Who Is Exempt From the VA Funding Fee?
Most people using a VA home loan expect to pay a funding fee at closing, but a meaningful share of eligible borrowers don’t have to pay it at all.
The short answer
The VA funding fee is a one-time charge on most VA-backed loans that helps offset the cost of the program for taxpayers, since VA loans generally don’t require ongoing mortgage insurance. Certain borrowers are exempt from this fee, most commonly veterans receiving disability compensation, surviving spouses of veterans who died in service or from a service-connected condition, and some Purple Heart recipients. Exemption status is determined during the loan process based on official documentation.
Why the fee exists in the first place
Because VA loans don’t carry the kind of mortgage insurance found in programs like an FHA loan, the funding fee serves a similar underlying purpose: helping sustain the program without relying entirely on general tax revenue. It’s charged as a percentage of the loan amount and can typically be paid upfront or rolled into the loan balance, similar to how other closing costs are sometimes handled.
The fee amount itself varies based on factors like down payment size and whether it’s a borrower’s first or subsequent use of the VA loan benefit, and because these figures are set by policy, they change periodically.
Who typically qualifies for an exemption
- Veterans with a service-connected disability rating. Veterans receiving compensation for a disability connected to their service are generally exempt from the funding fee, regardless of the disability rating percentage.
- Surviving spouses. Spouses of veterans who died in service or as a result of a service-connected disability, and who are using their own VA loan eligibility, are typically exempt as well.
- Certain Purple Heart recipients. Some active-duty service members who received a Purple Heart may qualify for an exemption on a purchase closed while still serving.
- Veterans eligible for compensation but receiving retirement pay instead. In some circumstances, veterans who would qualify for disability compensation but are receiving retirement pay instead can still be treated as exempt, depending on how their eligibility is documented.
Because exemption categories and documentation requirements can shift over time and depend on individual circumstances, verifying exemption status through official channels, such as a Certificate of Eligibility, is more reliable than assuming eligibility based on a general description.
How exemption status gets confirmed
A lender typically verifies exemption status through the Certificate of Eligibility, which reflects VA records on disability compensation and other qualifying factors. If that documentation doesn’t clearly reflect exempt status but a borrower believes they qualify, it can sometimes take additional steps to resolve before closing, so raising the question early in the loan process helps avoid last-minute delays.
This process runs somewhat parallel to how VA loan entitlement is confirmed and documented, since both depend on accurate, up-to-date records tied to a veteran’s service history and benefits status.
What to weigh
A borrower who believes they may qualify for an exemption should raise it with the lender as early as possible, since the fee is calculated as part of the loan amount and errors can be costly to unwind after the fact. Confirming documentation early keeps the closing timeline on track and avoids paying a fee that wasn’t actually required.
A practical habit
Requesting a current Certificate of Eligibility before shopping for a home is a useful early step for any VA-eligible borrower, since it clarifies both entitlement and potential funding fee exemption status before other parts of the process are underway.