VA Loans · Funding Fee · Disability Exemption
The VA funding fee is an upfront cost charged on every VA-guaranteed loan. If you already hold a service-connected disability rating of 10% or higher, that fee is waived entirely — on purchase loans, IRRRLs, and cash-out refinances.
This page covers what the exemption is worth in dollar terms across both refinance types, how lenders verify it, and what to confirm before your loan closes. It does not cover disability ratings or how to obtain one — only the financial impact if you already have one on file.
The VA funding fee is an upfront charge the VA collects on all VA-guaranteed loan transactions: purchases, IRRRLs, and cash-out refinances. It is not a lender fee. It is not a title fee. It does not go to the lender or settlement agent. It goes directly to the VA to fund the guarantee program — the same guarantee that allows VA loans to be offered with no down payment and no private mortgage insurance.
The fee can be paid at closing or financed into the loan balance. If financed, it adds to the principal and accrues interest over the loan term. The fee amount varies by loan type, whether the VA loan benefit has been used before, and whether the borrower qualifies for an exemption.
Key distinction: The funding fee is a government-imposed VA charge. It is separate from and in addition to lender origination fees, title insurance, appraisal fees, and other closing costs. When evaluating total loan costs, it must be accounted for independently.
The fees below are per current VA schedule. "First use" means the veteran has not previously used VA loan benefit; "subsequent use" means VA loan benefit has been used before.
| Loan Type | First Use | Subsequent Use | 10%+ Disability |
|---|---|---|---|
| IRRRL (streamline refinance) | 0.5% | 0.5% | $0 — waived |
| VA Cash-Out Refinance | 2.15% | 3.3% | $0 — waived |
| VA Purchase (0% down) | 2.15% | 3.3% | $0 — waived |
Fee schedule per VA loan guaranty program. Subject to change. Down payment variations affect purchase fee rates; table reflects 0% down scenario for illustrative purposes.
The VA funding fee exemption applies to the following borrowers on all VA loan types:
This page addresses one scenario only: veterans who already hold a confirmed service-connected disability rating of 10% or higher at the time of loan application. The exemption is based on having that rating on record — the financial analysis that follows applies if you are in that category.
The IRRRL (Interest Rate Reduction Refinance Loan) funding fee is 0.5% of the new loan amount. For a veteran with a qualifying disability rating, this fee is waived. The dollar values below are hypothetical illustrations — actual loan amounts and costs will vary.
These savings directly reduce total eligible closing costs, which matters for more than just the cost at closing.
Under 38 CFR 36.4311, every IRRRL must pass a 36-month recoupment test: total eligible closing costs divided by monthly payment savings must equal 36 months or fewer. The VA funding fee is included in the eligible cost numerator. Waiving it shortens the break-even period.
$350,000 loan amount · Rate reduction: 6.25% → 5.875% · Hypothetical illustration only
Without exemption: Break-even = $4,450 ÷ $87 = 51.1 months — fails the 36-month test. With exemption: Break-even = $2,700 ÷ $87 = 31.0 months — passes. On a borderline IRRRL, the disability exemption can convert a file that cannot close into one that can.
Exemption: 31.0 months — PASSESThe VA cash-out refinance carries a substantially higher funding fee than the IRRRL. For first-time use of VA loan benefit, the fee is 2.15% of the new loan amount. For subsequent use — meaning VA loan benefit has been used before — the fee is 3.3%. The exemption eliminates the fee in both cases.
The following are hypothetical illustrations. Actual loan amounts and costs will vary based on individual circumstances.
First use of VA loan benefit · Fee rate: 2.15% · Hypothetical illustration only
On a $350,000 cash-out, the exemption eliminates $7,525 from closing costs. This reduction can represent a significant share of total transaction costs, depending on the lender's fee structure and rate.
VA loan benefit previously used · Fee rate: 3.3% · Hypothetical illustration only
Subsequent-use borrowers face the highest funding fee on any VA transaction type. The exemption eliminates $11,550 on a $350,000 loan. For veterans in this category with a qualifying rating on file, confirming the exemption before application is a high-priority step — the fee cannot be refunded after closing except through the pending-claim retroactive process described below.
Why the cash-out exemption matters more than the IRRRL exemption: The IRRRL funding fee is capped at 0.5% regardless of prior VA use. The cash-out fee scales to 3.3% on subsequent use. The dollar differential between exempt and non-exempt borrowers is proportionally much larger on cash-out transactions — and unlike the IRRRL, there is no 36-month recoupment test to fail, so the full fee goes directly into the cost structure with no regulatory relief mechanism.
The VA funding fee exemption does not apply automatically at the point of application. It must be documented and verified through VA records. Lenders confirm disability status through CAIVRS and VA data systems — but errors and outdated records occur. The steps below help ensure the exemption is applied correctly before the loan closes.
If a veteran closes a VA loan while a service-connected disability claim is pending — meaning the claim has been submitted but not yet decided — and that claim is subsequently approved at 10% or higher, the veteran is entitled to a refund of the funding fee paid at closing.
The refund is not automatic. The veteran must request it through the appropriate VA channels after the rating decision is finalized. To support that process:
Scope of this page: The retroactive refund process is covered here as a factual disclosure for veterans who close loans with a pending claim. This page does not address disability claims, ratings decisions, or appeals — those matters are handled through separate VA channels outside the scope of mortgage loan origination.
Veterans with a service-connected disability rating of 10% or higher are exempt from the VA funding fee on all VA loans — purchase, IRRRL, and cash-out refinance. Surviving spouses of veterans who died in service or from a service-connected disability are also exempt. The exemption is all-or-nothing: any rating at or above 10% eliminates the fee entirely, regardless of the specific rating percentage.
Yes. The disability exemption overrides the first-use/subsequent-use distinction entirely. A veteran with a qualifying rating pays no funding fee regardless of how many times VA loan benefit has been used. The fee schedule distinction only applies to borrowers who do not hold a qualifying exemption.
Yes, under specific conditions. If you closed a VA loan while a disability claim was pending and that claim is subsequently approved at 10% or higher, you are entitled to a refund of the funding fee paid at closing. Retain your Closing Disclosure. After the rating decision is issued, contact the VA and your loan servicer to initiate the refund. The process is handled through VA channels after the rating is finalized.
Yes, directly. Under 38 CFR 36.4311, total eligible closing costs — which include the VA funding fee — are divided by monthly payment savings to calculate the break-even period. If the funding fee is waived, that cost is removed from the numerator, which reduces the break-even period. On files where the break-even would otherwise exceed 36 months, the exemption can determine whether the loan is structurable at all.
If you hold a qualifying service-connected disability rating, verifying the exemption is documented before application is the highest-leverage step in any VA refinance. A 30-minute call confirms whether the exemption is on record and walks through the full cost structure for your loan scenario.
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Start with the VA Rate Check → Book a 30-Minute Call →Also useful: IRRRL 36-month recoupment explained · Cash-out vs. IRRRL: how to choose
