Roughly a third of VA borrowers should pay no funding fee at all. If you receive VA disability compensation — or are eligible to — the fee is waived. Here is who qualifies, how lenders verify it, and what to do if you were charged by mistake.
Who is exempt
The exemption applies to veterans receiving VA compensation for a service-connected disability, veterans who would receive compensation but are receiving retirement or active-duty pay instead, and veterans rated as eligible for compensation based on a pre-discharge claim or memorandum rating.
Surviving spouses receiving Dependency and Indemnity Compensation (DIC) are also exempt, as are active-duty service members who have been awarded the Purple Heart. The exemption follows the borrower's status, not the loan type — it applies to purchase, refinance, and construction loans alike.
How much the exemption is worth
On a first-use VA purchase with no money down, the funding fee is 2.15% of the loan amount. On a $350,000 loan, that is $7,525 — either paid in cash or rolled into the loan and paid with interest over 30 years. Subsequent use runs 3.3%, which is $11,550 on the same loan.
An exempt borrower pays zero. Over the life of a loan, the savings from not financing the fee can exceed $15,000 once interest is counted.
How the exemption is verified
The lender verifies exemption status through the Certificate of Eligibility, which shows a funding fee exemption field, or through a VA verification of disability benefits. If your COE shows exempt, the lender must not collect the fee.
If your disability claim is pending at closing, you will usually be charged the fee and refunded later if the claim is awarded with an effective date on or before the closing date. Keep your award letter — it is the key to the refund.
Pending claims and refunds
If you paid the funding fee and later received a disability award retroactive to before your closing date, you are entitled to a refund. The refund is issued by the VA, not the lender, and is typically requested through your lender or servicer with a copy of the award letter.
Do not let this slide. Refunds are not automatic, and the money is significant. If the fee was financed into the loan, the refund is applied to the loan balance.
Common mistakes
The most common error is a lender collecting the fee because the COE did not show the exemption yet, even though the borrower had a pending claim. The second is a borrower with a 10% rating assuming the exemption only applies at higher ratings — any compensable service-connected rating qualifies.
Check your COE before you sign a Loan Estimate. If the exemption field is wrong or missing, ask the lender to re-pull it or contact the VA before closing, because fixing it afterward means a refund process instead of a simple waiver.
The bottom line
If you receive VA disability compensation, DIC, or hold a Purple Heart on active duty, you should never pay the funding fee. Verify your status on the COE before closing, and if you were charged while a claim was pending, pursue the refund — it is your money.
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Jonathan Mullins
Mortgage Loan Officer · Army Veteran
Jonathan Mullins is an Army Veteran and Mortgage Loan Officer at Military Mortgage, specializing in VA home loans for Veterans, active-duty service members, and military families. He writes this learning center to make VA loan rules, entitlement, and the home-buying process easier to understand.
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