What the Certificate of Eligibility Tells the Lender (Part 2), Deciphering the VA Lender’s Handbook Chapter 2 Part 3

In the previous article, we began to cover exactly what the Certificate of Eligibility (COE) tells the lender and how the lender uses the information. We explained entitlement in detail and laid out how maximum entitlement is calculated. However, the COE contains a great deal more information than just the entitlement amount of the veteran. It also shows the veteran’s exemption status in regards to the funding fee, as well as any conditions that the veteran’s eligibility may rest upon. In this article, we’ll cover that information.va point

On the COE, near the top, there is a “FUNDING FEE” field and one of three phrases will appear next to it. These three phrases are EXEMPT, NON-EXEMPT, or CONTACT RLC. If the word “EXEMPT” appears, then the veteran in question is exempt from paying the funding fee. Some VA borrowers mistakenly believe that the lender is the one who makes the call on who is exempt and who is not. This is not the case; the VA sets the criteria for exemption and notifies the lender via the COE who fits the criteria. “NON-EXEMPT” means exactly what it sounds like; the veteran is not exempt. This is the most common scenario since not many borrowers meet the criteria to be exempt from paying the funding fee. The last one, “CONTACT RLC” means that, for whatever reason, the system is not able to establish whether the veteran is or is not exempt. This can happen if the veteran’s online file is not complete or there is conflicting information in the system.

Along with the funding fee (FF) status of either exempt, non-exempt, or contact RLC, there may be conditions to the exemption, and these conditions are very important for the lender to be familiar with. The possible conditions vary by status, so we’ll start with the conditions for exempt status. They may be any of the following:

  • “Funding Fee – Veteran is exempt from Funding Fee due to receipt of service-connected disability compensation of $___ monthly.”
  • “Funding Fee – Veteran is exempt from Funding Fee due to receipt of service-connected disability compensation. Monthly compensation rate has not been determined to date.”
  • “Funding Fee – Please fax a copy of VA Form 26-8937 to the VA Regional Loan Center of jurisdiction.”
  • “Funding Fee – Please have the lender contact VA Regional Loan Center for loan processing. Please fax a copy of VA Form 26-8937 to the RLC of jurisdiction.”

Those should be the only conditions that appear on a COE for an exempt veteran, but there are two possibilities for a non-exempt veteran. They are as follows:

  • “Funding Fee – Veteran is not exempt from Funding Fee.”
  • “Funding Fee – Veteran is not exempt from Funding Fee due to receipt of a non-service connected pension. LOAN APPLICATION WILL REQUIRE PRIOR APPROVAL PROCESSING BY VA.”

The first one seems redundant, but by having that condition appear rather than having it left blank eliminates a lot of needless questions by lenders simply doing their due diligence in making sure there wasn’t an error in generating the COE. It serves as confirmation that the COE was generated correctly. For the “CONTACT RLC” status, there is only one condition that will appear, and that is: “Funding Fee – Please fax a copy of the 26-8937 to the RLC of jurisdiction.” This simply serves as instructions to the lender on how to resolve the conflict.

There are other conditions that might appear on the COE that are not directly related to the funding fee. The can cover the veteran’s eligibility, entitlement, or any other information that the COE shows. The below table appears in the Handbook and quite clearly and succinctly explains the conditions:


Conditions What to Do
Valid unless discharged or released subsequent to the date of this certificate. A certificationof continuous active duty as of

the date of note is required.

Ensure the veteran is still on active duty before closing the loan. If the veteran is discharged or released prior to loanclosing, request a new eligibility

the determination from VA.

Excluded entitlement previously used for VA Loan IdentificationNumber (LIN) as shown hereinis available only for use in

connection with the property

that secured that loan.

If the entitlement used for the prior loan identified in this condition is needed for the proposed loan, ensure the proposedthe loan will be secured by the same property

as the prior loan. (Cash-out refinance on

a prior VA loan.)

Entitlement has been used for manufactured home purposes.Remaining entitlement foradditional manufactured home

use is: $ [amount].

If the proposed loan involves a manufactured home, adhere to the entitlement limit indicated.
Not eligible for any loan to purchase a manufactured home unit until veteran disposes ofunit purchased with

manufactured home loan

number VA LIN [number].

If the proposed loan involves a manufactured home, ensure that the veteran has disposed of the unit indicated.
Entitlement previously used forVA LIN [number] has been restored without disposal of theproperty, under a provision of 38

U.S.C. 3702b(4). Any future

restoration requires disposal of

all property obtained with a VA

This is information for the veteran. The lender need not be concerned if this the condition is applicable, as long as theavailable entitlement is shown on the COE

is sufficient for the lender’s purposes.


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