You may know that the Department of Veterans Affairs-backed home loan is one of the better benefits for which most veterans are eligible.
You also may know the program lets you get a home loan with no down payment, something that most civilians can't do.
What you may not know is that the VA charges you a "funding fee," which is required by law and used by the department to offset the taxpayers' cost of offering the benefit. This funding fee can range from 1.25% to 2.4% of the loan value for first-time homebuyers.
Let's see what funding fees are for first-time homebuyers:
Veterans Who Served on Active Duty
|Down Payment||Funding Fee|
|5% or more||1.5%|
|10% or more||1.25%|
|Down Payment||Funding Fee|
|5% or more||1.75%|
|10% or more||1.5%|
For second, and subsequent VA loans, the funding fees are higher.
This means that if you are a veteran who served on active duty and you buy a $225,000 house with no down payment, you will have to pay the VA a funding fee of $4,837.50. Ouch!
But there is a little-known exemption to this rule. Veterans who have been awarded a VA disability rating are exempt from the funding fee.
Surviving spouses of veterans who died in service or as a result of a VA-rated disability are also eligible for this exemption.
This is old news. Disabled veterans have been exempt from the funding fee since 1982, but the way VA is notifying veterans is new.
In the past, the VA would rely on the lender to notify veterans of their eligibility for a waiver of the funding fee. While a veteran's Certificate of Eligibility for a home loan usually contains wording that states whether he or she is eligible for a funding fee waiver, it is often overlooked.
I just looked at my Certificate of Eligibility on eBenefits, and it states in three different places that I am exempt from the funding fee as a disabled veteran. However, it is apparently enough of a problem that the VA has also modified the "home loan welcome" letter to make sure veterans know they may qualify for a loan fee waiver. It also added wording to the disability compensation award letter and made the notice more visible on the Home Loan Certificate of Eligibility.
The VA says that veterans who apply for disability compensation but get a VA home loan before a decision has been made on their disability claim can get a waiver of the funding fee if their compensation is approved after they pay the fee.
If you feel you may have paid the funding fee in error, you should contact the VA and your lender to fix it. You may just get a big chunk of change back for your troubles.
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