Pending claims are the hardest case. The loan may be able to move forward on the underwriting side while the status is sorted out. But the fee line is not settled until VA records show it. Do not count on the exemption until the COE or Form 26-8937 says so.
Where the Rules Break
Remarriage. Remarriage generally ends surviving-spouse home loan eligibility. The exception applies if you remarried at or after age 57, and VA’s form also notes a date requirement for that remarriage. Check the current form text for the specifics. Age 55 shows up in DIC rules, but that is a different benefit with a different test. Do not mix the two.
Co-borrower on an IRRRL. Circular 26-23-19 says a surviving spouse who was a co-borrower on the Veteran’s VA loan can use an IRRRL, the streamlined refinance. She is not treated as exempt unless she receives DIC, and the lender must submit Form 26-8937. That is an IRRRL rule. A cash-out follows the COE route described above. It is useful as a contrast.
Non-VA loan being replaced. A cash-out can pay off a conventional or FHA loan. The exemption depends on your COE, not the old loan.
Occupancy. The exemption does not relax occupancy. A VA cash-out is for a home you live in or intend to occupy.
Credit and income. The exemption does not make underwriting easier. VA sets no minimum credit score, and the wholesale programs Lendmire works with start at a 580 decision score, subject to lender guidelines. Residual income, the money left after major expenses, is the controlling test. The 41% debt-to-income figure is a guideline, not a cap. A higher ratio needs residual income well above the table.
Misconceptions
- “Every surviving spouse is exempt.” No. DIC receipt and a correct COE status decide it.
- “We’ll refund it later.” VA tells lenders not to advise this.
- “The fee can be financed and credited back.” VA tells lenders not to advise this either.
- “Remarriage always ends the benefit.” Not when the age-57 exception applies.
- “Exempt means easier approval.” Credit, income, appraisal and occupancy still apply.
- “VA eligibility requires DIC.” Eligibility and DIC receipt are separate questions. DIC drives the fee exemption.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Certificate of Eligibility (COE): The VA document that shows you are eligible for the home loan benefit and whether you owe the funding fee.
Dependency and Indemnity Compensation (DIC): A monthly VA payment to eligible survivors of Veterans who died in service or from a service-connected condition.
Funding fee: A one-time VA charge on most VA loans. Exempt borrowers do not pay it.
VA Form 26-8937: The Verification of VA Benefits form. It shows exempt status when the COE does not.
Net tangible benefit: A test showing the refinance gives you a real, measurable advantage.
Residual income: What remains of monthly income after taxes, debts and living costs. VA underwriting treats it as the controlling test.
Frequently Asked Questions
Does the exemption apply to a cash-out refinance, and to repeat use?
Yes, the funding fee exemption can apply to a VA cash-out when your COE shows exempt status. Cash-out fees are normally 2.15% on first use and 3.3% after, so exemption matters on repeat use too. Subject to lender guidelines and full file review.
What if my COE does not show exempt status?
Ask the lender to obtain a completed, signed VA Form 26-8937. That form is the Handbook’s stated verification document. If your COE and DIC status conflict, the lender should consult VA before closing.
Can I close first and claim a refund?
You should not plan on it. VA says refunds are not guaranteed, and it tells lenders not to suggest this route. Settle your status before closing.
My DIC claim is pending. Can I still apply?
Raise it at the start. The underwriting side can proceed, but the fee line is not settled until VA records show exempt status. The COE may need updating as the claim moves.
Does the exemption change the other requirements?
No. A VA appraisal, credit and income review, a net tangible benefit and occupancy all still apply. Only the funding fee line changes.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA Lenders Handbook, Chapter 8
2. VBA Form 26-1817 (archived copy)
5. change 1
This article is part of Lendmire’s VA Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How Much a VA Cash-Out Nets After the Funding Fee and Closing Costs · How Much More Cash a VA Cash-Out Reaches Than Conventional · How Much Cash a VA Cash-Out Releases After the Payoff and the Fee
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.