VA Circular 26-23-19 is dated October 2, 2023. It is not a new 2026 rule, and it is not a change in policy. It is a clarification: it does not change who qualifies for an exemption. It spells out how exemption status is confirmed before closing and how refunds are handled when a fee was paid in error. It is still the guidance lenders use for funding fee exemptions and refunds, and it says it is valid until rescinded. This post explains it in plain English, so you can check your own file before closing.

Read the original here: VA Circular 26-23-19, VA Funding Fee Exemption and Refund Procedures for Lenders (PDF).

The short version

This circular is a clarification, not a change in policy. It does not change who qualifies for an exemption.
Most veterans pay a one-time VA funding fee. Some do not have to pay it at all.
Confirm your exemption before you close, not after.
If your Certificate of Eligibility shows Non-Exempt but you have a claim pending, your lender should check again before closing.
If a fee was charged in error, your lender or servicer starts the correction. VA pays an approved refund directly to the veteran.

What is the VA funding fee?

The VA funding fee is a one-time fee paid to the Department of Veterans Affairs when you use a VA loan. It helps fund the program for future veterans. It is not monthly mortgage insurance, and it is not a lender fee. In most cases you can finance it into the loan instead of paying it in cash at closing.

The amount depends on things like first or later use of the benefit and how much you put down. This circular does not set those amounts. It covers who is exempt, how that is confirmed, and how a refund works when a fee was paid in error.

Who does not have to pay the funding fee?

You are exempt if any one of these applies:

You receive disability compensation for a service-connected disability, or you would receive it except that you receive retirement pay or active service pay instead.
You are a surviving spouse of a veteran who died from a service-connected disability, and you receive Dependency and Indemnity Compensation (DIC).
You are on active duty with a pre-discharge rating. You are rated eligible for compensation based on a pre-discharge disability rating, or a pre-discharge review results in a proposed or memorandum rating issued before your loan closes.
You are on active duty and received the Purple Heart. You provide evidence of the award on or before closing.

If none of these applies, the fee applies. A rating alone is not the test. What matters is your exemption status, and whether the rating or award was in place before closing.

Active duty and veterans do not follow the same path

This is the point most often missed, and it is where timing matters most.

If you have already separated

Your path is based on your disability compensation status. If you receive compensation, or would receive it but for retirement pay, you are exempt. If your rating is decided after closing but its effective date is before closing, you can ask for a refund review, because the fee may have been charged in error. VA decides that request on your file. It is not guaranteed.

If you are still on active duty

Your path is narrower. You are exempt only if a proposed or memorandum rating was issued before closing, or if you provide Purple Heart evidence by closing. That is it. If you close while still on active duty without a memorandum rating, you are not exempt, and a later separation and disability rating does not create a refund for that fee. The refund route that can help a separated veteran does not open the same way for an active duty closing.

So ask early: has a memorandum rating actually been issued, and what date does it carry? If the answer is no, talk with your lender about whether closing should wait until a determination is in hand, when timing allows. Do not close on a promise of a later refund. VA decides refunds, not the lender, and no lender can guarantee one in advance.

Check before closing, not after

Lenders must use due diligence to check for an exemption at closing. They must not ignore information that could show one might apply. They also should not tell a veteran who believes they are exempt to close now and plan to request a refund later. The circular says that may count as a lender error, because refund decisions are specific to each veteran and cannot be guaranteed in advance.

The takeaway is simple. Sort out the exemption before you sign closing documents. After closing, it is much harder to fix.

How your lender checks your status

For an IRRRL (interest rate reduction refinance loan)

No Certificate of Eligibility (COE) is required. Your lender can check your exemption status when the loan number is requested. One exception: a surviving spouse who co-borrowed on a VA loan can refinance it with an IRRRL, but is not exempt unless they receive DIC. In that case the lender must submit a benefits verification to confirm the status.

For a purchase loan and every other refinance loan

Your status shows on your COE. If it shows Non-Exempt, your lender should ask whether you have a compensation claim pending. If you do, and you are not on active duty, your lender should request an updated COE before closing. Most COEs are processed right away, but the circular notes processing can take up to 5 business days, and longer in rare cases if VA needs more information.

Active-duty service members with a pre-discharge claim pending

Your lender should ask whether you have a pre-discharge claim pending. If you do, and your COE shows Non-Exempt, your lender should submit a verification to VA. VA then reissues the COE in one of three ways:

No claim pending: the COE is issued as Non-Exempt.
Claim already decided: the COE is updated with the correct status and issued.
Claim pending but not yet decided: the COE is updated to Non-Exempt, In Development, and issued. You are not exempt at that time.

If no proposed or memorandum rating is obtained, and you close before discharge, the exemption does not apply and you are not entitled to a refund. Rating times can vary. For questions about a pending claim, the circular points you to your Physical Evaluation Board Liaison Officer (PEBLO), or to VA at 1-800-827-1000, from 6 a.m. to 9 p.m. Eastern Time. That verification is your lender’s job, not a form you file on your own, but you can ask whether it has been submitted.

If a funding fee was paid in error, how is a refund handled?

Lenders and servicers start corrections with VA. They review the reason, add notes, and send supporting documents, such as the Closing Disclosure or a Notice of Cancellation. A poorly documented request may send the refund to the wrong place.

Refund to the veteran or surviving spouse

When a fee was charged in error, VA pays the refund directly to the veteran or surviving spouse. For a joint loan to more than one veteran using entitlement, VA can only pay the refund to the primary borrower on the loan.

VA will not pursue collection from the veteran, and cannot help the lender, if the lender already reduced the loan principal on its own or refunded the veteran before VA acted. Let VA issue the refund through the proper channel.

Refund to the lender

When the lender paid VA in error, the refund goes back to the lender. The documents should show the fee was not assessed to the veteran. This includes a case where the lender charged you the correct fee but sent VA the wrong amount, for example a subsequent-use fee when a first-time-use fee was correct.

Late fees and interest

Late fees and interest charged to the lender are refunded only in cases beyond the lender’s control, such as system outages, and case by case. They are not refunded automatically.

A note on what this circular is. This is lender and servicer procedure guidance. It does not create a new exemption, change who qualifies, change fee amounts, or promise a refund in any individual case.

What to do if you think you should be exempt

Tell your lender early. Mention a disability rating, a pending claim, a pre-discharge rating, a Purple Heart, or DIC, before the COE is finalized.
Ask what your COE shows. Exempt or Non-Exempt is a status on the document, not a guess. If it shows Non-Exempt and you have a pending claim, ask whether an updated COE has been requested.
Do not close on a promise of a later refund. Ask what will be confirmed before closing, and what happens if the rating is not in place by closing day.
Keep your Closing Disclosure. It is part of the evidence for a correction if a fee was charged in error.
If you were charged in error, contact your lender or servicer promptly. They start the correction with VA. Ask them to confirm where the refund will be sent.