Paid the VA Funding Fee, Then Got a Disability Award? Check the Effective Date
VA may refund the funding fee when a later compensation award is retroactive to before your closing date. The effective date, not the decision date, is what counts.
By Brandon Salem · 3 min read
Why this matters: The VA funding fee can run into the thousands of dollars. Veterans who close while a disability claim is pending may be leaving a refund unclaimed.
Cover: an arrow returning from a closing folder to an approval envelope, beside a generic award letter. Illustration created for mortgage.news; it does not depict a real person, property or document.
Who normally does not pay the fee
According to the Department of Veterans Affairs, you do not have to pay the funding fee if you receive VA compensation for a service-connected disability, among other exemptions. VA also lists cases tied to a proposed or memorandum rating issued before closing, and active-duty members who show evidence of a Purple Heart on or before the closing date.
When a refund may apply
VA says you may be eligible for a refund if you are later awarded compensation for a service-connected disability. The key condition is timing: the effective date of your compensation must be retroactive to before the date your loan closed.
VA draws a firm line on one point. If you get a proposed or memorandum rating after your closing date, you still need to pay the funding fee, and that rating alone does not make you eligible for a refund.
What to gather
- Your VA award letter showing the effective date of compensation.
- Your Closing Disclosure or settlement statement showing the closing date and the funding fee paid or financed.
- Your VA loan number from the servicer or the closing package.
Interpretation: the decision letter's date and the effective date are often different. Read the award letter carefully. A decision issued months after closing can still carry an effective date before it.
How to ask
VA directs veterans who think they qualify for a refund to call their VA regional loan center, as listed on the same VA funding fee page. VA lists the hours as Monday through Friday, 8:00 a.m. to 6:00 p.m. ET. Ask what documents the center needs and how the refund will be handled if the fee was financed into the loan rather than paid in cash.
Questions to ask before you close
- Is a disability claim pending, and has the lender been told?
- Would a proposed or memorandum rating be available before the closing date?
- If the claim is decided after closing, where should you send the award letter?
The takeaway
If you paid the fee and later received a compensation award, compare the award's effective date with your closing date. If the effective date comes first, call your regional loan center and ask about a refund.