VA Funding Fee Changes

1. Purpose: This circular announces changes in funding fees for Department of Veterans Affairs (VA) loans closed on or after October 1, 2011.

2. Fee Changes

a. For loans closed on or after October 1, 2011, the fee for subsequent use loans with less than 5 percent down payment and subsequent use regular refinance loans will be 2.8 percent for both active duty Service members, Veterans, and persons qualifying based solely on service in the Reserves or National Guard. This change is due to passage of Public Law 112-26, Restoring GI Bill Fairness Act of 2011.

b. Funding fees for loans other than subsequent use will also change for loans closed on or after October 1, 2011. These fee changes were already set to change based on previous legislation. The Loan Fee Structure for Guaranteed Loans chart below shows the upcoming changes.

c. Funding fees for Interest Rate Reduction Refinancing Loans and Assumptions will not change. They will remain at .50 percent.

3. Possibility of Future Funding Fee changes: Should Congress pass legislation making additional changes to the funding fee structure, VA will immediately publish a notice on our website and the VA Funding Fee Payment System (FFPS), and soon afterward, issue another Circular. Lenders should closely monitor our website and VA FFPS for information on funding fee changes.

4. Rescission: this circular is automatically rescinded on October 1, 2012. By direction of the Under Secretary of Benfits.

FUNDING FEE (FF) EXEMPTION STATUS AND VERIFICATION OF INCOME ON
CERTIFICATE OF ELIGIBILITY (COE)

1. Purpose. This circular announces the first release of COEs incorporating the FF
exemption status and Income Verification. By having the FF status shown on the COE,
lenders in most cases will no longer be required to fax the Department of Veterans
Affairs (VA) Form 26-8937, Verification of VA Benefits, to a VA office for processing.
There will still be instances where faxing VA Form 26-8937 is necessary, but the
majority of FF exemption determinations will be processed internally and displayed on
the COE.

2. Discussion. Effective September 11, 2011, the first release of the COE includes a
new field entitled “FUNDING FEE” near the top of the COE. The exemption status,
either “EXEMPT,” “NON EXEMPT,” or “CONTACT RLC,” will appear to the right of
the new field title.
a. EXEMPT status indicates the Veteran is exempt from paying the FF.
b. NON EXEMPT status indicates the Veteran is not exempt from paying the FF.
c. CONTACT RLC indicates a system-generated determination is not available.

3. Important. Regardless of the new FF status shown on the COE, lenders must still be
sure to read any and all statements appearing in the “CONDITIONS” field, which
appears near the middle portion of the COE.
  a. For COEs with “EXEMPT” status, the following “CONDITIONS” may appear:
      (1) “Funding Fee – Veteran is exempt from Funding Fee due to receipt of serviceconnected
disability compensation of $___ monthly.”
      (2) “Funding Fee – Veteran is exempt from Funding Fee due to receipt of serviceconnected
disability compensation. Monthly compensation rate has not been determined
to date.”
      (3) “Funding Fee – Please fax a copy of VA Form 26-8937 to the VA Regional Loan
Center of jurisdiction.”
      (4) “Funding Fee – Please have the lender contact VA Regional Loan Center for loan
processing. Please fax a copy of VA Form 26-8937 to the RLC of jurisdiction.”
(LOCAL REPRODUCTION AUTHORIZED)
Circular 26-11-11 September 8, 2011
  b. For COEs with a “NON EXEMPT” status, the following “CONDITIONS” may
appear:
      (1) “Funding Fee – Veteran is not exempt from Funding Fee.”
      (2) “Funding Fee – Veteran is not exempt from Funding Fee due to receipt of nonservice-
connected pension. LOAN APPLICATION WILL REQUIRE PRIOR
APPROVAL PROCESSING BY VA.”
  c. For COEs with “CONTACT RLC” status, the following “CONDITION” will
appear: “Funding Fee – Please fax a copy of the 26-8937 to the RLC of jurisdiction.”

4. Interest Rate Reduction Refinance Loans (IRRRLS). To determine the exemption
status on IRRRLs, lenders may obtain a COE with the FF exemption status as discussed
in the preceding paragraphs. Alternatively, lenders may continue to fax a copy of VA
Form 26-8937 to the VA Regional Loan Center of jurisdiction.

5. Exempt Status and Verified Income. Lenders may rely on the “EXEMPT” status
appearing next to the “FUNDING FEE” field for verification of FF exemption.
Additionally, on COEs with an “EXEMPT” status, lenders may treat any serviceconnected
disability income amount appearing in the “CONDITION” section of the COE
as verified income. There is no need to fax in VA Form 26-8937 to confirm the status or
amount showing on the COE.

6. Rescission: This circular is rescinded October 1, 2014.

By Direction of the Under Secretary for Benefits
Michael J. Frueh
Acting Director, Loan Guaranty Service