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Verifying VA Loan Funding Fee Exemptions

December 22, 2011

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Verifying VA Loan Funding Fee Exemptions

When a borrower is exempt from paying the VA loan funding fee, or anticipates becoming exempt because of pending compensation for VA recognized disabilities, there’s a specific procedure used by the lender to verify that exemption.

In September of 2011, those procedures were changed and simplified for many veterans by the VA’s decision to include VA funding fee exempt status information on the Certificate of Eligibility (COE). According to VA Circular 26-11-11, “By having the FF status shown on the COE, lenders in most cases will no longer be required to fax the Department of Veterans Affairs (VA) Form 26-8937, Verification of VA Benefits, to a VA office for processing.”

The VA circular adds that there will be situations where faxing VA Form 26-8937 may still be required, but most funding fee exemptions will ” be processed internally and displayed on the COE.”

The lender verifies the borrower’s current exempt status by reviewing a new field on the COE called “Funding Fee”. That field displays one of three entries; “Exempt”, “Non Exempt”, or “Contact RLC”.

In addition to checking this field, the lender must read any attached conditions to the Funding Fee exempt status. According to VA Circular 26-11-11:

“For COEs with ‘EXEMPT’ status, the following ‘CONDITIONS’ may appear:

(1)  “Funding Fee – Veteran is exempt from Funding Fee due to receipt of service-connected disability compensation of $___ monthly.”

(2)  “Funding Fee – Veteran is exempt from Funding Fee due to receipt of service-connected disability compensation.  Monthly compensation rate has not been determined to date.”

(3)  “Funding Fee – Please fax a copy of VA Form 26-8937 to the VA Regional Loan Center of jurisdiction.”

(4)  “Funding Fee – Please have the lender contact VA Regional Loan Center for loan processing.  Please fax a copy of VA Form 26-8937 to the RLC of jurisdiction.”

There are separate conditions for borrowers with Non Exempt status–we will cover those conditions in a separate blog post.

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