VA requirements

The VA Loan Funding Fee: A Reader Question

July 24, 2013

The VA Loan Funding Fee: A Reader Question


A reader asks, “My husband and I are in the process of purchasing a home. All is going well, except the VA has refused to allow us to get the VA Funding Fee, which amounts to a little over $5,000.00. In the Certificate of Eligibility the Funding Fee was named Non Exempt.”

“My husband was discharged (honorable) from the Navy in 1946. There are no service related illness, but since 2007 he has been ill. The VA (Boise) has diagnosed him as catastrophically disabled. He is legally blind and has vascular dementia. He is getting a monthly allowance from the VA and because of this we were told that they will not give us the Funding Fee.”

The VA Loan Funding Fee is an expense all VA loan applicants must pay unless the applicant is exempt due to receiving or being eligible to receive VA benefits for service-connected medical conditions as recognized by the Department of Veterans Affairs. The VA loan funding fee is paid BY the borrower, not TO the borrower.

Borrowers who receive VA compensation for service-related medical conditions, or who are eligible to receive said compensation, may be entitled to an exemption from having to pay this VA loan funding fee.

But these exemptions are NOT automatic–they must be applied for. In some cases a borrower may be required to pay the VA loan funding fee and apply for a refund later. This usually happens when the borrower’s official status as receiving or being eligible to receive VA compensation has not been formally recognized yet or is not on the record at the time of the loan.

This refund, like the VA loan funding fee exemption itself, is not automatic and must be applied for.

This reader question raises concern because it seems the reader is confused about the nature of the VA loan funding fee itself, but also because the details include a veteran who has been listed as “non-exempt” yet seems to be getting some form of VA compensation.

In confusing situations like these, the best course of action is to get the Department of Veterans Affairs directly involved in trying to sort out the matter. Contact the VA 1-800 827-1000 for assistance and to learn how to apply for a VA loan funding fee exemption or refund.

Do you have questions about VA home loans? Ask us in the comments section.

  1. Michael Guidice

    I had a short sale, compromise claim, two years ago. I am getting ready to buy a home using the remaining Loan Guaranty Entitlement and my COE indicates EC5. I am still compensated at 30%, am I exempt again from the funding fee?

    • Joe Wallace

      Borrowers who receive or are eligible to receive VA compensation for service-connected medical conditions are exempt from paying the VA loan funding fee. The exemption must be applied for and is not automatic. If your COE indicates that you are currently exempt, your lender should make note of that exemption--otherwise you will need to apply to the VA for the exemption.

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