VA Disability Compensation and Your VA Loan BenefitIf you are a veteran getting ready to file a claim for VA disability compensation, it’s important to know how that claim could affect your VA loan benefit. Borrowers who receive or are eligible to receive VA compensation for service-connected disabilities or injuries are also exempt from the VA loan funding fee. That is an important thing–it can save you a lot of money on your VA home loan–but the exemption is not automatic.
Borrowers must apply for this exemption–you can get help doing so from the VA directly. But what are the compensations offered to veterans that may qualify for a VA loan funding fee exemption?
The VA official site lists three types of VA compensation:
- Disability Compensation is described on the VA official site, www.VA.gov, as “a tax free monetary benefit paid to Veterans with disabilities that are the result of a disease or injury incurred or aggravated during active military service. Compensation may also be paid for post-service disabilities that are considered related or secondary to disabilities occurring in service and for disabilities presumed to be related to circumstances of military service, even though they may arise after service.”
- Dependency and Indemnity Compensation (DIC) is defined by the Department of Veterans Affairs as, “a tax free monetary benefit generally payable to a surviving spouse, child, or parent of service members who died while on active duty, active duty for training, or inactive duty training or survivors of Veterans who died from their service-connected disabilities.” Talk to a VA loan rep about whether this compensation can help you. If you are a surviving spouse applying for a VA loan you may qualify for exemption from the VA loan funding fee.
- Yet another type of VA compensation paid to qualified veterans is called Special Monthly Compensation (SMC), defined as “an additional tax-free benefit that can be paid to Veterans, their spouses, surviving spouses and parents. For Veterans, Special Monthly Compensation is a higher rate of compensation paid due to special circumstances such as the need of aid and attendance by another person or a specific disability, such as loss of use of one hand or leg. For spouses and surviving spouses, this benefit is commonly referred to as aid and attendance and is paid based on the need of aid and attendance by another person.”
In some cases, VA loan funding fee exemption status may be listed on the applicant’s Certificate of Eligibility, and in others the borrower or lender may need to fill out VA form 26-8937, Verification of VA Benefits. In cases where exempt status cannot yet be verified because a claim is still pending, the borrower may be required to pay the funding fee up front and apply for a refund once exempt status is officially on record.
Do you have questions about VA home loans? Ask us in the comments section.