The VA funding fee shows up as a line item on a closing disclosure, and for a lot of veterans that’s the first time they think about it. Here’s the part worth knowing up front: whether you owe it isn’t a judgment call and it isn’t something anyone has to catch. Your Certificate of Eligibility states your exemption status, a COE is required on every VA loan, and when it says exempt, the loan is simply written without the fee. Nobody is quietly charging exempt veterans.
So the useful question isn’t “will I get charged by mistake.” It’s a timing question — where your compensation status stands today versus where it lands by the time you close, and what happens if a rating comes through after. That’s where this actually costs people money, and it’s the part almost nobody explains.
What the funding fee actually is
It’s a one-time fee paid to the Department of Veterans Affairs on most VA home loans. It can be rolled into the loan rather than brought to closing. It exists to fund the guaranty program itself — the guaranty is the reason a VA loan can be made without a down payment and without monthly mortgage insurance.
Worth being clear about what it isn’t: it isn’t a lender charge, and it isn’t mine. VA sets it, VA collects it, and no broker or bank has the ability to discount it. What we can do is determine whether it applies to you at all.
The five ways to be exempt
- You receive VA disability compensation for a service-connected condition. The lowest rating VA pays compensation on is ten percent, which means any compensable rating puts you in this category. This is the one most people have heard of.
- You would be entitled to compensation, but you receive retirement pay or active service pay instead.
- You would be entitled to compensation, but you receive retirement pay or active service pay instead. A retired veteran who waived compensation in order to take retirement pay is still exempt — the entitlement is what counts, not which check you actually cash, and VA reflects that on the COE.
- You’re a service member with a proposed or memorandum rating dated before your closing. If a pre-discharge claim has produced a rating decision before the loan closes, that counts.
- You’re a Purple Heart recipient on active duty. Evidence of the award has to reach the lender or VA on or before the closing date.
- You’re a surviving spouse. Spouses of veterans who died in service or from a service-connected disability are exempt, including those receiving Dependency and Indemnity Compensation.
A retired veteran who waived compensation in order to take retirement pay is still exempt — the entitlement is what counts, not which check you actually cash.
The timing rule that costs people real money
Here is the part that decides the outcome, and it isn’t the rating. It’s the date.
If your rating comes through after your loan closes, you pay the fee and you generally don’t get it back. The exception is narrow and it matters: if the effective date of the compensation award is retroactive to a date before your closing, a refund is available. Since July 2019, VA pays that refund directly to the veteran rather than applying it against the loan balance.
So if you have a claim pending, or a rating under review, or an increase in the works — say so out loud before closing, not after. It changes what the right move is, and sometimes it changes the timeline. This is the kind of thing that is easy to handle in week one and impossible to handle in week five, which is broadly true of everything that goes wrong in a mortgage.
Where your status lives
Your Certificate of Eligibility carries your funding fee status, and when it’s current, the exemption applies on its own. You don’t have to request it.
What’s worth confirming is whether your COE still describes you. Ratings change, claims get decided, and a COE pulled a year ago describes you a year ago. If your compensation status has moved since — or is about to — that’s information your loan officer needs early, because it can change both your costs and your timeline. I pull it fresh on every VA file, along with the rest of the VA benefits stack, since the whole job is handling this while there’s still room to handle it.
If you’re a veteran buying in Central Texas
Ask your loan officer directly: which exemption category am I in, and is my COE current? A good answer names the category and references your compensation status as it stands today. A vague answer is worth pushing on — particularly if you’re retired, have a claim pending, or have never had a rating decision explained to you.
That’s true whether you work with me or not. It’s also a decent illustration of why working with an independent broker tends to surface these questions earlier — when you’re pricing a file across a lot of lenders instead of one, you’re already going line by line. And it’s one more example of the pattern I wrote about when I asked AI Austin’s most common mortgage questions: the general answer online is usually right about the rule and wrong about the exception, and the exception is where the money is.
Don’t be mad at money. Shop your rate.
Veteran or surviving spouse buying in Austin or anywhere in Texas? Send me your COE and I’ll tell you where you stand on the funding fee before you’re under contract. Ten minutes, free, and zero lender fees. Call or text (512) 423-4663.
Russell Stout | Texas Mortgage Consultants, PLLC | NMLS #220896 | Company NMLS #1843758 | Equal Housing Lender. Texas Mortgage Consultants is a private company not affiliated with or endorsed by the Department of Veterans Affairs or any government agency. Funding fee exemption status is determined by VA, not by the lender or broker; eligibility varies by individual circumstance and is subject to change. This is not a loan offer, quote, or commitment to lend. All loans subject to credit approval.
Frequently Asked Questions
Who is exempt from the VA funding fee?
Five groups. Veterans receiving VA compensation for a service-connected disability; veterans who would be entitled to that compensation but receive retirement pay or active service pay instead; service members holding a proposed or memorandum rating from a pre-discharge claim dated before closing; Purple Heart recipients on active duty who provide evidence of the award on or before the closing date; and surviving spouses of veterans who died in service or from a service-connected disability, including recipients of Dependency and Indemnity Compensation.
Do disabled veterans have to pay the VA funding fee?
Generally no. A veteran receiving VA compensation for a service-connected disability is exempt from the funding fee. The lowest rating at which VA pays compensation is ten percent, so any compensable rating qualifies. The exemption applies regardless of the rating level above that point.
Can you get a VA funding fee refund if your disability rating comes through after closing?
Only if the effective date of the compensation award is retroactive to a date before the loan closed. A rating issued with an effective date after closing does not create a refund. When a refund is due, VA has paid it directly to the veteran rather than applying it to the loan balance since July 2019. Veterans can contact their loan servicer or the VA Regional Loan Center to request one.
Are surviving spouses exempt from the VA funding fee?
Yes. Surviving spouses of veterans who died in service or who died from a service-connected disability are exempt from the funding fee, including surviving spouses receiving Dependency and Indemnity Compensation. Eligibility is confirmed through the Certificate of Eligibility.
Does the funding fee exemption apply automatically?
Yes. When VA has the exemption on file, it is reflected on the Certificate of Eligibility and the loan is written without the fee. Borrowers do not apply for it separately. What is worth confirming is that the COE is current, since a certificate issued before a rating decision will not reflect a change in compensation status.
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