Mortgage expert David Ghazaryan advising clients at iQRATE.

VA Funding Fee Waivers in Houston and Dallas Texas Guide

Q: What is the purpose of the VA funding fee?

A lender's seasoning period is a mandatory waiting time after you purchase or refinance a property before you can access the full after-repair value (ARV) for a cash-out refinance. Most DSCR lenders require a seasoning period of 6 to 12 months. Refinancing before the seasoning period concludes typically means the lender will base the loan amount on your original purchase price plus rehab costs, which severely limits the amount of equity you can cash out. Waiting until after the period allows you to borrow against the full market value you created through your renovations.

Q: Who is automatically exempt from paying the VA funding fee?

To justify a higher appraised value, you should provide the appraiser with a detailed and organized renovation packet. This packet removes guesswork and provides concrete evidence of the work performed. It should include: a cover letter summarizing the major upgrades, a detailed scope of work document itemizing all improvements, compelling before-and-after photos showing the property's transformation, copies of paid invoices and receipts for materials and labor, and copies of any official building permits that were issued for the work.

Q: Does my disability rating percentage determine if I get a funding fee waiver?

No, LTV limits for cash-out refinances vary significantly among different DSCR lenders, as each has its own guidelines and risk tolerance. While purchase loans may reach 80% LTV, cash-out refinances are often capped at 70% or 75% LTV. The specific LTV offered to an investor is influenced by several factors, including: Credit Score (higher scores typically qualify for higher LTVs), DSCR Ratio (a stronger income-to-debt ratio may result in a better LTV offer), Property Type (a single-family home might receive a higher LTV than a multi-unit property), and Loan Amount (some lenders may offer different terms based on the size of the loan).

Q: How do I prove to my lender that I am exempt from the funding fee?

Your property's monthly rental income is the foundation of a DSCR loan approval. The formula is: DSCR = Gross Rental Income / Total Monthly Housing Payment. A higher rent results in a higher DSCR. This proves to the lender that the property can comfortably support a larger loan payment, which in turn allows you to qualify for a larger loan amount and maximize your cash-out.

Q: What happens if my disability claim is still pending when I close on my home?

Yes, it is often possible to pay for closing costs with the proceeds from your new loan, meaning you don't need to bring cash to closing. However, these costs are not added on top of your loan limit. Instead, the closing costs are subtracted from the total cash-out funds available to you after your existing mortgage is paid off. The total loan amount, including these costs, cannot exceed the lender's maximum LTV limit based on the property's appraised value.

Q: Can I get a refund for the funding fee if my disability claim is approved after I close on my loan?

Investors can make several avoidable errors that reduce their available cash-out funds. The most common mistakes include: Poor Documentation (failing to provide an appraiser with a thorough renovation packet can lead to a conservative and lower valuation), Refinancing Too Soon (not waiting for the lender's seasoning period to expire is a costly mistake that forces the loan to be based on cost rather than value), Lacking a Tenant (attempting to refinance a vacant property is less favorable, as lenders prefer the security of a signed lease over estimated market rents), and Ignoring Lender Differences (accepting the first loan offer without comparing options can mean missing out on better LTV limits or shorter seasoning requirements from other lenders).

Q: What are the financial benefits of getting the VA funding fee waived?

The ideal time to begin the refinance process is 30 to 45 days before your lender's seasoning period expires. This allows you to gather all necessary documentation, secure an appraisal, and complete underwriting so that you can close immediately once the seasoning requirement is met. Crucially, by this time, the property should also be 'stabilized,' which means you have a qualified tenant in place with a signed lease and have collected at least the first month's rent.

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TL;DR

This guide explains the VA funding fee, a one-time charge on most VA home loans that can save eligible veterans thousands of dollars at closing.

Eligibility for a waiver depends on receiving VA compensation for a service-connected disability, not just the disability rating percentage itself.
Learn the specific rules for proving your exemption, securing the waiver, and how to get a refund if you paid the fee while a claim was pending.

Learn more about this in this YouTube Video: How To Get A VA Funding Fee WAIVER Or REFUND (Explained By A Veteran)

What is the VA Funding Fee and Why Does It Exist?

The VA funding fee is a one-time payment made to the Department of Veterans Affairs on a VA-backed home loan. Its primary purpose is to help offset the costs of the VA loan program for U.S. taxpayers. Because the VA guarantees a portion of each loan, lenders can offer more favorable terms, such as no down payment and no monthly private mortgage insurance (PMI). The funding fee helps keep this valuable program running without requiring ongoing insurance premiums from borrowers.

This fee is calculated as a percentage of the total loan amount and varies based on several factors:

Your service type (Regular Military, Reserves, or National Guard)
Your down payment amount (The fee is lower if you put more money down)
Whether this is your first time using a VA loan (Subsequent use often carries a higher fee)

For example, a first-time active-duty homebuyer in Houston purchasing a $400,000 home with zero down payment would typically pay a funding fee of 2.15%, which amounts to $8,600. (The data, information, or policy mentioned here may vary over time.) This fee can either be paid in cash at closing or, more commonly, rolled into the total loan amount. However, for many veterans, this significant cost can be completely waived.

Which Veterans Automatically Qualify for a Funding Fee Waiver in Houston?

In Houston, and across the country, the rules for an automatic funding fee waiver are set at the federal level by the VA. You are automatically exempt from paying the VA funding fee if you meet one of the following criteria before your loan closing date:

You are receiving VA compensation for a service-connected disability.
You are entitled to receive VA compensation for a service-connected disability, but you receive retirement pay or active duty pay instead.
You are a surviving spouse of a veteran who died in service or from a service-connected disability.
You are an active-duty service member who has been awarded the Purple Heart.

A veteran family celebrating in front of their new Texas home after utilizing their VA loan benefits.

It is critical to note that the exemption is based on your status as a recipient of disability compensation, not just having a disability rating. Your lender will verify your exemption status through your Certificate of Eligibility (COE), which is the official document confirming your VA home loan benefit.

Does My Specific Disability Rating Affect My Eligibility in Dallas?

This is one of the most common points of confusion for veterans purchasing a home in Dallas. Your specific disability rating percentage (e.g., 10%, 30%, or 70%) does not directly determine your eligibility for the funding fee waiver. The key factor is whether you are receiving financial compensation from the VA for that disability.

Let's consider two scenarios:

Veteran A in Dallas has a 10% service-connected disability rating and receives monthly disability compensation from the VA. Veteran A is exempt from the funding fee.
Veteran B in Dallas has a 50% service-connected disability rating, but their claim for compensation is still pending and has not been approved yet. Veteran B is not yet exempt and must pay the funding fee at closing.

This distinction is crucial. The waiver is tied to the financial benefit, not the rating itself. If Veteran B's claim is later approved with a retroactive effective date that predates their loan closing, they can apply for a full refund of the fee they paid. This ensures that no veteran who is ultimately deemed eligible is permanently penalized for the timing of their claim's approval.

How Do I Get My Certificate of Eligibility to Show My Exemption?

Your Certificate of Eligibility (COE) is the definitive proof of your VA home loan entitlement and your funding fee exemption status. Lenders require this document to process your loan. Fortunately, obtaining it is a straightforward process.

What is a Certificate of Eligibility?

The COE is an official document issued by the VA that confirms to your mortgage lender that you qualify for the VA home loan benefit based on your service record. Importantly, if you are exempt from the funding fee, the COE will explicitly state 'EXEMPT' in the designated section. This is what your lender needs to see to waive the fee.

A close-up of a Certificate of Eligibility document needed for a VA mortgage application.

How to Obtain Your COE

There are three primary ways to get your COE:

Through Your Lender: This is the fastest and most common method. Most VA-approved lenders have access to the VA's Web LGY system and can pull your COE for you in a matter of minutes.
Online: You can log in to the VA's eBenefits portal to view and print your COE directly.
By Mail: You can complete VA Form 26-1880, 'Request for a Certificate of Eligibility', and mail it to the appropriate VA regional loan center. This is the slowest method and should be avoided if you are on a tight timeline for your home purchase.

When your lender reviews your COE and sees the 'EXEMPT' status, they will remove the funding fee from your closing cost calculations, saving you a substantial amount of money.

Can I Get a Refund if I Paid the Fee but Was Later Found Exempt?

Yes, you can and should get a refund if you were eligible for an exemption but paid the funding fee. This most often happens when a veteran's disability claim is pending during the home loan process and is approved after the closing date.

If the VA awards you disability compensation and sets a retroactive effective date that is prior to your loan closing date, you are entitled to a full refund of the funding fee. To start the refund process, you will typically need to:

Contact your lender or the VA directly. Your VA Regional Loan Center is the best point of contact.
Provide documentation. You will need to submit a copy of your VA disability award letter, which shows the effective date of your compensation, along with your loan's closing disclosure statement showing that you paid the funding fee.

Once the VA verifies your eligibility, they will process the refund and mail you a check. The process can take several weeks, so it is important to follow up and ensure your request has been received and is being processed.

Are There Different Waiver Rules for Veterans Versus Active Duty?

The rules for the funding fee waiver are consistent regardless of whether you are a veteran or an active-duty service member. Eligibility is determined by disability compensation status, not service status.

An active-duty service member who is receiving VA disability compensation (a scenario possible for those who served, separated, and then rejoined the military) would be exempt. More commonly, an active-duty service member who has been awarded a Purple Heart is also exempt from the funding fee, a specific exemption that honors their sacrifice.

For all other active-duty members, the fee is required unless one of the other exemption criteria is met.

What Happens if My Disability Claim is Pending During My Home Purchase?

Purchasing a home in Houston or Dallas while you have a disability claim pending with the VA is a common situation. In this case, you are required to pay the VA funding fee at closing because your exempt status has not yet been confirmed.

Here’s how to handle it:

Pay the Fee at Closing: You must proceed with paying the funding fee. You can pay it in cash or roll it into your loan balance. Your lender cannot waive it without a COE that confirms your exemption.
Notify Your Lender: Let your loan officer know that you have a claim pending. This awareness helps ensure a smoother process if you later need to apply for a refund.
Apply for a Refund After Approval: As discussed earlier, if your claim is approved with a retroactive effective date that precedes your closing date, you must proactively apply to the VA for a refund. The refund will not be issued automatically. Keep your closing documents and your VA award letter in a safe place.

How Does This Waiver Impact My Total Mortgage Costs Over Time?

Securing a VA funding fee waiver provides significant financial benefits that extend far beyond the initial savings at closing. The impact is felt both immediately and over the entire life of your loan.

Let’s compare a $450,000 home purchase in Dallas for a first-time VA loan user with and without the waiver. (The data, information, or policy mentioned here may vary over time.)

With the Funding Fee (2.15% = $9,675):

Total Loan Amount: $459,675 ($450,000 + $9,675)
Principal & Interest Monthly Payment (at 6.5%): Approximately $2,905
Total Interest Paid Over 30 Years: Approximately $586,269

With the Funding Fee Waiver:

Total Loan Amount: $450,000
Principal & Interest Monthly Payment (at 6.5%): Approximately $2,844
Total Interest Paid Over 30 Years: Approximately $573,962

The Financial Impact:

Immediate Savings: You save $9,675 in closing costs.
Monthly Savings: Your monthly payment is $61 lower.
Long-Term Savings: You save approximately $12,307 in total interest payments over the life of the loan.

Getting the funding fee waived not only lowers your immediate financial burden, but also reduces your monthly housing expense and saves you tens of thousands of dollars in interest over time. If you're a veteran in Texas navigating the complexities of the VA loan process, understanding your funding fee status is a critical first step. Connect with a mortgage strategist who can help you verify your eligibility and ensure your Certificate of Eligibility is accurate before you close on your new home.

Ready to take the next step? Discover your eligibility and explore personalized VA loan options by starting your application today. Apply now and let our experts guide you through the process.

Author Bio

David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.