Home mortgages guaranteed by the Department of Veterans Affairs (VA) are a valuable benefit of military service. One of the characteristics of a VA-backed home loan is that you have to pay a funding fee when you get the loan. However, some folks are exempt from the funding fee. If you pay the funding fee, and then become exempt from the fee, you may be eligible for a refund of the fee you paid.
Why Is There A VA Funding Fee?
The funding fee pays for administrative costs of the VA Home Loan Guaranty program, and it also covers the costs of loans that go into default. The funding fee is the way that the VA loan program continues to exist even though some people don’t end up paying back their loans.
How Much Is The VA Funding Fee?
The VA Home Loan funding fee is a percentage of the amount borrowed. The percentage varies based upon the amount of down payment and whether it is your first or subsequent use of the loan program.
VA Home Loan Funding Fee Chart
|Type of Veteran||Down Payment||First Use Fee||Subsequent Use Fee|
|Active Duty Service||None||2.15%||3.3%|
|Active Duty Service||5% or more||1.5%||1.5%|
|Active Duty Service||10% or more||1.25%||1.25%|
|Guard and Reserve||None||2.4%||3.3%|
|Guard and Reserve||5% or more||1.75%||1.75%|
|Guard and Reserve||10% or more||1.5%||1.5%|
Who Is Exempt From Paying The VA Funding Fee?
You are exempt from paying the funding fee if:
- You are receiving VA compensation for a service-connected disability, or
- You would be entitled to VA compensation for a service-connected disability but you choose not to waive your military retirement pay, or
- You are rated by VA as eligible to receive compensation as a result of pre-discharge disability examination and rating or on the basis of a pre-discharge review of existing medical evidence (including service medical and treatment records) that results in issuance of a memorandum rating (you would probably know if this applied to you,) or
- You are the surviving spouse of a veteran who died while serving, or from a service-connected disability.
Who Is Eligible For A Refund of the VA Funding Fee?
There are many situations where a veteran has initiated the VA disability process, and purchases a home before they have received their final rating. If you buy a home, and pay the funding fee, you may be eligible for a refund of the funding fee if:
- you are subsequently awarded VA compensation for a service-connected disability, and
- the effective date of the award is prior to the date of the loan closing.
What If I Buy A Home While Waiting For My Rating?
If you buy a home while awaiting your rating, whether you are eligible for a refund of the funding fee will depend on the effective date of your disability award, and the date that you closed your loan.
In general, if a veteran applies for disability compensation within 1 year from the date of their discharge, the effective date of the award is the day following the discharge. (For purposes of this, a retirement is a type of discharge.)
If the veteran applies for disability compensation more than 1 year from their discharge, the effective date of the award may vary. You should verify this information on your award letter or by contacting the Veteran Service Center.
If the effective date of the award was a date prior to loan closing, you are eligible for a refund of the funding fees.
If the effective date of the award was after loan closing, you are not eligible for a refund of the funding fees.
What If I Buy A Home While On Terminal Leave?
If you buy a house while you are still serving, you will not be eligible for a refund of the funding fee because your effective date is the first day after you are no longer serving. There may be unique exceptions for those who are recalled to active duty and are waiving VA compensation while serving, or those serving in the National Guard or reserve while eligible for VA disability compensation.
How Do I Apply For A Refund of the VA Funding Fee?
You should start the process with your current loan servicer. Call first to see if they have a preferred process. If they do not, then you can send a letter requesting a refunding of the funding fee. You will need to include a copy of the disability award letter, a copy of the signed closing disclosure, and a copy of the current mortgage statement. If you are unable to include a copy of the disability award letter, the reviewer may be able to verify your eligibility within the VA’s system, but it is a lot easier to include the required information.
If you are unable to get cooperation from your servicer, then you can reach out to the VA for help at 1-877-827-3702.
How Is The Funding Fee Refunded?
The funding fee is refunded in the same format that you paid it. Therefore, if you paid your funding fee out of your own funds, then you will receive your refund in the form of a check. If you financed the funding fee as part of your loan, often called “rolling in,” then the refund will be sent to your current loan holder, who will apply it to the principal balance of your loan.
Much of this information comes from the following Word document, which will open automatically if you click on it: https://www.benefits.va.gov/WARMS/docs/admin26/m26_01/M261_Chapter%203%20-%20Fees%20and%20Charges%20Paid%20by%20the%20Borrower%20FINAL.docx
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