Veterans receiving VA compensation for a service-connected disability rating of 10% or higher are fully exempt from the VA funding fee. The exemption must be reflected on your Certificate of Eligibility before your loan closes; if your rating is approved with a retroactive effective date after closing, you may qualify for a refund.
A Clear Path to Buying with Your VA Loan
If you're a veteran with a service-connected disability rating, there's a good chance you're leaving money on the table without knowing it. The VA funding fee is one of the biggest closing costs on a VA loan — and for a large share of San Diego's military community, it doesn't have to be paid at all.
The problem is that a lot of buyers find this out after closing, when it's too late to do anything but request a refund. Let's fix that before it happens to you.
What the VA Funding Fee Actually Is
The VA funding fee is a one-time charge collected on most VA-backed home loans. It's what allows the VA loan program to keep offering $0 down and no monthly mortgage insurance — instead of charging every borrower PMI the way conventional loans do, the VA collects this single fee upfront to keep the program funded.
For a first-time VA buyer with less than 5% down, the fee is 2.15% of your loan amount. On a $700,000 San Diego purchase, that's close to $15,000 — a number that matters whether you're paying it in cash or financing it into your loan balance.
Who Skips the Fee Entirely
Here's the part most buyers don't know: you don't have to be rated 100% disabled to qualify for a full exemption. According to the Department of Veterans Affairs, you won't owe a VA funding fee at all if any of the following is true for you:
- You're receiving VA compensation for a service-connected disability
- You'd be eligible for that compensation, but you're receiving retirement or active-duty pay instead
- You're a surviving spouse receiving Dependency and Indemnity Compensation (DIC)
- You received a proposed or memorandum rating before your loan closing date
- You're an active-duty service member who provides evidence of a Purple Heart before closing
Since VA disability ratings start at 10% and move up in 10% increments, this means any veteran drawing compensation at 10% or higher is exempt — not just those at 100%. That's a meaningful distinction, because I talk to a lot of buyers who assume the exemption only kicks in at a high rating. It doesn't.
Timing Is Everything
The exemption has to be reflected on your Certificate of Eligibility (COE) before your loan closes. This is where I see veterans lose money that they were entitled to keep.
If your rating comes through after you close, the VA does allow a refund — but only if the effective date of your compensation is retroactive to before your closing date. If you receive a proposed or memorandum rating after closing, you'll still owe the fee, and you won't be eligible for a refund based on that later rating.
The takeaway: if you have a disability claim pending, tell your lender before you get anywhere near closing. Getting the exemption confirmed on your COE upfront is a lot simpler than chasing a refund afterward.
What It Looks Like on the Numbers
Let's say you're using your VA loan for the first time on a $600,000 San Diego home with nothing down. At 2.15%, that's roughly $12,900 added to your loan amount. For an exempt veteran, that entire amount disappears — money that stays in your pocket or goes toward a stronger offer.
If you've used your VA loan benefit before, the math is even more dramatic. Subsequent-use borrowers pay 3.3% with less than 5% down, so on that same $600,000 loan, a non-exempt repeat buyer would be looking at nearly $20,000. If you want to see how that fee interacts with your other closing costs, I broke down who pays what at the closing table here.
A San Diego-Specific Bonus: Property Tax Relief
If your rating reaches 100% (or you're compensated at the 100% rate through Individual Unemployability), California offers a separate benefit worth knowing about: the Disabled Veterans' Property Tax Exemption. It reduces the assessed value of your primary residence by roughly $180,000 for 2026, with an even larger reduction available if your household income falls under the state's low-income threshold.
This is a different program from the funding fee exemption and has its own eligibility bar — full 100% disability rather than any compensable rating — but for the veterans who qualify, it's real, ongoing savings on top of what you avoid at closing.
Why This Matters for Your Offer Strategy
Understanding your exemption status early doesn't just save you money — it changes what you can offer. If you know you're not paying a funding fee, that's cash you can put toward a stronger down payment, a rate buy-down, or simply keep in reserve. It's one more piece of the puzzle when you're figuring out how much money you actually need to buy in San Diego.
As a certified Military Relocation Professional, this is exactly the kind of detail I walk through with every veteran and active-duty buyer I work with — because a VA loan is a strong benefit, but only if it's used correctly from day one.
Let's Make Sure You're Not Overpaying
If you have a disability rating, a pending claim, or you're just not sure where you stand, let's talk before you get pre-approved. I'll help you confirm your exemption status and make sure it's documented correctly from the start — not fixed after the fact.
This post is intended as general educational information, not tax, legal, or individualized loan advice. VA funding fee exemptions and California property tax benefits depend on your specific service history, rating, and documentation. Confirm your exemption status with your lender and verify property tax eligibility with your county assessor before relying on these figures.