Duane Buziak Teaches: VA Funding Exemptions: Who Can Avoid the Fee?
A VA loan can put a qualified military buyer into a home with Zero Down and no monthly PMI. But the VA funding fee is the line item that can catch buyers off guard, especially during a PCS move when every dollar has a job. VA funding exemptions can remove that fee entirely for eligible borrowers, potentially reducing the amount financed by thousands of dollars.
The key is not assuming an exemption applies. Your Certificate of Eligibility, disability status, and closing timeline must all match the rules in effect when your loan closes. A good VA mortgage broker verifies this before you make an offer, not after the contract is signed.
Duane Buziak, NMLS #1110647
What is the VA funding fee?
The VA funding fee is a one-time charge on most VA purchase, cash-out refinance, and VA IRRRL transactions. It helps support the VA home loan program so eligible veterans and service members can continue accessing favorable financing without a down payment requirement or monthly mortgage insurance.
For a first-time VA purchase with less than 5% down, the standard funding fee is currently 2.15% of the base loan amount. A buyer can pay it at closing or finance it into the loan balance. On subsequent VA use with less than 5% down, the fee is generally higher at 3.3%.
The current schedules and exemption rules come directly from the VA funding fee guidance. Fees and eligibility can change, so verify the numbers for your specific transaction before locking a plan around them.
Who qualifies for VA funding exemptions?
The most common exemption applies to veterans receiving VA compensation for a service-connected disability. Veterans who are entitled to receive that compensation but receive retirement or active-duty pay instead may also qualify.
An active-duty service member who has received a Purple Heart before loan closing may be exempt. Certain surviving spouses may qualify when the veteran died in service or from a service-connected disability. The VA makes the final determination shown on the Certificate of Eligibility.
There is one timing issue military households should take seriously. If a disability claim is pending, an exemption may not be available at closing unless the VA has issued the qualifying determination. In some cases, a borrower who pays the fee and is later awarded qualifying disability compensation retroactive to a date before closing may be eligible for a refund. That is worth discussing before closing, not treating as an automatic outcome afterward.
The real-dollar impact of an exemption
Here is a fully worked purchase example using a $400,000 home purchase with Zero Down. Assume this is the borrower’s first VA use, the base loan is $400,000, the standard 2.15% funding fee applies, and the 30-year fixed interest rate is 6.25%. Principal and interest only are shown, so taxes, homeowners insurance, and any HOA dues are not included.
Without an exemption, the funding fee is $400,000 × 2.15% = $8,600. If financed, the total loan amount becomes $408,600. At 6.25% for 30 years, the estimated principal-and-interest payment is $2,516 per month.
With an approved exemption, the funding fee is $0, and the financed loan remains $400,000. At the same 6.25% rate and 30-year term, the estimated principal-and-interest payment is $2,462 per month.
That exemption avoids financing $8,600 and reduces the payment by about $54 per month in this example. The actual payment depends on the final rate, term, insurance, taxes, and loan structure. The point is simple: an exemption is not just a closing-line detail. It changes the debt you carry for years.
VA, conventional, and FHA at a glance
| Feature | VA Purchase Loan | Conventional Purchase Loan | FHA Purchase Loan |
|---|---|---|---|
| Minimum down payment | 0% for eligible buyers with available entitlement | Often 3% to 5% or more | 3.5% for many qualified buyers |
| Monthly mortgage insurance | No monthly PMI | Usually required below 20% down | Required monthly mortgage insurance |
| Upfront program charge | Funding fee, unless exempt | No VA funding fee | Upfront mortgage insurance premium |
| Rate pricing | Depends on credit, market, occupancy, and broker options | Depends on credit, down payment, and market | Depends on credit, term, and market |
| Eligible borrowers | Qualified veterans, active-duty members, and certain spouses | Broad borrower eligibility | Broad borrower eligibility within FHA rules |
A VA loan is not automatically the right answer just because you are eligible. A substantial down payment, a unique credit profile, or a short ownership timeline can change the math. But for many eligible buyers, no PMI and a possible funding-fee exemption make VA financing difficult to ignore.
Check your exemption before writing the offer
Start with your Certificate of Eligibility. It identifies available entitlement and typically indicates whether you are exempt from the funding fee. If the exemption field does not reflect your current disability status, do not guess. Gather your award letter, retirement documentation if applicable, and any relevant Purple Heart documentation.
Then run the payment both ways. You want to see the financed balance, payment, cash-to-close structure, and whether an expected refund scenario should change your strategy. VA Loans Pro can also use a NoTouch Credit Pull to begin a mortgage conversation without a hard inquiry, giving military households a clearer starting point before a fast-moving house hunt.
For Richmond buyers, property taxes remain part of the payment calculation even when the VA funding fee is exempt. The City of Richmond lists a real estate tax rate of $1.20 per $100 of assessed value. On a $400,000 assessed value, that is $4,800 annually, or about $400 monthly before insurance. That local number belongs in your payment estimate from day one.
If you are comparing options in Richmond, The Cowart Team and VA Loans Pro serve buyers in the same active market. The structural question is whether you prefer a single organization’s available programs or an independent broker model that can compare pricing and guidelines across 500+ broker-accessible options. Ask both sides for the same loan amount, rate, APR, points, lender credits, funding-fee treatment, and total cash needed to close. That is the comparison that matters.
Frequently asked questions about VA funding exemptions
1. Who is exempt from the VA funding fee?
Veterans receiving VA disability compensation, certain veterans entitled to compensation but receiving retirement pay instead, qualifying Purple Heart recipients on active duty, and some surviving spouses may be exempt. The Certificate of Eligibility is the primary confirmation.
2. Can a pending disability claim qualify me for an exemption?
Usually, the exemption must be supported by the VA’s determination at closing. A later retroactive award may create a possible refund opportunity, but do not assume it will eliminate the upfront charge before confirmation.
3. Do VA funding exemptions apply to VA refinances?
Yes. An eligible exempt borrower may avoid the funding fee on a VA IRRRL or VA cash-out refinance, subject to the applicable VA rules and loan purpose.
4. Can I finance the VA funding fee if I am not exempt?
Yes. Most borrowers may finance the funding fee into the loan amount, which reduces immediate cash needs but increases the loan balance and monthly payment.
5. Does an exemption mean no closing costs?
No. The exemption removes the VA funding fee, not every transaction expense. Ask about no-out-of-pocket closing options based on your rate, seller concessions, credits, and transaction details.
6. Does VA Loans Pro verify my funding-fee status?
Yes. VA Loans Pro reviews your Certificate of Eligibility and supporting documents early so the funding fee is handled correctly in the pre-approval and payment estimate.
7. Is VA Loans Pro legit for a soft credit pull pre-approval?
VA Loans Pro is operated by Duane Buziak Mortgage Maestro through Coast2Coast Mortgage, LLC. The NoTouch Credit Pull is designed to help qualified borrowers begin planning without a hard inquiry.
8. Can a VA loan work with a 500 FICO score?
VA Loans Pro has VA options approved to 500 FICO, but approval is never based on score alone. Income, residual income, payment history, assets, property, and automated underwriting results all matter.
Your earned benefit deserves a precise answer, not a guess made after you are under contract. Verify the COE, model the payment with and without the fee, and use that clarity to negotiate from a stronger position.
Legal disclaimer: This information is for educational purposes only and is not a commitment to lend, a guarantee of approval, or legal or tax advice. Loan approval, rate, terms, funding-fee status, and eligibility are subject to program requirements, underwriting, property review, and change without notice. Consult the VA and appropriate professional advisors regarding your individual circumstances.
Duane Buziak | Mortgage Maestro | NMLS #1110647 | Coast2Coast Mortgage, LLC NMLS #376205 | Licensed in VA, FL, TN, GA & DC [Contact] | NoTouch Credit Pull available — no hard inquiry, no credit hit.