Veterans have the benefit of securing 100% financing for their home purchase with a VA loan. That benefit does come at a cost, though. They must pay a VA funding fee. This funding fee helps the VA continue to guarantee loans for lenders, which means veterans can keep securing 100% financing. Even though there is a lack of mortgage insurance on VA loans, the VA funding fee still means veterans need a few thousand dollars to cover the funding fee cost.
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A veteran of the regular military pays 2.15% of their loan amount for the VA funding fee. On a $200,000 loan, that’s $4,300. When you add that to the closing costs, veterans still need to come up with a significant amount of money. Some veterans, such as the disabled, may be able to avoid this fee though.
How the Exemption for Disabled Veterans Works
Veterans hurt while in the line of duty or as a result of their time in the service may be exempt from the funding fee. Only the VA can determine this exemption, though. It depends on the veteran’s disability status. If the VA determines your disability is a result of your time in service and you receive disability pay from the VA, you may be exempt from paying the funding fee.
The only way a lender will know you are exempt is on your Certificate of Entitlement. If the VA agrees that you are exempt from the fee, it will be noted on your COE. If the exemption isn’t noted on the COE, the lender will make you pay the fee.
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Getting a Refund
There are some cases where a veteran doesn’t have a disability rating at the time of the mortgage closing, but gets it after the fact. Because the process takes a while, the VA offers a refund of the exemption fee if you can prove that the disability rating dates back to the date of the closing.
As long as the disability rating dates back to before the date of your closing, you can request a refund. The VA will process the refund according to the method you paid the fee. If you paid cash, the VA will send you a check for the VA funding fee refund. If you wrapped the fee into your loan, the VA will pay down the principal balance of your loan in the amount equal to the funding fee that you paid.
If you are working on your disability rating with the VA, you can either hold off on your mortgage or go through the process of requiring a refund of the fee after you receive the rating. Either way, you will get your money and be exempt from paying future funding fees, should you use VA financing again. You just have to be diligent about getting the rating and/or compensation from the VA that you deserve.
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