VA Funding Fee Waiver and Disability Refund — Arizona Guide

By Mike Certo, Cornerstone First Mortgage · NMLS #260555 · Updated May 23, 2026

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The 60-second answer

The VA funding fee is a one-time fee on every VA loan, ranging from 1.25% to 3.30% of the loan amount, paid to the VA to keep the program self-funding. For veterans with a 10%-or-higher service-connected disability rating, the funding fee is waived entirely. That saves $5,000-$15,000 on a typical Arizona VA loan.

If your disability rating is pending at the time of your VA loan closing — and the rating subsequently comes through at 10% or higher with an effective date on or before your loan close date — you may be entitled to a retroactive refund of the funding fee you already paid. The refund process is administered by the VA; it requires filing a claim with documentation.

This page walks through the funding fee math, who qualifies for the waiver, how the retroactive refund works, and what to do if your situation is borderline.

The funding fee table — 2026 rates

The VA funding fee depends on three things: (1) whether it's your first VA loan use or subsequent, (2) your down payment, and (3) your reservist status. The 2026 fee schedule:

Active duty + veterans (first-time VA use)

Down payment	Funding fee %
Less than 5%	2.15%
5% to 9.99%	1.50%
10% or more	1.25%

Active duty + veterans (subsequent VA use)

Down payment	Funding fee %
Less than 5%	3.30%
5% to 9.99%	1.50%
10% or more	1.25%

National Guard / Reserves (first-time VA use)

Down payment	Funding fee %
Less than 5%	2.40%
5% to 9.99%	1.75%
10% or more	1.50%

Cash-out refinance (any VA borrower)

• First-time use: 2.15%
• Subsequent use: 3.30%

IRRRL (VA Interest Rate Reduction Refinance)

• 0.50% flat (first or subsequent use)

Streamline assumption

• 0.50% paid by the assuming buyer

Sample dollar amounts

For a $500,000 VA loan in Phoenix, $0 down, first-time VA use:

• Base funding fee: 2.15% = $10,750
• Financed into the loan: monthly payment increase ~$70

For a $750,000 jumbo VA loan in Scottsdale, $0 down, first-time VA use:

• Base funding fee: 2.15% = $16,125
• Financed into the loan: monthly payment increase ~$105

For a $300,000 cash-out VA refi:

• First-time: 2.15% = $6,450
• Subsequent: 3.30% = $9,900

These are not trivial numbers. The waiver matters.

What the waiver actually saves — three Arizona price tiers

The funding fee scales with loan amount, so the dollar savings climb sharply on larger Arizona purchases. Three tiers covering common AZ scenarios:

Illustrative examples assuming first-time VA use, $0 down. Actual funding fee depends on down payment, subsequent-use status, reservist designation, and current 2026 rate schedule. The waiver covers all of these scenarios identically — full waiver, regardless of fee bracket.

Who qualifies for the waiver

The VA funding fee is fully waived for these categories:

1. Veterans with 10%+ service-connected disability rating

This is the largest category. If you have a current VA service-connected disability rating of 10% or higher, you pay zero funding fee. Period.

The rating is documented on your VA Summary of Benefits letter. Available at va.gov, your veterans' health portal, or by request from your nearest VA Medical Center Patient Advocate.

2. Surviving spouses

Surviving spouses of veterans who died on active duty or from service-connected disabilities are eligible for VA loan benefits AND funding fee waiver.

3. Active duty Purple Heart recipients

Service members who have received a Purple Heart while on active duty are eligible for funding fee waiver (added by the Johnny Isakson and David P. Roe MD Veterans Health Care and Benefits Improvement Act of 2020).

4. Veterans who would be eligible but are receiving retirement pay in lieu of disability

If you waived disability compensation in favor of military retirement pay (a common scenario for retirees), but would otherwise be eligible for service-connected disability at 10%+, you may still qualify for the waiver. Document this through your VA records.

The retroactive refund — when your rating comes through after close

This is the part many veterans don't know about and many lenders don't proactively explain.

The scenario

You closed on your VA loan and paid the funding fee. At the time of closing, your VA disability claim was pending. After closing, the VA approves your rating at 10% or higher — and assigns an effective date that's on or before your loan close date.

If this happens, you may be entitled to a full refund of the funding fee you paid at closing.

How to request the refund

1. Gather documentation: - Your VA Notice of Decision (rating letter) showing the percentage AND effective date - Your VA loan Closing Disclosure showing the funding fee paid - Your loan account number

2. File the refund request with the VA Regional Loan Center that issued your COE. For Arizona veterans, this is typically the Phoenix Regional Loan Center.

3. Refund processing: Typically 60-120 days. The VA returns the funding fee either to you (if it was paid in cash at closing) or to the lender for credit against your loan balance.

4. Lender involvement: Your originator (Mike, in this case) can help facilitate the refund request. Cornerstone has handled multiple retroactive refunds for AZ vets.

What if I waived a rating to take retirement pay?

If you waived disability rating to receive military retirement pay (a "concurrent receipt" decision), the funding fee waiver still applies as long as you would have qualified. Document through your retirement orders and any VA correspondence. Some retroactive cases require working with a VSO to clarify the record.

What's the maximum refund?

The full funding fee paid at closing. For a $500K VA loan with $10,750 paid funding fee, that's a $10,750 refund. For larger jumbo loans, the refund can be $15,000-$25,000+.

What if my rating is below 10%?

You don't qualify for the waiver. Pay the standard funding fee at closing. Options:

• Wait for a higher rating — if you have a pending claim or are planning to appeal, waiting until the rating clears can save you the funding fee
• Increase down payment — pushing to 5% or 10% reduces the funding fee percentage
• Use IRRRL refinance later — the 0.50% IRRRL fee is less than the 2.15% purchase fee, so a future refi captures partial savings

Common pending-rating scenarios in Arizona

Scenario 1: Active duty PCSing to Luke AFB with a pending VA claim

You filed your initial VA claim before PCS but the rating decision is pending. You're closing on a home near Luke. Pay the funding fee at closing, document the pending status, and file the retroactive refund request once the rating comes through.

Scenario 2: Recently separated vet, first VA loan, claim filed at separation

The "TBD claim" pattern. You filed within months of separation, the rating is processing (often 4-12 months), and you want to buy now. Pay the funding fee at closing, request retroactive refund when rating finalizes.

Scenario 3: Long-time retiree with new conditions

You retired years ago without a disability rating, now filing for newly-recognized conditions (Agent Orange presumptive, Camp Lejeune water, etc.). If approved with effective date on or before your loan close date, retroactive refund applies.

Scenario 4: Rating increased after closing

You closed with a 0% rating. Years later, your rating is increased to 30%. The retroactive refund typically does NOT apply unless the rating increase has an effective date on or before the loan close date — usually rating increases have a more recent effective date.

How to maximize your funding fee position

For Arizona vets making the buying decision:

1. If you have any service-connected condition you haven't filed a claim for, file with the VA before closing. Even a 10% rating triggers the waiver.

2. Work with a VSO for help with VA disability claims. American Legion, VFW, DAV, and AZ Department of Veterans Services all provide free claim assistance. Faster, more accurate claims = better outcomes.

3. Document everything. Keep your Notice of Decision, Closing Disclosure, and loan account information together so refund requests are easy if needed.

4. Talk to Mike before closing. If your situation is borderline (pending rating, complex service history, recent appeals), structuring the loan timing or escrow can sometimes help.

Arizona-specific funding fee considerations

• AZ's HB 2792 (2026) makes the property tax exemption full for 100% service-connected disabled vets — see the HB 2792 pillar. The funding fee waiver and property tax exemption stack — 100% rated vets get both benefits.
• AZ veterans receive other state-level benefits (vehicle registration fee waiver, state park pass, income tax exemption on military retirement) that don't affect funding fee but represent additional value. See AZ Department of Veterans Services.

Frequently asked questions

Can I get a refund if I waived disability compensation for retirement pay?

Possibly. The VA funding fee waiver applies to veterans "entitled to compensation," not strictly those receiving it. If you waived comp for retirement pay but the rating itself was approved, you may still qualify. Document through your VA records.

How long does the retroactive refund take?

Typically 60-120 days from filing. Some take longer (manual review, missing documentation). Persistence pays — follow up every 30 days if you don't hear back.

What if the funding fee was financed into my loan balance?

If you financed the funding fee into your loan (most common), the refund typically goes to the lender as a credit against your loan balance. Some lenders apply this as a principal reduction; some apply it differently. Check with your servicer when the refund is processed.

Can I get the refund if my rating is below 10%?

No. Only 10%+ service-connected disability rating qualifies for the waiver and retroactive refund.

What about active-duty members with no rating yet?

You can use VA loan benefits while active duty (after 90 days of qualifying service). If you have no disability rating yet, you pay the funding fee. If you receive a 10%+ rating with an effective date during your active service before your loan close, you may qualify for retroactive refund. Most active-duty buyers don't have this — but worth checking.

Do reservists pay a different funding fee?

Yes — reservists pay slightly higher funding fees than active duty/veterans (see the table above). The waiver for 10%+ disability still applies.

Can the seller pay my funding fee?

Yes — VA allows the seller to pay the funding fee (and other closing costs) up to certain limits. Negotiation point in your offer.

Talk to Mike about your funding fee situation

If you have a pending VA disability claim, a complex service history, or just want to confirm whether your specific situation qualifies for the waiver or refund — the free 15-minute call gets the answer.

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(480) 296-6513 · Mike Certo, NMLS #260555 · Cornerstone First Mortgage NMLS #173855

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Sources

• VA.gov — Funding Fee and Closing Costs
• VA Lenders Handbook (Pamphlet 26-7) — Funding Fee
• Johnny Isakson and David P. Roe MD Veterans Health Care and Benefits Improvement Act of 2020 (Purple Heart funding fee waiver)
• AZ Department of Veterans Services

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Mike Certo · NMLS #260555 · Cornerstone First Mortgage NMLS #173855 · Equal Housing Lender. Educational content, not legal or tax advice. Funding fee waiver and refund eligibility is determined by the VA based on your specific service record and disability rating. For service-connected rating questions or VA disability appeals, consult a Veterans Service Organization (VFW, American Legion, DAV, AZ Department of Veterans Services) or a VA-accredited attorney.