On June 23rd, 2022 a new circular Circular 26-22-12 added to Circular 26-22-02, published on January 6. Circular 26-22-12 is crystal clear, the update pertains to pre-discharge eligibility for VA benefits.
If the service member is active duty and has a pending pre-discharge disability claim with the VA, they may be risking being ineligible for the funding fee exemption. Lenders must submit VA Form 26-8937 to see if they qualify for the exemption. The loan must not close before the service member reaches memorandum status. Not receiving a rating before the loan closes forces the funding fee exemption to be inapplicable.
Veterans Benefits Administration
Circular 26-22-12 Specifically – “c. If the Service member is eligible for the home loan benefit and VA records indicate the Service member has a pre-discharge claim pending that has not been adjudicated, VA will submit the rating request to the Veteran Service Center (VSC). VA will update the COE funding fee status to Non-Exempt – In Development and issue the COE. The Service member is not exempt at this time. If a proposed or memorandum rating is not obtained, and the loan closing takes place before the Veteran is discharged from service, the funding fee exemption does not apply, and the Service member will not be entitled to a refund. VA will update and reissue the COE as appropriate based on the response received from VSC.”