VA Funding Fee and Exemptions Explained

Updated October 20, 2026 · Hyde Funding

The VA funding fee helps support the VA home loan program, but many veterans qualify for full exemptions. Lenders must verify exemption status before closing using the Certificate of Eligibility and other records.

What Is the VA Funding Fee

The VA funding fee is a one-time charge collected on most VA-guaranteed loans. It supports the program that allows veterans to obtain home loans with no down payment requirement in many cases. Lenders handle collection and remittance of this fee.

According to the VA Lenders Handbook, the lender must verify exemption status, calculate any fee owed by non-exempt borrowers, collect the fee at closing, and submit proof of payment or exemption with the closed loan package. The fee may be paid from loan proceeds or with cash from the borrower. Topic 8. The VA Funding Fee

The lender’s responsibilities include electronically remitting funds through the VA Funding Fee Payment System, printing proof of payment, and ensuring the closed loan package contains documentation of either payment or exemption status. This process applies to purchase loans, construction loans, and most refinancing transactions. The funding fee cannot be included in the loan amount for regular purchase loans beyond the fee itself, though refinancing loans follow different inclusion rules.

Who Qualifies for a VA Funding Fee Exemption

Certain veterans are exempt from paying the funding fee. The VA Lenders Handbook lists the following categories of exempt persons:

• 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 rated by VA as eligible to receive compensation as a result of a pre-discharge disability examination and rating or on the basis of a pre-discharge review of existing medical evidence that results in issuance of a memorandum rating.
• Veterans entitled to receive compensation retroactively to a date prior to loan closing.

Lenders must confirm exemption status before closing. The Certificate of Eligibility often shows exempt status, which helps streamline verification. Topic 8. The VA Funding Fee

Exemption status may also appear under additional conditions listed on the COE. When the COE indicates exempt status, lenders may treat service-connected disability income shown in the conditions section as verified without further forms.

How Lenders Verify Exemption Status

Lenders rely primarily on the Certificate of Eligibility to determine if a veteran is exempt. When the COE shows exempt status, lenders may treat service-connected disability income listed in the conditions section as verified without additional forms.

In cases where the COE does not clearly indicate exemption, lenders submit VA Form 26-8937 to the appropriate VA Regional Loan Center for confirmation. Supporting documents such as disability award letters or bank statements may also be used when needed. This verification step protects both the veteran and the lender by ensuring the correct fee, or no fee, is collected at closing. Topic 2. What the Certificate of Eligibility Tells the Lender

VA disability income is considered a benefit and does not require documentation for likelihood of continuance in most cases. However, when the COE lacks the exempt notation, the lender must fax VA Form 26-8937 and provide supporting records such as the most recent bank statement or award letter.

Step-by-Step Process for Handling the VA Funding Fee

Veterans and lenders follow a structured sequence to address the funding fee. First, the veteran obtains the Certificate of Eligibility through the VA’s online system or by requesting it from a lender. Next, the lender reviews the COE for any exempt status notation or conditions. If exemption is unclear, the lender completes and submits VA Form 26-8937 to the VA Regional Loan Center with jurisdiction over the property. The lender then calculates any applicable fee using the loan amount and the appropriate percentage from the funding fee tables, distinguishing between first-time and subsequent use as well as regular military versus Reserves or National Guard service. At closing, the fee is either financed into the loan or paid in cash. Finally, the lender remits the fee electronically through the VA Funding Fee Payment System and includes proof of payment or exemption in the closed loan package.

For IRRRLs, lenders use VA Form 26-8923 instead of the standard tables. Joint loans require dividing the entitlement charge according to available entitlement and any written agreements between borrowers.

Documents Checklist for VA Funding Fee Exemption

Use this checklist when preparing for a VA loan:

• Obtain the Certificate of Eligibility early in the process.
• Review the COE for any exempt status notation or conditions.
• Gather disability award letters or medical documentation if exemption is not clearly shown.
• Confirm with the lender whether VA Form 26-8937 is required.
• Decide whether to pay any required fee from loan proceeds or cash at closing.
• Keep copies of all exemption verification documents for your records.
• Provide the most recent bank statement or award letter when disability income verification is needed beyond the COE.
• Retain the completed IRRRL Worksheet if refinancing through an Interest Rate Reduction Refinance Loan.

Following these steps helps ensure a smooth closing with the correct fee treatment.

Worked Example of Funding Fee Handling

Consider a veteran purchasing a home with a VA loan where the purchase price equals the reasonable value shown on the Notice of Value. The lender first confirms the COE shows exempt status due to service-connected disability compensation. No funding fee is collected. In a second scenario, a non-exempt veteran obtains a subsequent-use purchase loan. The lender calculates the fee on the loan amount, collects it at closing, and remits it through the VA Funding Fee Payment System. If the veteran later provides evidence of retroactive entitlement to compensation before closing, the lender adjusts the transaction and requests a refund of any overpayment through the same system.

Common Mistakes to Avoid

One frequent error is assuming exemption without checking the COE conditions section, which can lead to unnecessary collection of the fee. Another is failing to submit VA Form 26-8937 promptly when the COE lacks clear notation, delaying closing. Veterans sometimes overlook the need to verify continuous active duty status on certain COEs before closing. Lenders may also misapply the funding fee tables by not distinguishing between regular military and Reserves or National Guard service. Finally, neglecting to keep copies of exemption documents can complicate post-closing audits or refund requests.

How the VA Funding Fee Compares to Alternatives

The VA funding fee differs from mortgage insurance requirements on other loan types. Conventional loans often require private mortgage insurance when the down payment is less than 20 percent, with ongoing monthly premiums that can be canceled once equity reaches 20 percent in some cases. FHA loans carry both an upfront mortgage insurance premium and annual premiums that typically continue for the life of the loan. The VA funding fee is a one-time charge that may be financed into the loan, and many veterans qualify for full exemption based on disability status. Unlike ongoing insurance premiums, the VA fee does not recur annually. Joint loans and assumptions introduce additional calculations, such as the one-half of one percent fee on assumptions unless an exemption applies or the transfer is unrestricted.

Additional Considerations for Joint Loans and Assumptions

Joint loans involving multiple veterans require careful calculation of entitlement and any applicable funding fee. The lender divides charges according to available entitlement and any written agreements between borrowers. When a VA loan is assumed, the new borrower may owe a funding fee equal to one-half of one percent of the loan balance unless an exemption applies. Unrestricted transfers may not require the fee. These situations still require the same exemption verification process using the COE and supporting records. Topic 8. The VA Funding Fee

If an exempt veteran accidentally pays the fee, the lender can request a refund through the VA Funding Fee Payment System. Overpayments caused by miscalculation are also eligible for refund, either as cash back to the borrower or applied to the loan balance.

Frequently asked questions

Related guides

This guide is general educational information, not a commitment to lend. Program guidelines change; eligibility is determined by full underwriting. Agency citations link to the official Fannie Mae, Freddie Mac, HUD, VA and FHFA sources.