VA Home Loans: Understanding the Funding Fee and Disability Exemptions
For many veterans, the VA home loan is one of the most valuable benefits of military service. It makes homeownership more affordable with no down payment, no private mortgage insurance, and competitive interest rates. But if you’ve looked into getting a VA loan, you’ve probably heard about something called the “funding fee.”
Let’s break down what it is, why it exists, and — most importantly — when you don’t have to pay it.
What Is the VA Funding Fee?
The VA funding fee is a one-time charge most veterans and service members pay when they take out a VA-backed home loan. This fee helps keep the VA loan program running for future generations of veterans — it’s part of how the VA guarantees loans without relying on taxpayer dollars.
The amount of the funding fee varies depending on factors like:
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Whether it’s your first VA loan or a subsequent one
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The size of your down payment (if any)
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The type of loan (purchase, refinance, etc.)
For example, a first-time user with no down payment might see a funding fee around 2.15% of the loan amount. That could mean about $4,300 on a $200,000 loan — unless you qualify for an exemption.
How Disability Status Can Eliminate the Funding Fee
Here’s the great news: if you have a service-connected disability, you may not have to pay the funding fee at all.
Veterans who receive VA compensation for a service-connected disability are fully exempt from the funding fee. This includes veterans who:
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Are currently receiving monthly VA disability compensation, or
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Are eligible to receive it (for example, if they receive retirement pay instead of disability pay).
There’s no minimum disability percentage required — even a 10% rating can qualify if it’s service-connected.
If your disability claim is still pending when you close your loan, and you’re later awarded a service-connected disability with an effective date before your loan closing, you can even apply for a refund of the funding fee.
How to Know If You Qualify
Your Certificate of Eligibility (COE) — the document your lender uses to verify your VA loan eligibility — will indicate whether you’re exempt from the funding fee. It will typically say “EXEMPT” if your disability compensation has been verified by the VA.
If your status changes later (for instance, your disability claim is approved after you close), your lender can help you apply for a refund through the VA.
Why This Matters
The VA funding fee can amount to thousands of dollars — and for veterans who qualify, avoiding it can make a big difference in upfront costs. It’s one of the many ways the VA recognizes your service and helps make homeownership more achievable.
At Above the Best Realty, we work with veterans across Arizona every day to make sure they get every benefit they’ve earned — including funding fee exemptions, down payment assistance, and specialized loan options.
Ready to Find Out if You Qualify?If you’re a veteran planning to buy or refinance a home, let’s make sure you don’t pay a penny more than you have to.
Call or text us today at (928) 800-2250
Above the Best Realty, 658 W. Gurley St #2, Prescott, AZ 86305
www.AboveTheBestRealty.comLet’s put your service benefits to work and get you the home you deserve — without the extra fees.