VA Funding Fee Exemption: Do Disabled Veterans in Texas Pay It?

The short answer: if you receive VA compensation for a service-connected disability, you don't pay the VA funding fee. That comes from federal law (38 U.S.C. 3729(c)), so it works the same in Texas as anywhere else. A few other groups are exempt too. If your rating comes through after closing with an effective date before your closing date, you may be able to get the fee refunded. The key is having the exemption show up on your Certificate of Eligibility (COE) before you close.

I'm Keith Sullivan, an Air Force veteran and mortgage broker with NXT Mortgage, based in McKinney. The funding fee is one of the first things I check on a VA file, because it's often the biggest single cost on the loan. Every rule below links to the VA or the federal law it comes from.

What is the VA funding fee?

It's a one-time fee paid to the VA on most VA-backed loans. The VA says it helps lower the program's cost to taxpayers, since VA loans don't require a down payment or monthly mortgage insurance. You can pay it at closing or roll it into the loan. On a purchase, it's the only closing cost you're allowed to finance.

The fee is a percentage of the loan amount, not the price. It depends on the loan type, whether it's your first VA loan, and your down payment. Under the VA's current chart (effective April 7, 2023), the fee on a standard purchase loan runs from 1.25% to 3.3% of the loan amount, and an IRRRL (streamline refinance) is 0.5%. Federal law keeps that purchase schedule in place for loans closed before June 9, 2034. A bill in Congress (H.R. 6047) would raise fees on certain refinances and loan assumptions, but as of October 20, 2026, it hasn't become law. Check the full chart on the VA's funding fee page for your situation.

At DFW prices, even the low end is real money. If you're exempt, the funding fee on your Loan Estimate should be zero.

Do disabled veterans pay the VA funding fee?

Not if you're receiving VA compensation for a service-connected disability. Per the VA, you don't pay the funding fee if any of these are true:

• You receive VA compensation for a service-connected disability
• You're eligible for that compensation but receive retirement or active-duty pay instead
• You're a surviving spouse receiving Dependency and Indemnity Compensation (DIC)
• You're a service member with a proposed or memorandum rating, issued before closing, that says you're eligible for compensation based on a pre-discharge claim
• You're on active duty and, on or before closing, you provide proof that you received a Purple Heart

The rule covers VA refinances too, including cash-out refinances and IRRRLs.

What disability rating do I need to skip the funding fee?

There's no special rating just for the funding fee. What matters is whether you're entitled to compensation. The VA's compensation rate tables start at 10%, so a 10% rating that pays compensation counts the same as 100% here.

A condition rated 0% usually doesn't pay compensation, so on its own it usually won't make you exempt. If you're not sure where you stand, your COE will tell us.

Are Purple Heart recipients exempt?

Under that specific rule, only while you're on active duty. The law exempts an active-duty service member who shows proof of a Purple Heart on or before closing. After you separate, the Purple Heart by itself doesn't waive the fee, but you're still exempt if you receive disability compensation.

How do I prove I'm exempt from the VA funding fee?

Through your COE. For purchases and most refinances, the VA shows your funding fee status right on the certificate. Here's how the VA tells lenders to handle it in Circular 26-23-19:

• Exempt: you don't pay the fee.
• Non-Exempt, with a compensation claim pending: your lender should request an updated COE before closing.
• Active duty with a pre-discharge claim: your lender can send VA Form 26-8937 so the VA can check. If no proposed or memorandum rating is issued before closing, you pay the fee and can't get it refunded later.

Most COEs come back right away, but the VA says some take up to 5 business days. That's why I pull it during pre-approval, not the week of closing. You can also request your own COE on VA.gov.

Can I get a VA funding fee refund?

Maybe. If you had a disability claim pending when you closed, and the VA later awards compensation with an effective date before your closing date, you may be eligible for a refund. Contact your mortgage company or your VA Regional Loan Center at 877-827-3702 to request it.

For refunds issued since July 1, 2019, the VA pays the veteran directly, even if you financed the fee. You can keep it or send it to your servicer to pay down your principal.

Two catches. A proposed or memorandum rating issued after closing doesn't qualify for a refund. And the VA tells lenders not to have veterans close and plan on a refund later, because refunds aren't guaranteed. If you have a claim pending, tell me up front so we can plan the timing together.

What if I'm not exempt? Can the seller pay my funding fee?

Yes. The VA lets a seller pay your funding fee as a seller's concession. Concessions are capped at 4% of the home's reasonable value on the VA Notice of Value, and that cap also covers things like paying off your debts. Regular closing cost credits from the seller don't count toward the 4%.

Putting 5% or more down also lowers the fee. If you're exempt, there's no fee for the seller to cover. My Texas closing costs guide covers what else shows up at closing.

Is the VA funding fee exemption different in Texas?

No. It's a federal rule, so there's no separate Texas version. Texas does have its own property tax exemptions for disabled veterans, including a total homestead exemption for veterans awarded 100% disability compensation who are rated 100% disabled or individually unemployable. That one goes through your county appraisal district, not your lender. I cover it in my VA loan benefits guide, and my McKinney VA loan page covers buying in Collin County.

Already have a VA loan and got a refinance quote? Send it through Beat My Rate and I'll go through it line by line, funding fee included.

How I handle the funding fee for DFW veterans

I served in Air Force Security Forces from 2013 to 2017, and I've been in the mortgage business for 4 years. As a mortgage broker, I shop VA loans across multiple wholesale lenders. On every VA file, I:

• Pull your COE early and check the funding fee status
• Ask about pending claims and pre-discharge ratings before you're under contract
• Make sure an exempt veteran's Loan Estimate shows no funding fee
• Look at down payment and seller concessions if you're not exempt

I'm based in McKinney and work with veterans across Frisco, Allen, Plano, Prosper, Coppell and the rest of DFW. Evenings and weekends are fine.

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