How to Get a VA Funding Fee Exemption
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If you’re considering a home loan backed by the U.S. Department of Veterans Affairs (VA), you might save thousands of dollars if you qualify for a VA funding fee exemption. This exemption is reserved for military homebuyers with a service-related disability.
In some cases, if you’ve already closed your VA loan, you could be eligible for a VA funding fee refund, which could help you recover some of the closing costs you paid.
What is the VA funding fee?
The VA funding fee is a one-time charge that VA loan borrowers pay upfront as part of their closing costs. It’s meant to offset the home loan program cost to taxpayers.
The fee is calculated as a percentage of the VA loan amount and varies depending on the purpose of the loan, down payment amount and whether the military service member is a first-time or repeat borrower.
As an example, here is a breakdown of the funding fee percentages for both purchase and construction loans.
|2021 VA funding fee chart|
|Down payment percentage||First use of VA loan||Repeat use of VA loan|
|0% to 5%||2.30%||3.60%|
|5% or more||1.65%||1.65%|
|10% or more||1.40%||1.40%|
funding fees for VA refinances
If you’re going through the interest rate reduction refinance loan (IRRRL) program to get better terms on your VA loan, you’ll only pay a 0.5% VA funding fee.
You’ll have a higher funding fee when taking out a VA cash-out refinance, however. The funding fee on your first cash-out refi would cost 2.3% of your new loan amount. The fee jumps to 3.6% for repeat cash-out refi borrowers.
Who can get a VA funding fee exemption?
The VA funding fee exemption provides a special waiver for eligible military service members, veterans or surviving spouses that removes the funding fee from their closing costs. As the fee ranges from 0.50% to 3.60% of the loan amount, the exemption can translate to savings of $1,000 to $7,200 in VA loan costs on a $200,000 mortgage.
According to the VA, you may be exempt from paying the VA funding fee if:
- You’re receiving VA disability income for a disability related to your military service
- You’re eligible to receive disability income for a service-related disability but instead receive retirement or active-duty pay
- You’re a service member with a proposed or memorandum rating dated before your loan closing that states you’re eligible to receive compensation
- You’re an active-duty service member who has received the Purple Heart
- You’re the surviving spouse of a veteran who died while on duty or as a result of a service-related illness or disability
The VA has an online resource available to help you determine whether you’re eligible for VA disability benefits. The VA makes the final decision based on your disability claim.
How to complete a VA funding fee exemption form
To determine your eligibility for the VA funding fee exemption, your lender completes Form 26-8937 to confirm any disability payments you receive. You’ll then certify that you’re receiving those benefits, and the form is sent to the VA for verification.
In many cases, your certificate of eligibility (COE) will reflect your funding fee waiver status and show your monthly VA disability compensation amount. Your lender will automatically remove the funding fee from your VA loan costs upon receiving a COE with a funding fee “exempt” status.
How to get a VA funding fee refund
If you had a pending disability claim approved after your mortgage closing, you might be eligible for a VA funding fee refund.
To qualify for a refund, your VA disability compensation approval must be effective before your loan closing date. For example, if you closed your loan on Oct. 30 and your disability compensation award is effective retroactively to Oct. 1, you’re eligible for the refund.