How to Claim VA Funding Fee Exemptions: A Step-by-Step Guide

The VA funding fee costs between 1.4% and 3.6% of your loan amount depending on your down payment, loan type, and whether it’s your first VA loan use. For a $400,000 purchase with zero down, that’s $5,600 to $14,400—a substantial upfront cost that gets rolled into your loan balance and increases your monthly payment.

However, veterans with service-connected disabilities rated at 10% or higher are completely exempt from the VA funding fee. Surviving spouses of veterans who died in service or from service-connected conditions are also exempt. These exemptions can save thousands of dollars, yet many eligible veterans miss out because they don’t know how to claim the exemption or fail to provide the correct documentation to lenders.

This guide walks you through exactly how to claim your funding fee exemption, what documents you need, and how to avoid the common mistakes that delay approvals or cost veterans money unnecessarily.

Who Qualifies for VA Funding Fee Exemption?

The VA funding fee exemption applies to two main groups:

1. Veterans with Service-Connected Disabilities

You’re exempt from the VA funding fee if you:

• Have a service-connected disability rating of 10% or higher from the VA
• Are receiving VA compensation for a service-connected disability
• Have a pending disability claim that is eventually approved (retroactive exemption applies)

The disability rating percentage doesn’t matter—10%, 30%, 70%, or 100% all qualify for full exemption. Partial exemptions don’t exist; you’re either fully exempt or you pay the full funding fee.

2. Surviving Spouses of Veterans

Unremarried surviving spouses are exempt if:

• The veteran died in service, or
• The veteran died from a service-connected disability, or
• The veteran was rated 100% disabled (total and permanent) at the time of death

If you remarry after age 57, you retain your exemption eligibility. Remarriage before 57 generally ends eligibility unless that marriage also ends.

3. Active-Duty Service Members Awaiting Discharge for Disability

If you’re still on active duty but awaiting medical discharge due to a service-connected disability, you may qualify for exemption if you can provide documentation showing your pending disability rating.

How Much Money Does the Exemption Save?

Funding fee rates for 2025 (for most veterans) are:

Savings Examples

Example 1: First-time VA purchase, $350,000 loan, 0% down

• Funding fee without exemption: $7,525 (2.15%)
• Funding fee with exemption: $0
• Savings: $7,525

Example 2: Second VA purchase, $500,000 loan, 0% down

• Funding fee without exemption: $16,500 (3.3%)
• Funding fee with exemption: $0
• Savings: $16,500

Example 3: VA cash-out refinance, $400,000 loan

• Funding fee without exemption: $8,600 (2.15%)
• Funding fee with exemption: $0
• Savings: $8,600

Over 30 years, eliminating an $8,000 funding fee saves approximately $12,000-$14,000 in total loan costs when you factor in the interest you’d pay on that financed amount.

Step-by-Step: How to Claim Your Funding Fee Exemption

Step 1: Confirm Your Disability Rating

Before applying for a VA loan, verify your current VA disability rating through:

• eBenefits portal: Log in and check your disability rating under “Disabilities”
• VA.gov account: View your rating letter in your profile
• VA benefits hotline: Call 1-800-827-1000 and request your rating status

If you know you have a service-connected disability but don’t see a rating, you may need to file a claim through the VA. The loan process can proceed while a claim is pending, but exemption approval depends on VA confirmation of your rating.

Step 2: Obtain Your Certificate of Eligibility (COE)

Your COE tells lenders whether you qualify for VA loan benefits. The COE will also indicate if you’re exempt from the funding fee due to disability. You can request a COE through:

1. eBenefits (instant for most veterans)
2. VA Form 26-1880 (mailed application)
3. Through your lender (they can pull it electronically)

If your disability rating is already in the VA system, your COE should show “exempt from funding fee” automatically. If it doesn’t, proceed to Step 3.

Step 3: Provide Disability Documentation to Your Lender

Even if your COE shows the exemption, lenders often require additional documentation to verify your exempt status. Provide:

• VA Benefits Summary Letter: Shows your current disability rating and compensation amount. Download from eBenefits or VA.gov.
• VA Rating Decision Letter: Official letter from the VA detailing your service-connected disabilities and overall rating percentage.
• Copy of Your COE: Showing the funding fee exemption notation.

Submit these documents early in your loan application process—ideally at the same time you submit income and asset documentation. This prevents last-minute scrambling before closing.

Step 4: Verify the Exemption on Your Loan Estimate

When you receive your Loan Estimate (LE) from the lender within three business days of applying, check Section A (Origination Charges) and Section E (Taxes and Other Government Fees). The VA funding fee should show as $0 or include a note that you’re exempt.

If the Loan Estimate includes a funding fee charge, immediately contact your loan officer and provide documentation proving your exemption. Mistakes happen, and catching them early prevents delays.

Step 5: Confirm $0 Funding Fee on Your Closing Disclosure

Three days before closing, you’ll receive your Closing Disclosure (CD). This is the final, legally binding breakdown of your loan costs. Again, verify that the VA funding fee is $0 in Section B (Services You Cannot Shop For) or Section H (Other Costs).

If a funding fee appears on your CD and you’re exempt, do not proceed to closing until it’s corrected. Once you sign closing documents, fixing the error becomes much more complicated.

Common Mistakes That Cost Veterans Their Exemption

Mistake 1: Not Updating COE After Disability Rating Approval

If you applied for VA disability compensation after obtaining your initial COE, the old COE won’t reflect your exemption. Request a new COE after your rating is approved to ensure lenders see your exempt status.

Mistake 2: Using a Lender Unfamiliar with VA Disability Exemptions

Some lenders (especially those who don’t specialize in VA loans) don’t know how to verify exemptions properly. They may request excessive documentation, delay processing, or even incorrectly charge the funding fee. Work with VA loan specialists who process disability exemptions regularly.

Mistake 3: Assuming 0% Rating Qualifies for Exemption

A 0% disability rating means the VA acknowledges a service-connected condition but has determined it’s not currently severe enough to warrant compensation. 0% ratings do NOT qualify for funding fee exemption—you must be rated 10% or higher.

Mistake 4: Forgetting to Claim Retroactive Exemption

If you paid a funding fee on a previous VA loan but later received a disability rating (especially if the rating was backdated), you may be entitled to a refund of the funding fee. File VA Form 26-8937 (Verification of VA Benefits) to request a refund. The VA can refund fees paid on loans closed within the past two years if your disability rating was backdated to cover that period.

Mistake 5: Not Providing Disability Documents Early Enough

Lenders need time to verify exemptions with the VA. If you wait until a week before closing to mention your disability rating, the lender may not have time to process the exemption, and you could be forced to pay the fee to close on time. Always disclose your exemption status upfront.

What If You Have a Pending Disability Claim?

If you’ve filed for VA disability compensation but don’t have an approved rating yet, you have two options:

Option 1: Wait for Approval

Delay your home purchase until the VA approves your claim and issues a rating. This ensures you receive the exemption from the start and don’t have to deal with refund paperwork later.

Option 2: Proceed and Request Retroactive Exemption

Close on your VA loan and pay the funding fee, then request a refund once your disability rating is approved—especially if the VA backdates your rating to before your loan closing date. Use VA Form 26-8937 to claim the refund.

This approach works if you need to buy immediately (expiring purchase contract, PCS orders, etc.) but expect a disability approval soon.

Funding Fee Exemption for Surviving Spouses

Surviving spouses exempt from the funding fee must provide:

• VA Form 26-1817 (Request for Determination of Loan Guaranty Eligibility—Unmarried Surviving Spouses)
• Death certificate of the veteran
• VA documentation showing the veteran died in service or from a service-connected condition, or was rated 100% disabled at death
• Proof of current marital status (if remarried after age 57, provide marriage certificate and birth certificate proving age at remarriage)

Surviving spouses should work with lenders experienced in survivor benefits, as documentation requirements are more complex than standard veteran loans.

What If Your Lender Makes a Mistake?

If your lender incorrectly charges you a funding fee despite your exempt status, you have options:

Before Closing

Refuse to sign the Closing Disclosure until the error is corrected. Lenders can issue a corrected CD and delay closing by a few days. It’s worth the delay to save thousands.

After Closing

If you’ve already closed and paid a funding fee you shouldn’t have, contact your lender immediately. They may issue a refund voluntarily. If not, file a complaint with the VA Loan Guaranty Service and submit VA Form 26-8937 requesting a refund. The VA can investigate and order the lender to refund the fee if the error is confirmed.

You can also file a complaint with the Consumer Financial Protection Bureau (CFPB) if the lender refuses to cooperate.

Does the Exemption Apply to VA IRRRL and Cash-Out Refinances?

Yes, the funding fee exemption applies to all VA loan types, including:

• VA purchase loans
• VA construction loans
• VA IRRRL (Interest Rate Reduction Refinance Loan)
• VA cash-out refinancing

If you’re refinancing an existing VA loan or doing a cash-out refinance and you have a 10%+ disability rating, you’re exempt from the 0.5% IRRRL fee or the 2.15%-3.3% cash-out fee. This makes VA refinancing even more attractive for disabled veterans.

For example, a veteran doing a $300,000 VA cash-out refinance would pay $6,450 in funding fees without exemption. With exemption, that cost disappears entirely, making cash-out refinancing a powerful tool for accessing home equity without excessive fees. Learn more about cash-out refinancing for veterans.

State-Specific Veteran Benefits and Funding Fees

Some states offer additional property tax exemptions or grants to disabled veterans. While these don’t affect the VA funding fee, combining federal and state benefits can significantly reduce the total cost of homeownership.

Check your state’s veterans affairs office for:

• Property tax exemptions for disabled veterans
• State-level first-time homebuyer grants
• Adapted housing grants (for veterans with certain permanent disabilities)

How to Maximize Your Exemption

1. Apply for Disability Rating Before House Hunting
If you suspect you have service-connected conditions but haven’t filed a claim, do so before applying for a VA loan. Disability claims can take 6-12 months, so starting early ensures you’re exempt when you’re ready to buy.

2. Work with VA Loan Specialists
Lenders who focus on VA loans process disability exemptions daily and know exactly what documentation is required. Generalist lenders may not understand exemption rules, leading to delays or errors. Compare VA-focused lenders at BrowseLenders.com.

3. Keep Disability Documents Accessible
Save your VA Benefits Summary Letter, Rating Decision Letter, and COE in a secure, easy-to-access location (cloud storage, password manager, etc.). You’ll need these documents every time you use your VA benefit—whether for purchase, refinance, or cash-out.

4. Understand Your Credit Options
Even with a funding fee exemption, lenders still evaluate your credit score. If you have a middle credit score, work with VA specialists who approve lower scores and understand how to use compensating factors like strong residual income and disability compensation to support approval.

5. Consider Refinancing to Remove the Fee
If you closed on a VA loan before receiving your disability rating and paid a funding fee, you can refinance through VA IRRRL once your exemption is approved. The new loan won’t have a funding fee (since you’re now exempt), and you may also secure a lower rate. The savings from removing the financed funding fee can make refinancing worthwhile even if rates haven’t dropped significantly.

Final Thoughts on Funding Fee Exemptions

The VA funding fee exemption is one of the most valuable benefits available to disabled veterans and surviving spouses. Saving $5,000-$16,000+ on a single transaction can make homeownership significantly more affordable and reduces your monthly payment by eliminating interest on the financed fee.

However, the exemption isn’t automatic—you must provide proper documentation and work with lenders who understand VA disability benefits. Start the process early, verify your exemption status on all loan documents, and don’t hesitate to push back if a lender incorrectly charges you a fee.

If you’re a disabled veteran or surviving spouse preparing to buy or refinance, confirm your exemption eligibility, gather your VA documentation, and connect with VA loan specialists who will ensure you receive every benefit you’ve earned.