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VA Loan Questions: VA Funding Fee Exemptions for Disabled Veterans

A reader asks, “I was told when I separated from the US Air Force that I was eligible for a VA funding fee refund because I am a 90% disabled vet. Is that true and if so where do I start to get the refund?”

The answer to this particular question depends on where the veteran is with two processes–house hunting and the VA disability claims process. For borrowers who are looking for a home, it’s important to discuss VA funding fee exemptions with the lender.

The borrower who already has VA recognition of his or her service-connected disabilities must furnish VA Form 26-8937, Verification of VA Benefits, indicating the borrower’s exempt status. If this verification is not available prior to closing the loan, the borrower is required to pay the VA loan funding fee and apply for a refund once VA Form 26-8937 is available. Ask your lender where to send this form.

The reason for this is simple–the VA loan program does not automatically grant exemptions to the VA loan funding fee–borrowers must be recognized by the VA as an eligible veteran with service connected disabilities. VA loan rules say any veteran currently receiving VA compensation or who is eligible to receive VA compensation for service connected conditions–as recognized by the Department of Veterans Affairs–is eligible for the VA loan funding fee exemption.

For those who can submit VA Form 26-8937 prior to paying the fee, the exemption applies. For those who cannot, the refund of the VA loan funding fee is NOT automatic; it must be applied for. Discuss this situation with your lender in detail during the application process and/or once you’ve received official notification from the VA of your exempt status. You can also call the Department of Veterans Affairs at 1-800 827-1000.

About Joe Wallace

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association.

4 Responses to VA Loan Questions: VA Funding Fee Exemptions for Disabled Veterans

  1. Dan Jaminal says:

    I am under conventional loan and I would like to refinance under VA loan but my property is underwater for almost $100,000. I paid my mortgage on time and my credit is excellent. Do you think I could refinance my mortgage loan into VA loan. I have 70% disabilities right now. Your respond will be appreciatted very much. Thank you.

    • Joe Wallace says:

      Have you approached a participating VA lender about your refinancing needs? The first step is to shop for a lender who can discuss your possible options.

  2. Louise Hatcher - for my husband Herbert J Hatcher says:

    My husband and I are in the process of purchasing a home. All is going well, except the VA has refused to allow us to get the VA Funding Fee, which amounts to a little over $5,000.00. In the Certificate of Eligibility the Funding Fee was named Non Exempt. My husband was discharged (honorable) from the Navy in 1946. There are no service related illness, but since 2007 he has been ill. The VA (Boise) has diagnosed him as catastrophically disabled. He is legally blind and has vascular dementia. He is getting a monthly allowance from the VA and because of this we were told that they will not give us the Funding Fee.
    Any answer you can give us would be very much appreciated.
    Thank you,
    Louise Hatcher

    • Joe Wallace says:

      The VA Loan Funding Fee is a fee paid BY the borrower, not TO the borrower. The funding fee is not paid by borrowers who receive or who are eligible to receive VA loan benefits for service-connected medical conditions. Therefore, a veteran who is currently receiving or eligible to receive VA loan benefits would be exempt from paying the fee–but this exemption is NOT automatic. It must be applied for. Contact the VA directly at 1-800 827-1000 for assistance in applying for the VA loan funding fee exemption or discuss the matter with your lender.

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