How to Document the VA Loan Funding Fee Exemption or Get a Refund

The Quick Read: The exemption is decided by VA, not by your lender, and it has to be on file before closing to zero out the fee. The proof is usually your Certificate of Eligibility (COE) showing “Exempt,” backed by a VA award letter when needed. If the fee was already charged and VA later recognizes your status back to a date on or before closing, you can request a refund. It is not automatic. Subject to lender guidelines and full file review.

What the Funding Fee Is and Who Skips It

The funding fee is a one-time payment from the veteran, service member, or surviving spouse. VA explains that it helps offset the cost of the program to taxpayers, since VA loans need no down payment and no monthly mortgage insurance. It applies to loans to buy, build, improve, or repair a home, and to refinance. It is figured on the loan amount, not the purchase price.

Across the wholesale programs I place VA files with, the purchase tiers work like this. First use with less than 5% down is 2.15%. With 5% to under 10% down it is 1.5%, and with 10% or more down it is 1.25%. Subsequent use with less than 5% down is 3.3%, with the same 1.5% and 1.25% tiers above that. A streamline refinance (the VA streamline refinance) carries 0.5%, and a VA cash-out refinance carries 2.15% on first use and 3.3% after. You can finance the fee into the loan. Exempt borrowers skip it entirely. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Who is exempt? The statute names three groups:

• A veteran receiving compensation for a service-connected disability, or one who would be entitled to it but for receiving retirement or active service pay.
• A surviving spouse of a veteran who died in service or from a service-connected disability.
• A service member on active duty who provides evidence, on or before the closing date, of having been awarded the Purple Heart.

A common misunderstanding is that any disability claim makes you exempt. It doesn’t. What matters is that VA is paying you compensation, or that you are entitled to it and receive retirement or active service pay instead. A claim that is only filed does not count.

Who Decides, and Where the Proof Lives

VA decides the exemption. Your lender checks it through VA’s systems and your COE. The loan can’t be guaranteed until the fee is remitted or the exemption is established, as the statute’s codified text puts it. So lenders take this step seriously.

The COE has a funding fee field. In my files it reads one of three ways: exempt, non-exempt, or a note to contact the VA regional loan center. “Exempt” is what you want. “Non-exempt” on a file where you believe you qualify means something is stale or missing. The regional loan center note means VA needs more information before it will settle your status.

If you are working with VA loan programs through a broker, ask for a copy of the COE at the start of the process. Look at that one field before anything else. Mistakes found at application are easy to fix. Mistakes found at the closing table are not.

The Documentation Matrix

This is the part most explainers skip. Each exemption category has its own proof, and the lender needs it in the file before closing.

A few notes on reading it. The award letter should show your effective date, which I explain below. For a pending claim, a proposed or memorandum rating is the document that makes the difference. Without it, you are generally not treated as exempt at closing, and the fee gets charged.

How to Document the VA Loan Funding Fee Exemption Before Closing

This is the exemption audit I run on a file. Treat it as a checklist from application to closing day.

1. Pull the COE at the start. Check the funding fee field first.

2. Match it to your real status. If you have a rating and the COE says non-exempt, don’t assume the lender caught it.

3. Gather the proof. That means your award letter, rating decision, or Purple Heart evidence, depending on your category.

4. Get the COE corrected. Per VA’s circular on exemption and refund procedures, the lender can submit VA Form 26-8937 to the COE record when it is needed to determine exemption status.

5. Read the Loan Estimate. The funding fee line should show zero if you are exempt.

6. Read the Closing Disclosure. Compare it to the Loan Estimate before you sign. A fee that reappears here is the last warning you get.

7. Keep copies. Save your award letter, your COE, and your Closing Disclosure. You may need all three later.

The fee line is easy to overlook. It sits among the other closing costs, and many borrowers assume the lender handled it. Check it yourself.

Fixing a Wrong or Missing Exemption

Say your COE shows non-exempt, but you receive monthly compensation. Here is the order I work in.

First, send your lender the award letter. It shows VA is paying you. Second, ask the lender to submit the exemption paperwork to VA so the COE record is updated. Third, once the COE reflects the change, ask for a revised Loan Estimate that shows the fee as zero. Fourth, confirm it again on the Closing Disclosure.

If the lender stalls, ask which step is holding things up. You can also contact the VA regional loan center directly about your COE. Look up the current number on VA.gov rather than relying on a number from a blog.

A script helps: “My COE shows non-exempt, but I receive VA compensation. I’m attaching my award letter. Please submit what VA needs to update my COE and send me a revised Loan Estimate showing no funding fee.”.

Special Cases Where the General Rule Bends

Pending claim at closing. A filed claim is not enough. If the claim is pre-discharge, the lender needs a proposed or memorandum rating from VA before closing. Without it, you are charged the fee. If VA later grants compensation with an effective date on or before your closing, a refund may follow.

Retirement or active pay instead of compensation. Some veterans are entitled to compensation but receive retirement pay in its place. The statute still treats them as exempt. Your proof is usually the VA rating decision showing entitlement.

Purple Heart. The statute speaks of service members on active duty who give evidence by the closing date. Many marketing pages blur this and imply every Purple Heart recipient qualifies. Follow the statute, and ask your lender how VA treats your situation. Sometimes these cases are charged because the status wasn’t verified on the COE.

Surviving spouses. The exemption covers the spouse of a veteran who died in service or from a service-connected disability. Confirm the status on the COE before closing, and ask the lender what proof VA wants.

Different loan types. The exemption applies to purchase, construction, cash-out, and streamline refinance loans. Loan assumptions also carry a funding fee, and the same waiver covers it. For the cash-out side, Lendmire’s article on documenting the exemption or claiming a refund on a VA cash-out goes deeper.

Home lost in a disaster. VA can treat your next loan as a first-use loan when a prior home was destroyed in a declared major disaster. That changes your fee tier, not your exemption.

Why This Matters at the Closing Table

The funding fee is usually one of the larger single costs on a VA loan. Most buyers finance it. That means it raises the loan balance and adds interest over the life of the loan. If you are exempt and the fee is charged anyway, you may be paying for it out of pocket or through a larger balance.

One more point from the underwriting side. The fee doesn’t change how VA looks at your file. Residual income, the money left each month after major obligations and living costs, is still the controlling test. The 41% debt-to-income figure is a guideline, not a cap. But a missed exemption can quietly raise your balance, so it is worth catching.

If You Already Paid: The Refund Process

The refund path starts with one comparison: VA’s effective date for your status versus your closing date. If the effective date falls on or before closing, you generally have a case. If it falls after, you generally don’t.

The effective date is not the date you got the letter. It is not the date payments began either. It is the date VA assigns to your status, and it appears on your rating decision or award letter. Read that document closely.

Here is the sequence:

1. Confirm the effective date on your award letter or rating decision.

2. Get an updated COE showing exempt status.

3. Gather your Closing Disclosure, which shows the fee you were charged.

4. Contact your lender or servicer. VA’s circular says lenders and servicers start corrections and refund requests in VA’s Funding Fee Payment System, adding notes explaining the reason. They upload supporting documents such as the Closing Disclosure.

5. Know the backup route. You can also go to the VA regional loan center directly. Confirm the current channel with your servicer first, because processes change.

Refunds generally follow how you paid. If you paid cash at closing, you generally get cash back. If the fee was financed, the refund typically reduces your loan principal. Ask your servicer which applies to you.

A Sample Refund Request

Adapt this to your situation:

I closed on my VA loan on [closing date]. VA has recognized my service-connected compensation with an effective date of [effective date], which is on or before my closing date. I was charged a funding fee at closing. I am requesting a refund under VA’s funding fee exemption procedures. Attached are my award letter, my updated COE, and my Closing Disclosure. Please confirm how the request will be submitted and how I can track it.

Put both dates in the first two sentences. They are what the reviewer looks for.

Servicer Changes, Refinances, and Stalled Requests

Things get messy when your loan has moved. If the servicer is different from your original lender, start with the servicer, but keep the original Closing Disclosure handy. If your loan was refinanced, the question gets harder, and the regional loan center is often the better first call. If the loan was paid off, contact VA directly.

Keep a log. Write down the date you sent your request, who you spoke with, and what they said. If you hear nothing, follow up in writing. If the lender or servicer won’t act, go to the VA regional loan center with your packet. Your log is what makes that conversation short.

Four Short Scenarios

In each case, the same two things drive the result: what VA recognized, and when.

Key Terms Defined

Certificate of Eligibility (COE): The VA document that confirms you qualify for a VA loan and shows your funding fee status.

Funding fee: A one-time charge on the VA loan amount that most borrowers can finance; exempt borrowers don’t pay it.

Effective date: The date VA assigns to your disability compensation, shown on your award letter or rating decision.

Proposed or memorandum rating: A VA decision on a pending claim that can support exempt status before discharge.

IRRRL: The VA streamline refinance of an existing VA loan, carrying a 0.5% fee unless you are exempt.

Residual income: The money left each month after major obligations and living costs, which is the controlling test in VA underwriting.

Next Step

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. Programs and figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.

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

About Lendmire

Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. VA.gov – VA funding fee and loan closing costs

2. 38 U.S.C. § 3729 – Cornell LII

3. VA Circular 26-23-19, Funding Fee Exemption and Refund Procedures