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Guide to the VA Funding Fee Exemption

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You could save thousands of dollars on a mortgage backed by the U.S. Department of Veterans Affairs if you’re eligible for the VA funding fee exemption. The VA funding fee exemption is for veterans with disabilities related to their military service. In some cases, a refund can be given to a veteran who paid the fee even after a loan has closed.

In this guide to the VA funding fee exemption, we’ll discuss this special benefit available only to disabled military veteran borrowers.

What is the VA funding fee exemption?

The VA funding fee exemption is a special waiver for veteran borrowers who have become disabled as a result of their military service. The exemption allows eligible veterans to buy or refinance a home without paying the 0.5% to 3.3% VA funding fee normally charged to offset the taxpayer cost of the VA loan program. For a $200,000 VA loan, that could translate to $1,000 to $6,600 in VA closing cost savings.

Who is exempt from paying the funding fee?

You are exempt from paying the VA funding fee if you meet one of the following criteria:

  • You’re a veteran receiving VA disability pay for a service-connected disability
  • You’re a veteran who would be entitled to receive disability pay for a service-related disability if you weren’t receiving retirement or active-duty pay
  • You’re the surviving spouse of a veteran who died while on duty or as a result of a service-related illness or disability

In order to qualify for your your exemption, you’ll need to fill out the VA funding fee exemption form, as detailed in the next section.

How to fill out the VA funding fee exemption form

When you apply for a VA home loan, your lender will complete a form 26-8937 to confirm any disability compensation you receive and to determine if you’re eligible for the funding fee waiver. You’ll certify that you are receiving the benefit, and the form will be sent to the VA to verify the information.

In many cases, your certificate of eligibility (COE) will reflect your funding fee waiver status and show how much VA disability pay you receive every month. Your lender will automatically remove the funding fee from your loan upon receiving a COE with a funding fee  “exempt” status.

How can I get a VA funding fee refund?

You may be eligible for a VA funding fee refund if a pending disability claim is approved after your closing. As long as the VA disability pay is retroactive on a date before your mortgage closing, you qualify for a refund. For example, if you closed your loan on Aug. 30 and your disability compensation award is effective retroactively to Aug. 1, you’ll be eligible for the refund.

If you think you’re entitled to a refund, contact your lender or a VA regional loan center at (877) 827-3702. If your VA loan closed after July 1, 2019, the refund should be sent directly to you. For loans closed before July 1, 2019, the VA funding fee refund will be used to pay down the balance of your current mortgage.

Check your eligibility for VA disability income

The VA has a number of resources available to determine whether you’re eligible for VA disability benefits. Here’s a checklist of eligibility criteria.

You must meet both of the following requirements:

  • You served on active duty, active duty for training or inactive duty training
  • You have a disability rating for your service-related illness or injury

You must also meet at least one of the following conditions:

  • You became ill or injured while serving in the military, and there is a link between your service and your illness or injury
  • You had an illness before joining the armed forces, and serving caused it to worsen
  • You have a disability related to active-duty service that didn’t surface until after you completed your service

Checking VA disability benefit rate charts gives you an idea of how much disability income you might be eligible for. The final decision is made by the VA based on your disability claim.

 

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