How to Apply for a VA Funding Fee Refund When Your Disability Rating Comes After Closing
If you used a VA home loan and later received a VA disability rating, you may be wondering whether you can get your VA funding fee refunded. The answer is: sometimes yes—but it depends on the effective date of your disability award, not just the date the rating decision was made.
This guide walks you through:
- Who qualifies for a VA funding fee refund
- How to check your own eligibility
- The documents you’ll need
- Step-by-step instructions to request your refund
- Common mistakes and reasons refunds get denied
What Is the VA Funding Fee?
The VA funding fee is a one-time charge on most VA-backed home loans. It’s calculated as a percentage of the total loan amount and varies based on factors like your military status, whether it’s your first VA home loan, and the down payment amount.
The fee can be financed into the loan or paid upfront. However, some Veterans and service members are exempt, including those receiving disability compensation.
For an official overview of VA funding fees and closing costs, you can visit the VA’s page on the topic here:
VA Funding Fee and Closing Costs (VA.gov).
Key Factors That Determine Your VA Funding Fee
Main fee percentages for common loan purposes as follows:
| Loan Purpose | First Use Fee | Subsequent Use Fee |
|---|---|---|
| Purchase or Construction | 2.3% | 3.6% |
| Refinancing | 2.3% | 3.6% |
| Cash-Out Refinance | 2.3% | 3.6% |
2025 VA Funding Fee Chart
| Loan Purpose | Down Payment | First Use Fee | Subsequent Use Fee |
|---|---|---|---|
| Purchase or Construction | None | 2.3% | 3.6% |
| Purchase or Construction | 5% or more | 1.65% | 1.65% |
| Purchase or Construction | 10% or more | 1.4% | 1.4% |
| Cash-Out Refinance | None | 2.3% | 3.6% |
| IRRRL (Streamline Refinance) | N/A | 0.5% | 0.5% |
| Loan Assumptions | N/A | 0.5% | 0.5% |
| Native American Direct Loan | N/A | 1.25% | 1.25% |
When Can You Get a VA Funding Fee Refund?
The VA is very specific about when a refund is allowed. You may qualify for a refund of the funding fee if all of the following are true:
- You paid a VA funding fee at closing on your home loan.
- You were later awarded VA compensation for a service-connected disability (or other exempt status like qualifying as a surviving spouse or certain Purple Heart situations).
- The effective date of that disability compensation is retroactive to a date before your loan closing.
The VA explains that you can be eligible for a funding fee refund if you’re later awarded compensation for a service-connected disability and the effective date of that compensation is before the date your loan closed. See:
VA Funding Fee and Closing Costs (VA.gov).
Lenders and VA-focused sites emphasize that the refund hinges on a retroactive effective date, not just the date your rating decision is issued.
Understanding the “Effective Date” Requirement
One of the most confusing parts of the refund rule is the difference between:
- Rating decision date – when VA decided your claim.
- Effective date – the date VA says your entitlement to compensation begins (often the date you filed or a specific retro date).
For a funding fee refund, the VA looks at the effective date, not the decision date. If your loan closed on June 1, 2024 and the VA later issues a rating decision on January 1, 2025 but assigns an effective date of March 1, 2024, that effective date is before your loan closed—so you may qualify for a refund.
By contrast, if your effective date is July 1, 2024 (after closing), you generally do not qualify for a refund, even though your rating came later.
VA lender guidance confirms that the effective date of the service-connected disability award must be prior to the date of loan closing to be eligible for a refund. See the VA Lenders Handbook:
Borrower Fees and Charges – Chapter 8 (VA Lenders Handbook).
Who Is Exempt from the VA Funding Fee?
Generally, borrowers are exempt from the funding fee if they meet one of the VA’s exemption criteria, which include (not exhaustive):
- Receiving VA compensation for a service-connected disability (typically at least 10% or more).
- Being eligible for compensation but receiving retirement or active duty pay instead.
- Certain surviving spouses of Veterans who died in service or from service-connected conditions.
- Some active-duty service members awarded the Purple Heart on or before closing (subject to current law and guidance).
For a clear overview of exemptions, including disability-based exemptions, you can review:
VA Funding Fee and Closing Costs (VA.gov)
Important Limitation: Pending Claims at Closing
If you had only a pending disability claim at closing (no rating yet), the VA requires the lender to treat you as non-exempt and collect the funding fee at closing. Later, if you are awarded benefits, a refund is still only possible when the effective date is before closing.
VA guidance makes this clear: if the Veteran has a pending disability compensation claim at the time of loan closing, the funding fee must be collected as if the borrower is not exempt. See:
Borrower Fees and Charges – Chapter 8 (VA Lenders Handbook).
Step 1: Confirm Your Eligibility for a Funding Fee Refund
Before you apply, confirm these key facts for yourself:
- Find your VA rating decision / award letter.
Look for the page that shows your effective date for disability compensation. - Locate your loan closing date.
You can find this on your Closing Disclosure, Note, or Deed of Trust. - Compare the dates.
If your disability effective date is earlier than your loan closing date, you may qualify for a refund. - Verify that you actually paid a funding fee.
On your Closing Disclosure, the VA funding fee should appear as a specific line item—either as part of cash to close or financed into the loan.
Lenders and VA-focused sites summarize this rule simply: if you paid the fee and later receive a retroactive disability rating effective before closing, you may be eligible for a refund.
Step 2: Gather Your Documentation
To make your refund request smooth, gather the following documents:
- VA rating decision / award letter showing:
- Your percentage rating(s)
- The effective date for compensation
- Closing Disclosure or settlement statement showing:
- The VA funding fee amount
- Whether it was paid in cash or financed into the loan
- Certificate of Eligibility (COE), if you have a copy, especially if it’s been updated to show that you are exempt.
- Your loan number and the name of your current loan servicer (this may be different from your original lender).
Lenders typically use VA Form 26-8937 to verify a Veteran’s disability status directly with VA when processing exemptions and refunds. See:
VA Circular 26-23-19 – Funding Fee Exemption & Refund Procedures
Step 3: Request the Refund Through Your Lender or Servicer
In most cases, you’ll start with the company that is currently servicing your loan (the one you make payments to each month), even if your loan has been transferred since closing.
- Contact your loan servicer.
Call the customer service number on your mortgage statement and tell them:
“I’m a Veteran borrower. I paid a VA funding fee on my loan, but I’ve since been awarded VA disability compensation with an effective date before my loan closing. I’m requesting a VA funding fee refund.” - Ask about their process.
Many servicers have an internal process or department for VA loan corrections and refund requests. They may:- Ask you to upload or mail your VA award letter and Closing Disclosure
- Submit VA Form 26-8937 to confirm your exemption
- Send a formal request to VA through their servicing channels
- Submit all requested documents promptly.
Provide clear copies of everything, especially the award letter page showing your effective date.
Step 4: If Needed, Contact the VA Regional Loan Center
If your lender or servicer is slow to respond or seems unfamiliar with funding fee refunds, you can contact VA directly:
- Call the VA Home Loan program at 1-877-827-3702 (VA loan specialists).
- Ask to speak with someone about a possible VA funding fee refund due to a retroactive disability rating.
- Be prepared to provide:
- Your full name and last four of your SSN
- Loan number and property address
- Closing date
- Effective date of disability compensation
The VA has previously conducted large-scale funding fee refund initiatives, returning hundreds of millions of dollars to borrowers whose exemptions were missed. Example:
VA Completes Home Loan Funding Fee Refund Initiative (news.va.gov).
Step 5: How the Refund Is Paid
Once approved:
- If you paid the funding fee in cash at closing, the refund is usually issued directly to you—often by check or direct deposit, depending on the servicer’s procedures.
- If you financed the funding fee into the loan (rolled it into your loan amount), the refund is generally applied as a principal reduction on your mortgage balance.
Some VA-focused lenders note that, depending on the servicer, processing can take several weeks from the time a complete request is submitted, especially if VA needs extra verification or if documentation is incomplete.
Example Timeline for Refund Processing
Here's a practical example of how long each step may take in a typical refund request:
| Action | Estimated Timeframe |
|---|---|
| Verify eligibility | 1–2 weeks |
| Submit refund request | 1–3 weeks |
| VA or lender review | 4–6 weeks |
| Refund issuance | 2–4 weeks |
Actual timing will vary based on lender responsiveness, VA workload, and how quickly you provide documentation, but this gives a realistic ballpark for planning and expectations.
Common Reasons a Funding Fee Refund Is Denied
Here are the most frequent reasons a refund request gets denied:
- Effective date is after closing.
If your disability compensation effective date is later than your closing date, VA rules generally do not allow a refund. - No proof of funding fee paid.
If your Closing Disclosure doesn’t show a funding fee, or if it was waived at closing, there’s nothing to refund. - Misunderstanding pending claims.
Having a claim “in progress” at closing does not by itself guarantee a refund later. The key is still the effective date. - Lender or servicer errors in documentation.
If your lender doesn’t submit proper paperwork to VA, the refund can be delayed or denied until corrected.
Professional materials for lenders stress that they should not promise a future refund unless the Veteran clearly meets the criteria, because refunds are determined case by case under VA rules and Circular 26-23-19.
Tips to Make Your Refund Request Easier
- Keep everything in writing.
After any phone call with your lender, follow up with a brief email summarizing what you discussed and what documents you sent. - Send clear, readable copies.
Make sure your award letter and Closing Disclosure are easy to read and clearly show dates and amounts. - Check your updated COE.
Once VA recognizes your exempt status, your Certificate of Eligibility should reflect it. You can access it online through your VA.gov account or ask your lender to pull an updated COE. - Be patient but persistent.
Processing can take several weeks, especially if VA or the servicer is handling many requests. Set calendar reminders to follow up every 2–3 weeks if you haven’t heard anything.
Final Thoughts (and a Simple Next Step Checklist)
If you paid a VA funding fee and later received a service-connected disability rating, it’s absolutely worth checking whether you qualify for a refund. Many Veterans have received refunds worth thousands of dollars simply because their effective date pre-dated their closing—and their lender or VA corrected the record later.
Quick checklist:
- ☑ Find your VA award letter and note the effective date.
- ☑ Find your loan closing date and confirm the funding fee was paid.
- ☑ If effective date <= closing date, contact your loan servicer and request a VA funding fee refund review.
- ☑ Provide copies of your award letter, Closing Disclosure, and any other documents they request.
- ☑ If needed, call the VA Home Loan number at 1-877-827-3702 for additional help.
Note: This article is for general educational purposes and is not legal or financial advice. For personal guidance based on your specific situation, consider speaking with a VA-accredited representative, a housing counselor, or a knowledgeable VA lender.
Joshua Anello
|
||||||||||||||||||||||||||||||||
