VA Loan Funding Fee Exemptions

The following persons are exempt from paying the VA Loan funding fee:

  • ·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 VA as eligible to receive compensation as a result of pre-discharge disability examination and rating.
  • ·Veterans entitled to receive compensation, but who are not presently in receipt because they are on active duty.

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).

A VA Loan lender must:

  • ·Verify the status of any veteran who may be exempt from paying the funding fee;
  • ·Determine the amount of funding fee owed by any non-exempt borrower;
  • ·Collect the appropriate fee from all non-exempt borrowers at loan closing;
  • ·Electronically remit the funds to VA in a timely manner through the VA Funding Fee Payment System (FFPS);
  • ·Print proof of payment of the funding fee; and
  • ·Submit proof that the funding fee has been paid or that the veteran is exempt from paying the funding fee to VA with the closed loan package.

 

Note: The funding fee may be paid from loan proceeds or cash from borrower.

The lender must verify exempt status by obtaining one of the following:

  • ·A properly completed and signed VA Form 26-8937, Verification of VA Benefits, indicating the borrower’s exempt status,
  • ·For a veteran who elected service retirement pay instead of VA compensation, a copy of the original VA notification of disability rating and documentation of the veteran’s service retirement income, or
  • ·Indications on the Certificate of Eligibility (COE) that the borrower is entitled as an unmarried surviving spouse.

If the veteran’s exempt status cannot be verified prior to loan closing, the funding fee must be remitted as if the borrower was not exempt. 

Indicate in the closing package that the veteran claims exempt status. VA will determine the borrower’s status and refund the funding fee if appropriate. If the veteran has a pending disability compensation claim at the time of loan closing, the funding fee must be remitted as if the borrower was not exempt.

Advise the veteran to contact the VA RLC to request a refund if it is later determined that the veteran is entitled to compensation retroactively to a date prior to loan closing.

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