If you’re looking to land a VA-backed mortgage, you’re going to 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 important reason for being - to cover losses in the event of a loan goes into default and to keep the VA loan program running for future generations of military homebuyers.
The funding fee applies to all purchase and refinance loans and is 2.15 percent of the loan amount for most first-time buyers.
But veterans and military buyers who receive compensation for a service-connected disability don’t have to pay this fee. Neither do surviving spouses and 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.
Funding Fee Payment Status
Your Certificate of Eligibility (COE) will usually denote whether you’re exempt from paying the funding fee. But there are times when things aren’t as clear cut. 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 some later date.
Depending on the specific circumstances, some borrowers will be eligible for a refund of the funding fee after they’ve closed on their home purchase.
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.
VA Funding Fee Refunds
A VA funding fee refund is appropriate if a homebuyer's disability award comes in after closing and is retroactive to before their closing date.
You may also be eligible for a VA funding fee refund even if you don’t have a claim pending at closing. If you pay the funding fee and then later learn you’re entitled to disability income retroactively to a date before your loan closing, you can also seek a refund.
Since this fee goes to the VA, it’s ultimately up to them to determine your refund eligibility. They will consider when the loan closed, the effective date of the disability award and when the application for disability is filed.
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.
The VA typically refunds veterans based on how they paid the funding fee in the first place.
This is the only closing cost on a VA purchase that borrowers can roll into their loan. Some choose pay it in cash at closing or ask the seller to cover it, but most VA borrowers wind up financing this fee.
If you paid it in cash at closing, you’ll get a cash refund. Veterans who finance the funding fee will see the lender reduce that amount from their loan balance.
It’s even possible to seek a refund after the original loan has been repaid.
Talk with your mortgage lender or servicer if you have question about getting a refund of the VA Funding Fee.