How to Get the VA Loan Funding Fee Waived With a Disability Rating

The Quick Read: The funding fee goes to zero when you are receiving VA disability compensation for a service-connected condition on the day you close. Your lender cannot grant this and cannot refuse it, because federal law sets it. Your job is to make sure your exempt status shows up in VA’s system, and in your loan file, before closing.

What You Need to Know First

• The test is whether you receive compensation. It is not a rating percentage.
• A compensable rating is the practical starting point, but a lower and a higher rating are treated alike.
• A rating that is only expected, or a claim that is only filed, does not count at closing.
• The exemption removes the funding fee. It does not remove other closing costs, and it does not mean approval.
• If your status is wrong or missing at closing, the fee may be collected, and getting it back is a separate process.

That last point is where most veterans get burned. The rest of this piece walks through how to avoid it.

What Is the Funding Fee, and What Does “Waived” Mean?

The funding fee is a one-time charge on a VA-backed loan. It is a percentage of the loan amount, not of the purchase price. You can pay it at closing or roll it into the loan. It is not a monthly premium.

Here is how it works on a purchase through the wholesale programs Lendmire places VA loans with. First use with less than 5% down carries a 2.15% fee. Five to under 10% down brings it to 1.5%, and 10% or more down brings it to 1.25%. Subsequent use with less than 5% down is 3.3%, with the same 1.5% and 1.25% tiers above that. Those figures are subject to lender guidelines and full file review.

“Waived” means the fee is zero. “Reduced” means a larger down payment moved you to a lower tier. They are different things. An exempt veteran owes no funding fee at any down payment level, subject to lender guidelines.

That matters because VA purchase loans already carry no mortgage insurance. With the fee waived, you have no ongoing insurance and no upfront fee. Full-entitlement VA loans at 100% financing also have no VA loan limit. If you have remaining entitlement rather than full entitlement, a down payment may be required, so speak with a loan officer about your situation.

If the fee would have been financed, an exempt borrower ends up with a smaller loan balance. If the fee would have been paid in cash, an exempt borrower brings less to closing. Because the fee is charged on the loan amount, the loan is smaller. A smaller loan can also ease qualification a little.

Who Qualifies for the Waiver?

The waiver comes from federal statute. 38 U.S.C. § 3729 says the fee may not be collected from a veteran who is receiving compensation. It has no percentage threshold in the text. Here is how the covered groups line up.

Two rows deserve a closer look.

Retirement pay. Some veterans have a disability rating but receive retirement pay in place of compensation. The law treats you as exempt if you would be entitled to compensation but for that retirement pay. Your VA paperwork should show the entitlement.

Purple Heart. The statute covers active-duty members who show evidence of a Purple Heart on or before the closing date. A veteran who is no longer on active duty is not covered by that clause alone. Some online summaries blur this. Read the statute, not the summary.

Does your rating percentage matter?

No. The law asks whether you are receiving compensation. A 10% rating and a 100% rating get the same result on the fee. Veterans sometimes assume a low rating means a partial waiver. It does not. The fee is either collected or it is not.

Pre-discharge ratings also count. A service member rated eligible for compensation through a pre-discharge exam and rating is treated as receiving compensation as of the rating date. That holds even if the formal effective date of the award has not been set. If you are separating and house hunting at the same time, this rule matters.

How the Waiver Actually Gets Applied

Your status is not applied because you say so. It is applied because VA’s records say so, and your lender can see it. The tool that connects the two is the Certificate of Eligibility, or COE. The COE is the VA document that confirms you are eligible for a VA loan. It also carries a funding fee status.

Your lender pulls the COE. As a rule, the funding fee status reads as exempt, non-exempt, or a note to contact the VA Regional Loan Center. Wording can vary by how the COE is produced, so read yours rather than assuming.

The lender-side rule sits in Chapter 8 of the VA Lenders Handbook. It says that if exempt status cannot be verified before closing, the fee is remitted as though you were not exempt. The closing package should note that you claim exempt status. A pending compensation claim at closing is treated as non-exempt.

Read that again. Your lender is not being difficult when it collects the fee on an unverified file. The handbook requires it.

Step by Step: How to Get the Fee Waived

Here is the sequence, with who owns each step. Skipping step one is a common reason an exempt veteran ends up paying.

1. Confirm you are actually receiving compensation. Look at your VA award letter, sometimes called a benefit summary letter. It should show a service-connected rating and that you are being paid. If you are separating, look for a pre-discharge rating decision instead.

2. Tell your loan officer up front. Say it at the first conversation, not at the end. The fee is built into the numbers on your Loan Estimate, so the sooner it is zero, the cleaner the estimate.

3. Have the COE pulled and read the fee status. Your lender can pull it. You can also request your own COE through VA. Look at the funding fee line.

4. Fix mismatches immediately. If the COE shows non-exempt but your award letter shows compensation, contact the VA Regional Loan Center and ask for the record to be corrected. Give your lender the updated COE.

5. Review the Loan Estimate. The funding fee line should read zero. If it shows a fee, ask why and which document the lender is relying on.

6. Review the Closing Disclosure before you sign. Do the same check. The fee line should be zero, and the loan amount should reflect no financed fee.

7. Keep your documents. Hold on to your award letter, the COE, and the closing package. If something goes wrong later, you want them.

On a purchase, the appraisal is a separate track. It sets the value and checks property condition against VA’s minimum property requirements. It has no effect on your exemption. Likewise, the exemption has no effect on the appraisal.

What to Do If Your COE or Loan Estimate Still Shows the Fee

Troubleshooting is mostly a matter of finding which document disagrees with which.

A recent rating change is the case to watch. If your status changed lately, do not assume the COE caught up. Check it yourself.

If Your Rating Is Pending at Closing

This is the hardest case. You filed a claim, you expect a rating, and you want to buy now.

Here is the rule. A pending claim is not receiving compensation. The fee is collected at closing. The handbook says so. The VA rule is not a judgment about whether you will win the claim. It is a statement about your status on the closing date.

You have a few real choices.

• Close on schedule and pay the fee. You can ask to finance it. If compensation is later awarded with an effective date before closing, you may be entitled to a refund.
• Wait for the decision. If a decision is close, waiting may save the fee outright. The tradeoff is that you may lose a contract or a rate-sensitive window, so only you can weigh it.
• Ask whether a pre-discharge rating applies. If you are still on active duty and have been rated through the pre-discharge process, you may already qualify.

Do not close planning to get the fee back later as a sure thing. A refund depends on the effective date of your award, which VA sets, not you and not your lender. Lendmire’s piece Is the VA Loan Funding Fee Waived on a Purchase With a Disability Rating? goes deeper on the purchase side of this question.

Getting a Refund After Closing

A refund is possible in one situation. You paid the fee at closing, and VA later awards compensation with an effective date that falls before your closing date. VA’s funding fee refund page describes this case.

Here is a worked example, with no real dates. Say you close on a home. You were entitled to compensation on closing day, so you were exempt, and the fee should not have been collected. That is a refund case.

Now flip it. VA decides your claim after closing and sets the effective date to a month after closing. On closing day, you were not receiving compensation. The fee stands. A later decision does not reach back past its own effective date.

The refund is not automatic. Someone has to ask. Give them your award decision showing the effective date and your closing documents.

VA pays the veteran directly, even when the fee was financed. If your servicer describes it differently, point to that page.

Lenders correct and remit fees through VA’s payment system, so the paperwork is on their side. Your job is to supply the proof and keep asking until it is done.

Edge Cases Where the General Rule Bends

• Other VA loan types. The statute has no loan-type limit, so the exemption applies across the fee schedule. On a streamlined refinance (IRRRL), the fee is 0.5% unless exempt. On a cash-out refinance, the fee is 2.15% on first use and 3.3% after, unless exempt. An exempt veteran owes none of these.
• Rating changes. If compensation stops or your rating drops, your status may change. Check the COE again before any new loan.
• A loan that is not VA-backed. A conventional or FHA loan has no VA funding fee, so the exemption has nothing to remove. FHA and conventional loans carry their own costs.
• Surviving spouses. A spouse of a veteran who died in service or from a service-connected disability may be exempt. The COE process documents it.
• Repeat use. The waiver does not depend on whether this is your first or fifth VA loan. It depends on compensation status.

I am skipping occupancy rules here on purpose. VA loans generally require you to live in the home, and your loan officer will walk you through how that applies to your file.

What the Waiver Does and Does Not Do

The waiver saves you one cost. It does not make a loan work by itself.

You still go through underwriting. On the wholesale programs Lendmire places VA loans with, the decision score starts at 580, though VA itself sets no minimum score. Across these programs, residual income is the controlling test. That is the money left each month after your major obligations and living costs. The 41% debt-to-income figure is a guideline, not a cap. A higher ratio needs residual income well above the table.

Disability compensation can matter here, since lenders look at how stable and documented it is. Your loan officer will tell you how your award letter fits your file. Every program figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.

The waiver also does not remove appraisal, title, or other settlement charges. It removes one line.

Key Terms Defined

Funding fee: A one-time charge on a VA-backed loan, set as a percentage of the loan amount, that you can pay at closing or finance.

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

Service-connected disability compensation: Monthly VA payments for a condition tied to your military service.

Effective date: The date VA says your compensation begins, which can be earlier than the date VA decides your claim.

Residual income: The money left each month after your debts, taxes, and set living costs, which VA lenders use as the main underwriting test.

IRRRL: The VA streamlined refinance, which swaps an existing VA loan for a new one with a net tangible benefit to you.

Pre-discharge rating: A disability rating given to a service member before separation, which can count as receiving compensation.

Where to Go From Here

Start with your award letter and your COE, in that order. If they agree, you are in good shape. If they do not, fix it before you write an offer, not after. 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.

You can also read more on Lendmire’s VA loan programs.

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. 38 U.S.C. § 3729

2. VA Pamphlet 26-7 Ch. 8 via KnowVA

3. VA Home Loans: Funding Fee Refunds