The VA funding fee is one of the trade-offs built into the VA loan program. No down payment, no PMI, competitive rates — but a one-time fee that goes back into the program and funds future loans. For most borrowers, that fee runs between 1.25% and 3.3% of the loan amount depending on first use versus subsequent use and whether you're putting anything down.
But a meaningful number of VA loan borrowers don't pay it at all. If you qualify for an exemption, you save real money at closing — and in some cases on a larger loan, that's a significant sum you simply don't have to come up with. Here's who qualifies, how the documentation works, and what happens if your rating status changes after you close.
For a full breakdown of how the fee is calculated and what it costs by loan scenario, see our complete VA funding fee guide.
Who Is Exempt from the VA Funding Fee
Veterans Receiving VA Disability Compensation
If you receive VA disability compensation for any service-connected disability, you are exempt from the funding fee. The rating doesn't need to reach a specific threshold — any service-connected disability at any percentage that results in compensation qualifies. This is the most common exemption category and applies to a large portion of veteran VA loan borrowers.
Veterans Eligible to Receive Compensation but Not Currently Receiving It
Some veterans have a service-connected disability rating but receive military retirement pay instead of VA compensation — typically because retirement pay is higher and they've chosen not to waive it in favor of disability compensation. If you are eligible to receive VA compensation but are not receiving it due to a waiver or offset arrangement, you may still qualify for the funding fee exemption. This situation has nuances, and you'll want to confirm your specific eligibility with the VA or an experienced VA lender rather than assume one way or the other.
Surviving Spouses Receiving Dependency and Indemnity Compensation
Surviving spouses of veterans who died in service or from a service-connected disability are exempt from the funding fee if they are using their surviving spouse VA loan benefit and receive Dependency and Indemnity Compensation (DIC) payments. The exemption applies specifically to those receiving DIC — not to all surviving spouses using a VA loan benefit.
Active Duty Purple Heart Recipients
Active duty service members who have received the Purple Heart are exempt from the funding fee, provided the award is documented and confirmed before the loan closes. If you're currently serving and have received a Purple Heart, flag this with your lender immediately at the start of the loan process so the documentation is in order before closing day.
Veterans with a Memorandum or Proposed Rating
If you've filed a VA disability claim that's still being processed, a proposed or memorandum rating at any percentage may allow you to qualify for the exemption before the final rating is confirmed. This situation requires coordination between your lender and the VA and isn't automatic — but it's worth raising if your claim is pending at the time you're purchasing.
How the Documentation Works
Your lender verifies exemption status primarily through your Certificate of Eligibility (COE). If you're receiving VA disability compensation, that status typically shows up in the COE when your lender pulls it through the VA's automated systems. In most cases, you don't have to do anything extra — the system flags it.
Where things break down: if your rating was recently assigned, if records haven't updated, or if there's any ambiguity in your status, the COE might not reflect the exemption correctly. When that happens, you'll need to provide documentation directly. The VA typically accepts:
- A VA award letter or rating decision letter showing your service-connected disability and compensation amount
- Documentation of Purple Heart award for active duty borrowers
- DIC award letters for qualifying surviving spouses
- Documentation related to a pending or proposed rating, coordinated through the lender
The most important thing here: raise your exemption status with your lender at the very beginning of the loan process — not the week before closing. Resolving exemption documentation issues at the last minute is stressful and sometimes delays settlement.
What Happens If Your Rating Is Finalized After Closing
This is one of the most common funding fee questions, and the answer matters for a lot of veterans who close on a VA loan while a disability claim is still pending.
If you paid the VA funding fee at closing, your disability rating is later finalized, and that rating has an effective date that predates your loan closing — you are likely eligible for a refund of the funding fee. This is a retroactive funding fee refund based on a backdated effective date.
To pursue it:
- Receive your VA rating determination with an effective date before your closing date
- Contact the VA or your lender to initiate the refund request
- Provide documentation of the rating, the effective date, and your loan closing date
The VA processes these refunds, and timelines vary — some veterans wait months, others longer. But if the effective date predates your closing, your entitlement to the refund is clear. File the request as soon as you have documentation in hand.
Common Mistakes Around the Exemption
Not flagging it early
Some veterans assume their lender will automatically catch their exempt status. Sometimes they do. Sometimes they don't — especially if the rating is recent or the COE hasn't updated. Tell your lender upfront that you receive disability compensation and ask them to confirm your exemption before the loan estimate is finalized. Don't wait for them to bring it up.
Rolling the fee into the loan without verifying first
Most VA borrowers roll the funding fee into the loan amount rather than paying it at closing. That's a legitimate option when the fee applies — but if you're exempt and your lender adds the fee anyway, you've borrowed money you didn't need to borrow. Always verify exemption status before the loan estimate is locked.
Confusing a pending claim with a confirmed exemption
If your claim is still in process, you don't have a confirmed exemption yet. You may be eligible after the fact if the rating is backdated, but plan for the fee at closing unless your rating is final. Build in a financial buffer for this rather than counting on the exemption before it's confirmed.
Understanding how the VA loan works before you get into the process makes exemption issues much easier to catch early. Our VA loan guide for military home buyers covers the full process from certificate of eligibility through closing.
FAQ: VA Funding Fee Exemptions
Do I have to pay the VA funding fee if I have a 0% disability rating?
A 0% rating is still a service-connected disability determination, but whether it triggers a funding fee exemption depends on whether you actually receive compensation — at 0%, most veterans do not receive monthly disability payments. The exemption is tied to receiving compensation, not just having a rating. Confirm your specific situation with a VA-experienced lender before closing.
Does the exemption apply on subsequent VA loan use?
Yes. The funding fee exemption applies regardless of whether it's your first VA loan or a later one. If you qualify, it applies every time you use your VA loan benefit.
Does a surviving spouse always qualify for the exemption?
Only if they receive DIC. A surviving spouse who uses a VA loan benefit but does not receive Dependency and Indemnity Compensation may still owe the funding fee depending on the basis for their eligibility. Verify your specific situation with a VA-experienced lender.
Where can I confirm my exemption status before applying?
Check your Certificate of Eligibility through the VA's eBenefits portal, or ask a lender to pull it for you. Your exemption status should appear there. If you receive VA disability compensation and the COE doesn't show you as exempt, contact the VA to get your records corrected before you're under contract.
What if a lender charges me the funding fee when I'm exempt?
That's an error on the lender's part, and you're entitled to a refund. Document everything and escalate through the VA if needed. It shouldn't happen if you've flagged your exemption status early, but it's not unheard of — and it's correctable.
Can I get a refund if my rating was backdated before my closing date?
Yes. If your VA disability rating is finalized with an effective date that predates your loan closing, you can request a retroactive refund of the funding fee you paid. Contact the VA with your rating determination and closing documentation to initiate the process. Timelines vary but the entitlement is clear when the effective date qualifies.
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