Is the VA Loan Funding Fee Waived on a Purchase With a Disability Rating?

The Quick Read: Yes, when VA is actually paying you compensation for a service-connected disability. The test is whether you receive compensation, not what your rating percentage says. A pending claim generally does not count at closing, and a 0% rating that carries no payment generally does not either. The waiver is not automatic on every file, so you confirm it on your Certificate of Eligibility before you reach the closing table.

What Is the Funding Fee, and Why Do Some Veterans Skip It?

The funding fee is a one-time charge VA collects on most VA-backed loans. It replaces the monthly mortgage insurance that other low-down-payment loans carry. Veterans who receive disability compensation are exempt. It is the first exemption VA lists.

VA explains that the fee helps lower the cost to taxpayers because the program does not require down payments or monthly mortgage insurance. The exemption exists because the government treats compensation recipients differently. They earned that relief through a service-connected disability.

The fee is calculated on the loan amount, not the purchase price. Say you buy with a down payment. The fee then applies only to what you borrow, not to the full price of the house.

Across the wholesale VA programs Lendmire places files with, the fee is also reviewable. You can roll it into the loan instead of paying it in cash. An exempt borrower has nothing to pay or finance. That means a smaller loan balance than a non-exempt buyer carries on the same house.

Does Your Disability Percentage Matter?

No. The legal test is whether you receive VA compensation, not whether your rating hits a certain number.

You will see “10% or higher” repeated all over the internet. It is shorthand, and it is mostly right in practice. A 0% (noncompensable) rating generally carries no monthly payment. No payment means no compensation, and no compensation means no exemption.

Neither VA’s funding fee page nor the statute sets a minimum percentage. The statute, 38 U.S.C. § 3729, says a fee may not be collected from a veteran who is receiving compensation. (Later amendments added other exemptions, so check VA’s current page for the full list.)

The takeaway is simple. Do not say “I have a 30% rating, so I’m exempt,” and do not say “I have a 0% rating, so I’m out of luck” without checking. I receive VA compensation. That sentence is the one that matters on a loan file.

Who Else Is Exempt?

Several groups are exempt, and the compensation recipient is the one most buyers ask about. The regulation, 38 CFR § 36.4313, sets out who does not pay.

Retirement pay deserves a closer look. Some veterans take military retirement pay instead of drawing disability compensation in full. The statute and regulation still cover a veteran who would be entitled to compensation but for receiving retirement pay. If that is you, ask your loan officer to confirm how the COE shows your status.

VA also lists other exempt groups, such as certain Purple Heart recipients and some veterans rated before discharge. The list on VA’s page is the authority here. Check VA’s funding fee page for the full current list before you rely on any category not in the table above.

Is the exemption limited to first-time buyers? No. The statute makes no distinction by how many times you have used the benefit. And it is not limited to purchases either. VA’s page covers buying, building, improving, repairing, and refinancing.

What the Fee Looks Like When You Are Not Exempt

The numbers below describe what an exempt borrower avoids. They come from the programs Lendmire places files with, and they are subject to lender guidelines and full file review.

For subsequent use, the 1.5% and 1.25% tiers apply at the same down payment levels. An IRRRL carries 0.5%, and a cash-out refinance carries 2.15% for first use and 3.3% after.

Look at the last row. A repeat user with no down payment pays 3.3% of the loan. On a purchase with 100% financing, that is a large charge on the whole balance. An exempt veteran in the same spot pays nothing.

That gap is why the exemption matters so much on a purchase. The funding fee is often the largest single VA closing cost. If you finance it, it also raises your loan balance and your monthly obligation. The exemption removes both effects.

How to Make Sure the Fee Is Actually Removed

The waiver does not always happen on its own. Some lenders charge the fee because nobody checked the COE. Here is the order to work in.

1. Get your Certificate of Eligibility. The COE is where exempt status is expected to appear. You or your lender can request it through VA’s eligibility process. VA, not the lender, decides eligibility.

2. Gather your award letter. The VA disability award or benefit letter is the usual proof of compensation. Keep a current copy handy.

3. Hand both to your loan officer early. Do it before you lock in the loan terms, not the week of closing.

4. Read your Loan Estimate. Find the line for the VA funding fee. It should be zero. If a fee shows up, ask why right away.

5. Read your Closing Disclosure. Check it again. This is your last clean chance to catch a mistake before you sign.

6. Fix the COE if it is wrong. If the certificate does not show your exemption, contact VA to correct it. Do not close and hope to sort it out later.

Practitioner note: the cases that go wrong are rarely about eligibility. They are about paperwork that never reached the right desk. A veteran who is exempt and has the award letter in hand still pays the fee if the COE says otherwise and nobody looks.

What About a Pending Claim or a Retroactive Rating?

Timing is where most of the confusion lives. Three situations come up.

Rated and paid before closing. This is the clean case. You receive compensation, the COE shows it, and the fee is zero.

Claim pending at closing. Generally, a pending claim does not make you exempt. If VA is not paying you compensation when you close, the fee is typically collected. Some veterans in this spot weigh whether to wait for the decision before buying. That depends on your timeline, and VA is the place to confirm how your claim status will be treated.

Rating granted after closing. If VA later grants a retroactive rating, you may be able to recover a fee you already paid, especially if the effective date falls before your closing. Ask VA about a possible refund. Do not assume one. Keep your closing paperwork and your decision letter together so you can show the dates side by side.

The most useful habit is to ask VA, not the internet, how your effective date interacts with your closing date. Neither a lender nor a blog can answer that for you.

What the Exemption Does Not Do

The waiver removes one charge. It does not change anything else on the file.

• Other closing costs remain. Appraisal, title, origination charges, and other costs still apply. The exemption removes only the VA funding fee.
• The appraisal still happens. A VA appraisal still sets the value and checks the property against VA’s minimum property requirements.
• Underwriting still applies. On the wholesale programs Lendmire works with, residual income is the controlling test. That is the money left over each month after your major obligations and living costs. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
• Credit still matters. VA sets no minimum credit score, but the wholesale programs Lendmire places VA loans with start at a 580 decision score.

A disability rating also does not hurt your eligibility. Compensation is typically counted as income, though how a given lender documents it varies. Ask your loan officer how your award letter will be used.

Common Myths

“I need 10% or higher.” The legal test is receiving compensation, not a stated percentage.

“A pending claim qualifies me.” Generally not. A rating in pay status is needed before closing.

“The exemption is automatic.” Not always. Verify the COE.

“Exempt means no closing costs.” No. Only the funding fee goes away.

“Only first-time buyers qualify.” No. The statute draws no line by number of uses.

“Lender choice changes whether I am exempt.” The exemption comes from federal law, not from the lender. Lenders do differ in how carefully they check the paperwork, which is why you verify it yourself.

What a Purchase Looks Like With the Exemption

Here is a plain-language picture, with no dollar figures. Picture a veteran who receives VA compensation and buys a home with no down payment. The program allows 100% financing with no mortgage insurance, as long as the price is not above the appraised value. There is no VA loan limit with full entitlement. With remaining entitlement, a down payment may be required, so speak with a loan officer about your situation.

Without the exemption, that buyer would face the highest fee tier on a first use, or higher on a repeat use. With it, the loan balance is just the price.

Run it again with a repeat user. This veteran used the benefit once before and now buys with nothing down. The fee tier would be 3.3% of the loan if not exempt. Being exempt wipes out the largest line item on the file.

Programs and amounts are subject to lender guidelines and full file review. This is not a commitment to lend. Lendmire is a mortgage broker, so it arranges these loans through wholesale lenders and does not lend directly.

Other Benefits Tied to a Disability Rating

The fee waiver is one benefit among several, and this article stays on the funding fee. Compensation can count toward qualifying income, and some veterans qualify for housing grants or property tax relief through VA or their state. Those programs have their own rules and applications.

One piece covers how the cash-out fee exemption works with a pending rating.

Where to Go From Here

Start with your COE and your award letter, because those two documents decide whether the fee disappears. 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. VA loan programs are available through Lendmire’s VA loan programs page, subject to lender guidelines.

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.gov – VA funding fee and loan closing costs

2. 38 CFR § 36.4313

3. VA.gov – Home loan eligibility