Veterans have the advantage of flexible financing options. You can buy a home with no down payment, less than perfect credit, and high debt-to-income ratios. The VA offers this flexible program for veterans that served our country in the regular military, Reserves or National Guard.
Every time you take out a VA loan, you must pay a funding fee. That’s the only fee the VA collects. This fee helps them remain self-funded and guarantee VA loans for veterans. The guarantee is what lenders rely on to write these ‘risky’ loans for veterans.
The funding fee can cost between 2.15% and 2.4% of your loan amount. If you borrow $200,000, that means paying between $4,300 and $4,800. But some people may be exempt from this fee.
Who is Exempt?
Veterans that received a disability rating from the VA may be exempt from this fee. Also, surviving spouses of veterans that lost their lives during active duty or as a result of their time in the military may be exempt.
How do you Know?
In the past, veterans had to rely on their lender to tell them if they were exempt from the fee. It was located obscurely on the Certificate of Eligibility. If veterans didn’t know, or the lender didn’t know, they would have to question the VA, which took time.
Today, the VA lets veterans know in a few ways:
- In the ‘Welcome to the VA Home Loan’ letter, it states whether or not you may be eligible for the exemption
- Your disability letter from the VA will also state that you are exempt from the funding fee
- It’s also more visible on your COE
Veterans that already have a disability rating should know beyond a doubt that they qualify for the exemption.
If you have a disability rating, it’s worth asking the lender about your ability to waive the fee.
What if You Don’t Have the Rating Yet?
Getting the disability rating sometime takes time, especially if your disability occurred after you left the service. If you find yourself applying for and closing on your VA loan before you receive your rating, you will have to pay the funding fee.
Fortunately, you can get the money back if you end up with a disability rating. Once you have proof of the rating, you can contact your lender or your local VA’s office. They can help you get your refund, but a few things must occur:
- You must have paid the funding fee or wrapped it into your loan amount
- The date of the disability must be retro dated to a date before you closed on the loan
If you meet these requirements, you can request a refund. The VA will refund you the money in the same manner that you paid it:
- If you paid the funding fee yourself at the closing, the VA will issue you a check for the amount of the refund.
- If you wrapped the fee into your loan, the VA will pay the exact amount of your principal down that you paid in the funding fee.
Do you Always Pay a Funding Fee?
Keep the funding fee exemption in mind in the future too. Any time that you take out a VA loan, you pay the funding fee. the amount you pay may vary based on the situation. Standard purchase loans with no down payment require a 2.15% or 2.4% fee (military or Reserves accordingly).
But, if you use your benefit a subsequent time or you make a down payment, your fee may differ. If you make a down payment, your funding fee decreases. This is because you take some of the risk off the lender/VA. When you invest your own money into the home, you are more likely to make your payments on time.
Always talk to your lender if you think you are exempt from the VA funding fee. While it may delay your closing slightly, it can save you thousands of dollars in the end. If you find that you are exempt after you close – it’s not too late! Get your refund and put that money toward your loan principal to earn equity in your home faster and to own your home free and clear faster.