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Video — Funding Fee Exemptions Could Save Thousands On Your VA Loan

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This video could save some veterans thousands. VA loan applicants pay a funding fee - as of 2014, 2.15% of the total loan amount - which can be thousands of dollars.Some veterans and spouses are eligible for exemption. Broadly speaking, veterans who received disability benefits - current or former and who are NOT currently in debt to the government may be exempt from the funding fee.Some spouses may qualify as well. The key thing to understand is, exemption from the funding fee is NOT automatic! Borrowers must certify their veteran status, government debt, benefits and active service stateon VA Form 26-8937. It is important to tell your mortgage company that they need to submit this form EARLY in your home-buying process - if they just look up your records without submitting the form the VA will not begin the review and approval process and your home purchase could be delayed by weeks.

The VA Loan Funding Fee

A VA home loan is one of the first things military members think about when they want to buy a home.

The VA loan is a good choice because it is affordable. There is no need for a down payment or private mortgage insurance.

But even for people who have used a VA loan before, it can be hard to figure out all the details of the fees.

The funding fee is one of these parts of the VA home loan process. Almost every VA purchase and refinance loan has to pay this fee. Only a few loans don't have to pay it.

Details on the funding fee

The Department of Veterans Affairs says, "If you use a VA home loan to buy, build, improve, repair, or refinance a home, you'll need to pay the VA funding fee unless you meet certain requirements."

The funding fee helps pay for the costs that come up when VA-backed loans go bad.

The funding fee also keeps U.S. taxpayers from having to pay for the loans all by themselves.

All of the funding fees go to the Department of Veterans Affairs to make sure that service members will be able to get VA loans in the future.

The amount of the funding fee depends on several things, such as the details of the service member's time in the military, whether or not a down payment is made, and how many times the loan benefit has been used.

Active-duty service members, along with members of the National Guard and reservists, usually pay the least amount of funding fees.

A VA lender, Veterans United, says that this fee can be anywhere from 0.5% to 3.6%. Most Veterans pay 2.3%.

Here is how the VA figures out how much the fee is.

In a typical situation, if someone bought a $400,000 house with a 5% down payment, they would have to pay a $9,200 funding fee.

The funding fee only applies to the amount of the loan, not the price of the home.

Fees for funding and VA refinancing

If the service member already has a VA loan, there are two ways to refinance that require funding fees: the Interest Rate Reduction Refinance Loan (IRRRL) and the cash-out refinance.

The Loan to Lower the Interest Rate (IRRRL)

IRRRLs are made to help VA homeowners lower their mortgage rates or get out of a loan with a changing interest rate. "Streamline" or "VA to VA" are other names for these loans.

If the homeowner is not exempt, they have to pay a 0.5% funding fee.

It doesn't matter how many times the member has used the VA home loan benefit or what kind of service they did.

The only cost the VA has to pay for an IRRRL is the funding fee. It can either be paid for in cash or added to the loan.

Refinance with Cash-Out

Cash-out refinance fees are similar to those of a typical VA purchase, but the borrowers are not eligible to lower their funding fees by using equity or making a down payment.

Can the funding fee be skipped?

Yes. There are a few official ways to get out of paying the funding fee. The VA also has the right to look into and research requests for funding fee exemptions that are out of the ordinary.

If you get disability payments every month, you should tell your loan officer so you can get the right exemption.

Funding Fee Waiver Eligibility

More specifically, these people don't have to pay funding fees:

  • Any veteran who gets money from the VA for a service-related disability
  • Veterans who are disabled because of their service and don't get retirement pay or pay for being on active duty can get compensation.
  • Dependency and Indemnity Compensation (DIC) is paid to the surviving spouses of veterans who died in service, because of a service-related disability, or because they were totally disabled and could no longer work.
  • A service member with a proposed or memorandum rating who says they are eligible for compensation because of a pre-discharge claim before the loan closing date.
  • A service member on active duty who, before or on the loan closing date, shows proof of having received the Purple Heart

If you think you should get a refund, call your VA regional loan center at 877-827-3702 between 8 a.m. and 6 p.m. ET, Monday through Friday.

If the veteran's exempt status can't be confirmed before the loan closes, the funding fee must be paid as if the borrower wasn't exempt.

How do I pay for the funding fee?

As part of the process of giving a mortgage, the lender checks the status of the funding fee.

The VA says that lenders can't tell veterans who think they don't have to pay the funding fee to close on a loan before they find out if they are exempt from paying the funding fee.

The VA sends a certificate of eligibility (COE) that says if there is a funding fee or not. In 2011, the VA made funding fees a part of the COE.

The lender will then get the funding fee at the closing of the loan process.

Because the fee is probably thousands of dollars, most borrowers choose to roll the funding fee into the loan. They can also pay cash or ask the seller to pay.

Funding Fee FAQs

How can I get my funding fee to be less?

As shown in the charts above, if you put down at least 5%, your funding fee will go down.

No down payment is needed for a VA home loan. But if it's your first time getting this kind of loan, putting down 5% will lower the funding fee from 2.3% to 1.65%.

If you put down 10%, the funding fee will go down even further, to 1.4%.

Do Sellers Ever Pay Funding Fees?

Yes, a seller concession can sometimes include paying the VA funding fee for the home buyer. Your real estate agent can help you make a deal on this item.

Who is in charge of the funding fee?

The U.S. Congress set up the funding fee, and it is also in charge of the rates. Congress also decides how long the funding fee will last.

What should I do if I think I paid too much in funding fees?

When the VA or the veteran tells the lender or servicer that the funding fee was overpaid, the lender or servicer must start a request in the Funding Fee Payment System (FFPS) within three business days. This request must include a request for a retroactive refund.

If a veteran is overcharged for a funding fee, they will get a cash refund if they paid cash, or the overpayment will be added to the loan balance if they financed the fee.

What Happened to the Fees for VA Funding in 2019?

Late in 2019, the VA finished a project to give back more than $400 million in funding fees to veterans who took out VA-backed home loans. The project was based on a review of millions of VA-backed home loans made over almost 20 years.

The veterans' loans had been charged with a funding fee by mistake.

The VA's inspector general found in a report that between 2012 and 2017, the VA charged disabled veterans funding fees even though they were exempt.

How do I find the best lender?

Buying a home with a VA loan takes a lot of time and is often hard to understand, not just for the borrowers but also for real estate and mortgage professionals who haven't worked with the VA a lot. It is very important to do research and get recommendations for both providers.

Find a lender who knows about VA loans is a good first step. Our tool will find you up to five rates from different lenders and let you compare the financial and non-financial factors of each (such as customer service).

How Would My Lender Verify My Exempt Status?

If you think you don't have to pay the funding fee, your lender will help you fill out the right forms. A lender must find out if a borrower is exempt by getting one of the following:

  • A properly filled out and signed VA Form 26-8937, Verification of VA Benefits, that says the borrower is exempt and is signed by the borrower.
  • For a veteran who chose service retirement pay instead of VA compensation, a copy of the original VA notification of disability rating and proof of the veteran's service retirement income, or an indication on the certificate of eligibility (COE) that the borrower is entitled as a single surviving spouse.

What About the Spouse Survivors?

The lender doesn't have to send proof if the borrower is a qualified surviving spouse or if the proof was already sent to the VA with the loan application as proof of the veteran's income.

What Would I Do If I Got a Purple Heart?

When getting a VA home loan, active-duty service members are the only ones who can get their funding fees waived. If you leave ETS before your house closing date, you must pay the funding fee unless you are exempt in some other way.

If you can, talk to your lender about changing the date of your closing before your ETS.

Adan Harris
January 27, 2023
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