Who is Exempt from VA Loan Funding Fees?
VA borrowers are required to pay a VA loan funding fee, either up front or as an inclusion in the loan amount. This fee varies depending on the type of loan, the status of the applicant (active duty, Guard or Reserve, etc.) and whether the borrower is making a down payment. Those who choose zero down payment home loans guaranteed by the VA will pay a higher VA funding fee than those who put money down.
But not all veterans are required to pay the VA funding fee. Some are exempt — and those who are exempt will see major savings on their VA home loans. The VA funding fee exemption is an important benefit for those who qualify…but who does?
The VA’s official site lists these qualifications for “exempt” status:
- Veterans receiving VA compensation for service-connected disabilities.
- Veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay.
- Veterans who are rated by the VA as eligible to receive compensation as a result of pre-discharge disability examination and rating.
- Surviving spouses of veterans who died in service or from service-connected disabilities (whether or not such surviving spouses are veterans with their own entitlement and whether or not they are using their own entitlement on the loan).”
This list covers a lot of ground, but exempt status is not automatic. When a VA home loan applicant wants to get a VA mortgage with no VA funding fee based on any of the criteria listed above, the lender must do several things before the VA funding fee can be waived. The loan officer has to verify the borrower’s exempt status AND show proof that the veteran is exempt. The proof requirement is usually satisfied by a signed VA Form 26-8937, Verification of VA Benefits.
Veterans who receive retirement pay instead of VA compensation need to furnish the lender a copy of the original VA notification of disability rating and documentation of the veteran’s service retirement income.
In some cases, the VA loan applicant’s exempt status may not be verifiable before the loan closes, but the borrower should not worry — while the VA funding fee must still be paid, a refund may be issued once exempt status is documented. In other cases, it is up to the veteran to request a refund — this is often true in cases where a VA loan applicant is waiting for review of a disability claim.