When you’re starting the process of obtaining a U.S. Department of Veterans Affairs (VA) home loan, it’s imperative to determine your budget. This includes understanding the full extent of your loan, including any upfront costs, closing costs and more to ensure that you’re not overpaying.
One unique cost to VA loans is the VA funding fee, which is applied to all types of VA loans. However, there are some instances in which this fee can be waived. To learn whether you’re eligible for exemption from this necessary fee, read on.
What is the VA Funding Fee?
When you get any VA home loan, you need to pay a one-time fee to the Department of Veterans Affairs either as part of your closing costs or you can roll it into your loan amount. Because VA loans don’t require down payments or mortgage insurance, this fee is meant to lower costs of the loan for U.S. taxpayers
The actual amount of the fee depends on different variables of your loan, including your down payment, loan amount, type of loan and whether this is your first or subsequent time obtaining a VA loan.
You can also refer to the funding fee interest rate charts on the VA website to help determine how much you might pay.
Who is Exempt?
All borrowers must pay the VA funding fee unless you meet at least one of the following criteria:
- You have a service-connected disability that you’re receiving VA compensation for
- You’re eligible for VA compensation but are receiving retirement or active-duty pay for a service-connected disability
- You’re a surviving spouse and are receiving Dependency and Indemnity Compensation (DIC)
- You’ve received a proposed memorandum rating before the loan closing date that says you’re eligible to get compensation because of a pre-discharge claim
- You’re an active-duty service member who has received the Purple Heart
In some instances, you may be able to get a refund on a VA funding fee if you get compensation for a service-related disability.
How to Submit an Exemption Form
If you believe you’re exempt from a VA funding fee, your lender will fill out a Verification of VA Benefits form or Form 26-8937 and send it to the VA for verification. You may need to provide your VA claim folder number and/or service number to help fill out this form.
Once verified, your certificate of eligibility (COE) will show your funding fee status, and your lender can reference this document to determine your final closing costs.
Choosing Your VA Loan
The VA backs loans for a variety of home financing needs.
Purchase
With competitive interest rates and favorable terms, a VA purchase loan can help you buy, build or renovate a home. This type of mortgage is ideal for first-time homebuyers who may not have much saved since down payments and private mortgage insurance (PMI) isn’t required on VA loans.
Cash-Out Refinance
If you already have a mortgage and want to take advantage of your home equity or convert your non-VA loan into a VA loan, a cash-out refinance might work for you. Tapping into your home equity to get cash at closing can help you pay off debt, start remodeling projects, fund higher education or make big purchases. In addition, converting a loan into a VA loan may help you get rid of PMI or secure a lower interest rate.
Interest Rate Reduction Refinance Loan (IRRRL)
For those of you who already have a VA loan and want to lower your monthly payments or make them more stable, an IRRRL can help you skip some paperwork and get to closing faster. IRRRLs, also called streamline refinances, can help you secure a lower interest rate if they’ve dropped since you first obtained your loan or help you convert an adjustable-rate mortgage (ARM) into a fixed-rate mortgage to have more predictable payments.
Native American Direct Loan (NADL)
Buy, build or renovate a home on federal trust land with a NADL if you’re a veteran and you or your spouse are Native American. Keep in mind that your tribal government will need to have an agreement with the VA that outlines how this program will work.
Know Your VA Advantages
Before you start the VA loan process, ensure that your COE shows your funding fee status so you can receive your exemption from this cost if you’re eligible. This can potentially save a significant amount of money that you can otherwise use towards a down payment, renovations or other closing costs.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
