The VA funding fee can be thousands of dollars.

And some Veterans don't have to pay the damn thing.

That's why one of the first questions I want answered when structuring a VA loan is:

“Is this borrower exempt from the VA funding fee?”

Not:

“How much is the funding fee?”

First figure out whether you owe it at all.

I've closed more than 500 VA loans, and this is exactly the kind of detail that matters.

Because if you're exempt, that can materially change the cost of the loan.

WHAT IS THE VA FUNDING FEE?

The VA funding fee is a one-time fee associated with most VA-backed and VA direct home loans.

It helps support the VA home loan program and reduce its cost to taxpayers.

Unlike many conventional loans with smaller down payments, VA loans don't require monthly private mortgage insurance.

Instead, most VA borrowers who aren't exempt pay the one-time funding fee.

The amount isn't the same for everybody.

It can depend on the type of VA loan, whether you've used the benefit before, your loan amount and, on certain loans, your down payment.

But before calculating any of that:

Find out whether you're exempt.

WHO IS EXEMPT FROM THE VA FUNDING FEE?

According to VA, you generally don't have to pay the funding fee if one of the following applies.

YOU RECEIVE VA COMPENSATION FOR A SERVICE-CONNECTED DISABILITY

If you're receiving VA disability compensation for a service-connected disability, you're exempt from the VA funding fee.

And here's something people sometimes misunderstand:

This isn't simply about having a 100% disability rating.

VA's exemption is based on receiving qualifying service-connected disability compensation, not some mythical rule that says you have to be 100% disabled.

That's a huge distinction.

WHAT IF YOU'RE ELIGIBLE FOR DISABILITY COMPENSATION BUT RECEIVE RETIREMENT OR ACTIVE-DUTY PAY INSTEAD?

VA also provides an exemption when you're eligible to receive compensation for a service-connected disability but you're receiving retirement pay or active-duty pay instead.

Again, this is why I don't want somebody looking at a borrower and making assumptions.

Verify the actual VA status.

CAN A SURVIVING SPOUSE BE EXEMPT?

Yes.

A surviving spouse who is receiving Dependency and Indemnity Compensation, commonly called DIC, may be exempt from the VA funding fee.

If you're an eligible surviving spouse using the VA home loan benefit, this is something that should be determined before closing.

Don't assume the funding fee automatically applies.

WHAT ABOUT A PRE-DISCHARGE DISABILITY CLAIM?

There is another important exemption for certain service members going through the disability process before leaving the military.

If, before the loan closes, a service member has received a qualifying proposed or memorandum rating showing eligibility for compensation based on a pre-discharge claim, the funding-fee exemption may apply.

Timing matters here.

A pending claim by itself isn't necessarily enough.

The applicable VA determination needs to be in place before closing for this particular exemption.

That's why this isn't something you want to figure out after everybody is sitting at the closing table.

ARE PURPLE HEART RECIPIENTS EXEMPT?

Certain Purple Heart recipients are.

VA says an active-duty member of the Armed Forces who provides evidence on or before the loan closing date that they received a Purple Heart is exempt from the VA funding fee.

Notice the wording:

Active duty.

That's important.

Don't turn that rule into:

“Anybody who has ever received a Purple Heart is automatically exempt.”

That's not what VA's current exemption language says.

HOW DO YOU KNOW IF YOU'RE EXEMPT?

Don't guess.

Your lender should verify your funding-fee status as part of the VA loan process.

Your Certificate of Eligibility, VA records and other applicable documentation can help establish whether the funding fee applies.

If something doesn't look right, ask.

If you're receiving service-connected disability compensation and somebody is charging you a funding fee, that's worth questioning immediately.

The goal is to figure this out before closing, not six months later.

WHAT IF YOUR DISABILITY CLAIM IS STILL PENDING?

This is where timing becomes really important.

If your exemption can't be established before closing, the funding fee may still have to be paid.

But that isn't necessarily the end of the story.

VA says a borrower may be eligible for a funding-fee refund if they're later awarded compensation for a service-connected disability and the effective date of that compensation is retroactive to before the loan closing date.

That last part matters.

The date of the award isn't necessarily the only thing that matters.

The effective date matters.

CAN YOU GET A VA FUNDING FEE REFUND?

Potentially, yes.

Let's say you close your VA loan and pay the funding fee.

Later, VA awards you qualifying service-connected disability compensation.

If the effective date of that compensation is retroactive to before your closing date, VA says you may qualify for a refund of the funding fee.

Depending on the size of the loan, that can be real money.

So if your disability determination changes after closing:

Don't just assume the funding fee is gone forever.

Check whether you're eligible for a refund.

WHAT IF YOU GET A PROPOSED RATING AFTER CLOSING?

This is a different situation.

VA specifically says that if you receive a proposed or memorandum rating after the loan closing date, you'll still need to pay the funding fee and won't qualify for a refund based solely on that proposed or memorandum rating.

Again:

Details matter.

“I'm disabled.”

“I have a pending claim.”

“I received a rating.”

Those statements can mean very different things when we're determining whether a funding-fee exemption applies.

HOW MUCH MONEY CAN AN EXEMPTION SAVE?

Potentially thousands.

Funding-fee percentages vary depending on the loan type and circumstances.

For VA purchase loans, the percentage can change based on factors such as whether it's your first use of the benefit and how much money you're putting down.

That's why eliminating the funding fee entirely can materially change the economics of a VA loan.

It can reduce the amount financed.

It can reduce cash needed at closing if you otherwise planned to pay the fee in cash.

And because a financed funding fee becomes part of the mortgage balance, an exemption can also mean you're not paying interest on that financed amount over time.

That's not a technicality.

That's money.

DON'T ASSUME YOUR LENDER GOT IT RIGHT

Most lenders are going to verify this correctly.

But this is your mortgage.

Look at the paperwork.

Ask whether you're exempt.

Look at the funding fee.

If you're expecting an exemption and there's a funding fee sitting on your Loan Estimate or Closing Disclosure:

Ask why.

There may be a legitimate reason.

Or something may need to be corrected.

Either way, I'd rather have that conversation before you sign than after.

THE BOTTOM LINE

Not every VA borrower pays the VA funding fee.

You may be exempt if you're receiving qualifying service-connected disability compensation.

You may also qualify under other specific circumstances involving retirement or active-duty pay, DIC as an eligible surviving spouse, certain pre-discharge ratings, or qualifying active-duty Purple Heart status.

And if you paid the funding fee before a qualifying disability award was finalized, you may still have a path to a refund when the effective date reaches back to before closing.

The lesson is pretty damn simple:

Don't assume you owe the funding fee.

Verify it.

And if you've already paid one and think you should have been exempt?

Check it.

THINK YOU MIGHT BE FUNDING-FEE EXEMPT?

Buying or refinancing with a VA loan?

Receiving VA disability compensation?

Have a disability claim pending?

Or did you already close and later receive a disability decision?

Let me take a look.

I'll help you understand what your loan paperwork says, what VA's current rules say and what questions you need to ask.

Because paying a fee you legitimately don't owe would be a pretty shitty way to use a benefit you earned.