Does a Disabled Veteran Pay the VA Loan Funding Fee on a Purchase?

The Quick Read: No, not if you receive VA compensation for a service-connected disability and VA’s records show it before closing. The fee is waived outright, not discounted. It is a rule of the program, so no lender can charge it or forgive it on a whim. The catch is timing: the exemption has to be documented before closing, or the fee gets collected.

What Is the Funding Fee, and Why Does an Exemption Exist?

The funding fee is a one-time payment to VA that helps offset the cost of running the home loan program. It is not a lender fee, and it is not mortgage insurance. VA loans do not carry monthly mortgage insurance at all, VA News confirms. The funding fee is the program’s substitute, paid once.

Most buyers pay it. You can pay in cash at closing or finance it into the loan. Financing it raises the balance you carry, so it raises the monthly payment too.

The exemption exists because disabled veterans have already paid in a way that counts. VA grants the waiver to veterans who receive compensation for a service-connected disability. Surviving spouses in certain situations and Purple Heart recipients still on active duty may also qualify.

Across the wholesale programs Lendmire places VA loans through, the purchase envelope looks like this. You can finance 100% of the price with no down payment, provided the price is not above the appraised value. There is no mortgage insurance. With full entitlement there is no VA loan limit. For a first-time user with less than 5% down, the fee runs 2.15% of the loan. That is the number an exemption erases. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

Lendmire’s VA loan programs page covers the broader program.

Who Is Exempt?

Any disability rating that results in VA compensation puts you in the exempt group. The test is receiving compensation, and it does not set a percentage. So don’t assume you need 100%. Don’t assume you need 10% either. Let the award letter and the certificate of eligibility settle it.

VA’s Buyer’s Guide lists who does not pay the fee. This table walks the main groups.

The second row surprises people. Some veterans are entitled to compensation but take military retirement pay instead, because the two can’t always be drawn in full together. They are still exempt.

The surviving-spouse row comes with a flag. VA News names “others” without listing them, and the Buyer’s Guide carries the full list. If you are a surviving spouse, ask the loan officer to confirm your category against the COE.

Does the Rating Percentage Matter?

No. VA’s source material tests whether you receive compensation, not how large the rating is. Plenty of web pages claim a 10% floor. Others say 100% is required. Neither claim appears in the VA text. Skip both.

One honest caution: a rating alone is not the trigger. The compensation has to be in place, with an effective date that falls before your closing. A veteran with a fresh rating but no effective award yet is in the pending-claim situation covered below.

How to Confirm Your Exemption in Five Steps

The exemption does not apply itself. Someone has to check it, and that someone is the lender. Here is the sequence that keeps you from paying a fee you don’t owe.

1. Request your certificate of eligibility early. The COE is VA’s document showing your entitlement. For purchase loans, VA Circular 26-21-11 says it displays your exemption status.

2. Read the COE for exempt status. Look for the exemption language before you apply. If it is missing and you think it should be there, stop and sort that out first.

3. Gather your award letter. The letter from VA showing compensation is your backup. The lender can often pull status directly, but a copy on hand helps if the COE lags behind.

4. Tell the loan officer about any pending claim. This includes a claim you filed, an appeal, or an increase request. Lenders are told to ask. Don’t wait to be asked.

5. Check the disclosures. The Loan Estimate and the Closing Disclosure list loan costs. If you are exempt, the funding fee should not be charged to you.

(Yes, it feels backwards that the veteran has to police a fee that shouldn’t exist. That’s the system.)

What the Lender Has to Do

The lender’s duties are spelled out in the VA Lenders Handbook, Chapter 8. In plain terms, the lender must:

• Verify the status of any veteran who may be exempt.
• Work out the fee owed by borrowers who are not exempt.
• Collect that fee at closing.
• Send it to VA through its electronic funding fee system.
• Submit proof of payment, or proof of exemption, with the closed-loan package.

VA also tells lenders not to ignore information that suggests an exemption might apply, according to VA Circular 26-22-12. If you mention a service-connected condition, the lender is expected to follow up.

That is why “the lender can waive it” is a myth. The fee is set by statute. A lender can’t waive it. A lender can only confirm that you are exempt, or collect it if you aren’t.

What If My Claim Is Pending at Closing?

A pending claim is treated as non-exempt at closing, and the fee is collected. This is the scenario that costs veterans real money, so slow down here.

If the exempt status can’t be verified before closing, the fee is remitted as though you were not exempt. The closing package should note that you claim exempt status. VA then decides the status. If VA later finds you were entitled to compensation with an effective date before closing, the lender is told to point you to the VA Regional Loan Center for a refund.

Here is how the three timing cases play out.

The last row matters most. A rating that shows up after you close does not earn a refund by itself. The compensation effective date has to come before the closing date. Many ratings are awarded retroactively, so the refund path is real, but it is not automatic.

Circular 26-21-11 adds a rule for lenders. When a COE shows non-exempt and a claim may be pending, the lender should ask about it. If one is pending, the lender should request an updated COE shortly before closing. So a loan officer who never asks is a warning sign. A good one asks early and checks again near the end.

Active-Duty Buyers Awaiting Discharge

Service members still on active duty can be exempt if they have a pre-discharge rating. The process is different from a veteran’s. The lender submits VA Form 26-8937, the Verification of VA Benefits, per Circular 26-21-11.

Here’s the catch. If no proposed or memorandum rating is obtained and the loan closes before discharge, the exemption does not apply. VA’s COE status in that case reads “Non-Exempt – In Development,” per Circular 26-22-12.

If you are close to separating, timing your purchase around a rating matters. Talk to a loan officer before you sign a contract with a firm closing date.

What the Exemption Does Not Waive

The exemption covers the funding fee only. It is a fee determination, not an underwriting factor. It doesn’t change your appraisal, and it doesn’t lower the bar on your file.

You still need to meet the credit and income tests. Residual income is the controlling test on VA loans. It is the money left each month after major obligations and living costs, measured against VA’s table. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.

On Lendmire’s wholesale programs, the decision-score floor starts at 580, and amounts reach $4,000,000 with full entitlement. VA itself sets no minimum credit score, and some lenders set a higher floor than others. All of this is subject to lender guidelines and full file review.

Other closing costs remain too: the appraisal, title charges, and similar items. “Exempt” means one line item goes away. It does not mean a free closing.

What Does the Exemption Save?

The savings equal the fee tier that would have applied to you. Here is the non-exempt schedule on a purchase, as percentages of the loan:

Subsequent use with 5% or more down follows the same 1.5% and 1.25% tiers.

Picture two buyers purchasing identical homes with no down payment. One is exempt. The other is a first-time user who is not. The second buyer owes 2.15% of the loan, either in cash at closing or added to the balance. The exempt buyer owes nothing. The exempt buyer starts with less cash needed and a smaller balance to carry.

Now run a repeat user with no down payment and no exemption. That fee is 3.3%. The same veteran with an exemption pays zero. The exemption does the most work at the high end.

A seller, a lender, or family using gift funds can pay the fee for a non-exempt borrower. That option is moot for you. Seller concessions can go toward other costs instead.

Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

Does It Apply to Refinances Too?

Yes, the exemption is described as applying across VA loan types, including cash-out refinances and the interest rate reduction refinance (the IRRRL). The IRRRL carries a 0.5% fee for non-exempt borrowers. A VA cash-out carries 2.15% on first use and 3.3% after.

The exemption’s reach across loan types is confirmed mainly in secondary sources, so confirm it with your lender for your specific loan.

If you already used your benefit once, Lendmire’s piece VA Cash-Out Funding Fee Rules for a Veteran With an Existing VA Loan covers the cash-out side. For an exempt veteran weighing VA cash-out against a conventional loan, see VA Cash-Out vs Conventional for a Veteran Exempt From the Funding Fee.

What If You Were Charged the Fee in Error?

Act at the stage you catch it. Earlier is easier.

Before closing. Compare the Loan Estimate against your COE. If a funding fee line appears and your COE shows exempt, tell the loan officer in writing. Ask for a corrected disclosure and an updated COE if needed.

At the closing table. Read the Closing Disclosure line by line. If the fee is still there, don’t sign and hope. Ask the lender to confirm your status before funds move.

After closing. Ask the lender to advise you on the refund route. Per the Handbook, that route runs through the VA Regional Loan Center, and it depends on your compensation effective date preceding closing. Keep your award letter and COE handy.

Gather your documents before you start. A short checklist: your COE, your VA award letter, your Loan Estimate and Closing Disclosure, and any written communication with the lender about your status.

Key Terms Defined

Funding fee: a one-time payment to VA on most VA loans that helps offset program costs. It can be paid in cash or financed.

Service-connected compensation: monthly tax-free payments from VA to a veteran for a disability linked to military service.

Certificate of eligibility (COE): VA’s document confirming your entitlement and, for purchases, your funding fee exemption status.

Residual income: the money left each month after major debts, taxes, and living costs. VA’s table sets the minimum for your household size and region.

IRRRL: an interest rate reduction refinance that replaces an existing VA loan with a new one, usually without a new appraisal.

What to Do Next

If you are buying a home and want to see whether a VA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Lendmire is a mortgage broker, so it arranges VA loans through wholesale lenders rather than lending directly. Bring your COE and award letter to the first conversation. That one step covers most of what goes wrong with the exemption.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. VA News: borrowers can deduct funding fees

2. VA Home Loan Guaranty Buyer’s Guide

3. VA Circular 26-21-11

4. VA Pamphlet 26-7, Chapter 8 (Lenders Handbook, KnowVA)

5. VA Circular 26-22-12