By Alex Rodino, REALTOR® | Georgia real estate license #443565 | U.S. Army veteran
Last updated: October 2026
If a VA disability compensation claim is still pending when you close, VA’s Lenders Handbook says the funding fee is paid as if you were not exempt, and a refund is possible only if VA later finds you entitled to compensation from a date before closing; VA’s 2023 lender circular adds that refunds are decided Veteran by Veteran and cannot be guaranteed.
Exempt groups include qualifying compensation recipients, certain surviving spouses receiving DIC, and active-duty Service members meeting the rating or Purple Heart requirements. VA says exemption status should be established before closing. When a buyer tells me a claim is pending, I make sure the lender hears it early, while there is still time to update the COE.
Who does not pay the VA funding fee
In brief: VA lists specific exemption categories, and your lender must verify whether one applies before closing. Having a pending disability compensation claim is different from having an established exemption. The 2023 circular includes both compensation-related categories and a separate Purple Heart provision for active-duty Service members.
- A Veteran receiving disability compensation, or entitled to receive it but for retirement or active service pay.
- A surviving spouse receiving Dependency and Indemnity Compensation (DIC) whose Veteran spouse died from a service-connected disability, as described in the circular.
- An active-duty Service member rated eligible for compensation through a pre-discharge rating or review that produces a proposed or memorandum rating before closing.
- An active-duty Service member providing evidence of a Purple Heart award on or before closing.
Source: VA Circular 26-23-19, section 2. These are program categories, not an individual eligibility determination. For related reading, see how the VA funding fee works.
Pending claim at closing: what VA’s rules say
In brief: A pending claim does not itself establish an exemption, and active-duty status changes which rule applies. Use the table to identify the question to take to your lender. The lender must verify the relevant category; the existence of a refund procedure does not promise a refund.
If a VA disability compensation claim is still pending when you close, VA’s Lenders Handbook says the funding fee is paid as if you were not exempt, and a refund is possible only if VA later finds you entitled to compensation from a date before closing; VA’s 2023 lender circular adds that refunds are decided Veteran by Veteran and cannot be guaranteed.
| Your situation at closing | Funding fee at closing | Refund possible later? | Source |
|---|---|---|---|
| Receiving VA disability compensation | Exempt, with status verified | No fee should be due; if one is charged in error, the lender or servicer requests the correction. | Circular, sections 2.a and 3.f(1) |
| Active duty with a qualifying proposed or memorandum rating before closing | Exempt, with status verified | No fee should be due; if one is charged in error, the lender or servicer requests the correction. | Circular, sections 2.c and 3.f(1) |
| Active duty with Purple Heart evidence provided on or before closing | Exempt, with status verified | No fee should be due; if one is charged in error, the lender or servicer requests the correction. | Circular, sections 2.d and 3.f(1) |
| Claim pending, not on active duty, no established exemption | Pay as non-exempt | Possible only if VA later finds you entitled to compensation from a date before closing, and not guaranteed; contact the Regional Loan Center. | Handbook, Topic 8.e; Circular, section 3.a |
| Active duty, pending pre-discharge claim, no required rating before closing, closing before discharge, no separate exemption | Pay as non-exempt | No refund under this pre-discharge claim route. | Circular, sections 2.c and 3.d |
Sources: VA Lenders Handbook, Chapter 8, Topic 8.a and 8.e; Circular 26-23-19, sections 2 and 3.
Why “close now, ask for a refund later” is not a plan
In brief: VA explicitly warns lenders against telling Veterans who believe they are exempt to close and seek a refund later. The lender should resolve exemption status before closing. A later award, its effective date, and the applicable service-status rule must be evaluated; an expected outcome is not confirmation.
The circular’s section 3.a says: “Lenders should not advise Veterans who believe they are exempt from paying the funding fee to close on a loan and plan to request a refund later. Doing so may be considered an error on the part of the lender, as refund determinations are specific to each Veteran and cannot be guaranteed.”
In plain words: whether a refund is ever paid depends on what VA later decides about your claim and the effective date of any award, and VA says those refund decisions are specific to each Veteran and cannot be guaranteed. Ask your lender what is established now and what remains undecided.
How the COE shows your status
In brief: For a purchase loan, the Certificate of Eligibility displays funding fee exemption status. If it says Non-Exempt, the lender should ask about a pending compensation claim. If a claim is pending and the Veteran is not on active duty, the lender should request an updated COE before closing.
Active-duty pre-discharge claims have a separate process in section 3.d of the circular: when the COE says Non-Exempt, the lender should submit VA Form 26-8937, Verification of VA Benefits. Ask your lender which process applies. Read more about the VA certificate of eligibility.
If a refund is due, how it is handled
In brief: The newer circular says VA will refund the Veteran or surviving spouse directly when a funding fee was charged to them in error and a refund is required. The lender or servicer initiates the request through VA’s system. Confirm the mechanics with your lender and VA.
Chapter 8, Topic 8.j contains older instructions to apply a refund to the loan balance when the fee came from loan proceeds. The October 2, 2023 circular supplies the newer procedure. Section 3.f(1) also warns that VA cannot assist a lender that reduces principal or refunds the borrower preemptively. Do not assume those older instructions describe your refund destination.
Where this shows up in a home search
In brief: Raise a pending compensation claim with your lender early in the home search, while you are discussing the offer’s closing date. Ask whether the COE needs updating and what remains unresolved. Keep the lender’s status review in the conversation before you commit to the purchase timeline.
I help with the home and the contract. I want the lender’s questions on the table before we settle on an offer timeline, rather than first hearing about an unresolved COE during closing preparations. For move planning, use the PCS home buying timeline alongside your lender’s guidance.
This article explains general VA and FHA program rules for education only. It is not lending, legal, tax or financial advice and is not an offer or commitment to lend. Lenders may apply stricter requirements of their own. Talk to a licensed mortgage professional about your situation. Alex Rodino is a REALTOR® with Keller Williams Realty Coastal Area Partners, Georgia real estate license #443565. Equal Housing Opportunity.
Frequently asked questions
Do I pay the VA funding fee if my disability claim is still pending?
VA’s handbook says a pending disability compensation claim is handled as non-exempt at closing when exemption has not been established. A pending claim alone does not establish an exemption. Ask your lender to check your current status before closing, including any separate exemption that may apply. For a borrower not on active duty whose COE says Non-Exempt, the circular calls for an updated COE when a compensation claim is pending.
Can I get a VA funding fee refund after closing?
A refund may be possible if VA later awards compensation effective before your loan closing, but it is not guaranteed. The handbook directs the Veteran to contact the Regional Loan Center in that situation. Active-duty borrowers need particular care: under the circular’s pre-discharge claim rule, closing before discharge without the required proposed or memorandum rating does not create a later refund entitlement through that route. Your lender and VA must review the applicable facts.
Who do I contact about a VA funding fee refund?
Contact VA’s Regional Loan Center if you believe a refund may be due. Both the handbook and VA’s public funding-fee guidance direct Veterans there. Also ask your lender or servicer about the supporting records and request process: the circular assigns lenders and servicers the task of initiating refund requests in VA’s Funding Fee Payment System. Alex can help coordinate home-search timing, but VA handles the refund determination.
How is a VA funding fee refund paid?
The 2023 circular says VA pays the Veteran or surviving spouse directly when they were charged the funding fee in error and a refund is required. Older handbook text describes applying a refund to the loan balance when the fee came from loan proceeds. For this procedure, use the newer circular and ask your lender and VA to confirm the handling of your case. Do not assume an automatic principal reduction.
Does a Purple Heart exempt me from the VA funding fee?
The circular lists an exemption for an active-duty Service member who provides evidence of a Purple Heart award on or before closing. Both active-duty status and the evidence deadline matter to this specific exemption. A mention of the award alone does not replace the lender’s verification process. Ask your lender to establish the correct status before closing and confirm what documentation is needed for VA’s review of your situation.
Should I wait to close until my disability rating comes through?
Discuss the closing date with your lender before committing to it; this article cannot determine whether you should wait. The handbook says the fee is paid as if you were not exempt when a compensation claim is still pending at closing, and the circular warns against counting on a later refund. Its active-duty pre-discharge claim rule also bars a refund through that route without the required rating before a closing that occurs before discharge. Raise these facts while your offer’s timing is still being discussed.
Buying with a VA loan in Coastal Georgia?
In brief: I can help you search for a home and discuss the timing of an offer while your lender handles the loan questions. Tell me about your move and your intended closing date so we can keep the property search and contract conversation connected to your lender’s guidance.
For military relocation help, call 912-351-8935, text 912-210-8967, or contact Alex. We can talk through the home search and the next contract questions to raise.
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