It is possible to receive a refund on the VA funding fee. Borrowers may be eligible for a refund if awarded VA compensation for a service-connected disability - bearing the effective date of the VA compensation is retroactive before the VA loan closing.
If you're looking to use a VA-backed mortgage, odds are you will run into the VA Funding Fee.
The VA Funding Fee is a set fee applied to every VA loan. Some buyers are exempt from paying the fee; others are eligible to receive a refund after closing.
This fee has an essential reason for being - to cover losses in the event of a loan goes into default and keep the VA loan program running for future generations of military homebuyers.
The funding fee applies to all purchase and refinance loans and is 2.30 percent of the loan amount for most first-time buyers.
However, veterans and military buyers who receive compensation for a service-connected disability don't have to pay this fee. Neither do surviving spouses, purple heart recipients, or veterans rated eligible to receive disability compensation as a result of a pre-discharge exam or review. Veterans on active duty who are entitled to receive disability compensation are also exempt.
There are times when VA buyers pay the funding fee at closing but can later obtain a refund. Let's take a closer look.
Your Certificate of Eligibility (COE) typically denotes whether you're exempt from paying the funding fee. But there are times when things aren't as straightforward.
In some cases, borrowers will have a disability claim pending at the time of their loan closing. Others might be planning to file a claim at a later date.
Depending on the specific circumstances, some borrowers will be eligible for a refund of the funding fee after closing.
In terms of the mortgage process, it's the lender's responsibility to verify the borrower's funding fee exemption status.
Lenders will rely on the VA to guide the way. Veterans and service members will need to pay the funding fee at closing unless lenders have clear documentation from the VA indicating they're exempt - that includes borrowers with a pending disability claim.
The funding fee exemption question can get thorny for buyers transitioning from the service back into civilian life. The VA has updated guidance in this area in recent years.
Today, service members with a pending pre-discharge claim can be exempt from the fee, provided the lender obtains a proposed or memorandum rating from the VA prior to the loan closing. Without that documentation in hand, the buyer would not be exempt from the fee.
Since the VA funding fee goes directly to the Department of Veterans Affairs (VA), it's ultimately up to the VA to determine your refund eligibility.
Borrowers would typically start the refund process by contacting their original lender or servicer. You can also talk with your VA Regional Loan Center for more information.
Talk with your mortgage lender or servicer if you have questions about getting a refund of the VA Funding Fee.
VA loans allow Veterans to have a co-borrower on the loan. Here we break down co-borrower requirements and provide common scenarios around co-borrowing and joint VA loans.
Your Certificate of Eligibility (COE) verifies you meet the military service requirements for a VA loan. However, not everyone knows there are multiple ways to obtain your COE – some easier than others.