Every time you take out a VA loan, whether it’s a purchase loan or refinance, you pay a funding fee. This funding fee helps keep the VA in the business of guaranteeing 100% loans for veterans while providing flexible underwriting guidelines.
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Some veterans may find that they are exempt from this fee, but they have to meet certain requirements.
The Exempt Veterans
If you are in any of the following categories, you may be exempt from the VA funding fee:
- You receive disability compensation from the VA as a result of a service-connected disability
- You received a disability rating to receive compensation as a part of your discharge exam
- You are in the military but are eligible for disability compensation
- Surviving spouses of veterans that lost their life while on active duty or as a result of complications from their active duty
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If you are unsure if you qualify for a funding fee exemption, you can look at your Certificate of Eligibility. It will state on the certificate if you are exempt.
Becoming Exempt After you Close on Your Loan
Sometimes veterans don’t receive their disability rating on time. They have to close on their loan per the purchase contract, but are waiting on word from the VA if they are exempt from the funding fee. In this case, you’ll have to pay the fee, which if you were in the active military is 2.15% of your loan amount. But, you’ll be eligible for a refund should you receive your rating after the closing.
The key is the date that the VA notes for yourdisability. If they pre-date it to the actual date that your disability began and that is before your closing date, you can get your VA funding fee refunded. Here’s how that works:
- If you paid the funding fee at the closing with your own funds, the VA will issue you a check. You can then do what you wish with the funds.
- If you wrapped the VA funding fee into your loan amount, the VA will credit your principal balance on your home loan the amount you paid. You will not receive cash in your hand in this case, but you’ll pay your loan down faster.
What are the Funding Fees?
You pay the funding fee every time you buy a home with VA financing or when you refinance a loan. When you buy a loan, you will likely pay 2.15% of your loan amount. If you were in the Reserves or National Guard, you will likely pay 2.4%.
These amounts apply to you if you refinance too. The only exception to the rule is if you use the VA IRRRL program. In this case, you only pay 0.5% of your loan amount for the VA funding fee.
No matter if you are exempt from the funding fee from the start or you obtain your rating after you close on the loan, it’s the lender’s responsibility to verify the status. Of course, if you know you are exempt or will become exempt, you can follow up on the status to make sure you don’t pay a fee that you aren’t obligated to pay.
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