For veterans or active-duty service members buying a home, VA home loans offer the opportunity to become a homeowner with little to no down payment. However, you may have to pay an extra charge called a VA funding fee either as part of your closing costs or by rolling it into the loan amount. The fee adds at least $1,250 per $100,000 of your mortgage, depending on the size of your down payment, loan type, and how many times you’ve used your VA loan benefit.
Qualifying service members and veterans with disabilities or surviving spouses can skip this fee and save thousands on their home purchases. Here’s what you need to know about qualifying for the VA funding fee exemption and rules to ensure your fee is waived.
Read more: What is a VA loan, and what are the requirements to qualify?
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The U.S. Department of Veterans Affairs (VA) funding fee is an extra fee (usually part of your closing costs) borrowers pay when purchasing, repairing, building, or refinancing a home with a VA-backed or VA direct home loan. This fee helps provide ongoing funding for the VA loan program and defray costs to the U.S. taxpayers who make this veteran benefit possible.
However, some veterans, servicemembers, and surviving spouses are exempt from the funding fee. To qualify, you must fall into one of the following categories.
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A veteran receiving VA compensation for a service-connected disability
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A veteran who is eligible for VA compensation for a service-connected disability but has instead opted to receive retirement or active-duty pay
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A surviving spouse receiving Dependency and Indemnity Compensation (DIC)
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An active-duty service member who provides evidence of receiving the Purple Heart before the mortgage closing date
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A service member with a proposed or memorandum rating before the closing date showing eligibility for service-connected disability compensation due to a pre-discharge claim
Learn more: How the VA funding fee works
For most eligible borrowers, your VA funding fee exemption status will be automatically reflected on your VA Certificate of Eligibility (COE) for home loans, according to former VA press secretary Terrence Hayes. The certificate process may vary, but most can request the certificate online. Veterans should contact the VA about any eligibility questions or snags in the process at 877-827-3702 Monday through Friday, 8 a.m. to 6 p.m. ET.
According to Hayes, Purple Heart active-duty members must provide evidence of their Purple Heart with the COE request or to their mortgage lender.
Dig deeper: What is a VA Certificate of Eligibility, and how do you get one?
VA funding fee rates vary depending on your down payment and whether or not this is your first VA home loan. If you have less than 5% down, the fee is 2.15% of the loan value on your first VA mortgage and 3.3% if you’ve previously used your VA mortgage benefit.
Whether or not this is your first VA loan, the funding fee amount is 1.5% with a minimum down payment of 5% and 1.25% of the loan value with a down payment of 10% or more.
Read more: Best VA loan lenders
VA funding fee refunds are sometimes possible if you are approved for VA compensation for a military service-connected disability after your loan closing date. The key is your service-connected disability must apply retroactively to a date before your closing day.
For instance, let’s say you closed on a home loan on May 1, and VA compensation for your service-connected disability is approved retroactively to Apr. 30. In this case, you may be eligible for a refund.
Suppose you’re a military service member closing on your house who filed a pre-discharge claim for VA service-connected disability compensation before leaving service. In that case, you should ask your VA lender to submit VA Form 26-8937, Verification of VA Benefits, to request the proposed or memorandum rating. Without this proposed or memorandum rating, you cannot receive a VA funding fee refund. While designed for lenders, the VA has a pretty helpful guide published in 2023 for what’s required to get a VA funding fee refund.
To get rid of the VA funding fee when you close on a VA purchase loan or refinance, you’ll need to meet specific criteria set out by the Department of Veterans Affairs. For instance, those who received a Purple Heart or receive service-connected disability or Dependency and Indemnity Compensation (DIC) are among those eligible. To review the most up-to-date list of qualifying criteria for a VA funding fee waiver, visit the VA website for funding fees.
In some instances, it is possible to get your VA funding fee back through a refund process. To qualify, you must be eligible for a service-connected disability with a date retroactive to before your VA loan closed.
Whether you qualify for a VA funding fee exemption doesn’t rely on the mortgage lender — it depends on whether you meet the requirements set by the Department of Veterans Affairs. You just need to make sure you’re using a lender that offers VA loans.
This article was edited by Laura Grace Tarpley.
