VA loans

VA Loan Funding Fee Refunds: Cash Back?

November 22, 2018

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VA Loan Funding Fee Refunds: Cash Back?

va loanVA loans require payment of a VA loan funding fee. Some borrowers are exempt from paying this fee; the Department of Veterans Affairs does not require funding fees from veterans who receive (or are eligible to receive) VA compensation for service-related medical conditions.

But some vets don’t have official confirmation of their VA disability status when they are applying for a VA home loan.

In some cases, the veteran may be required to pay the funding fee and apply for a refund later when official notice is provided that the veteran’s disability status has been approved by the Department of Veterans Affairs. In these cases, a refund is due–but that refund is not automatic. Once the veteran gets notice of his VA disability rating, it’s up to the veteran to apply for the refund.

The real question in such cases isn’t whether or not the refund will be made, but how that refund is applied. VA loan rules forbid borrowers from getting cash back on new purchase transactions–does this rule also apply to funding fee refunds?

No, but the VA does have regulations on how the money is to be refunded based on how the funding fee was paid originally.

If the borrower paid the funding fee in cash, the refund is given back in the same way. But if the veteran included the VA loan funding fee into the loan amount, VA regulations prohibit getting cash back–the refund is applied to the loan balance instead. Here’s the exact wording of the VA loan rule as found in Chapter Eight of the VA Lender’s Handbook:

A refund is appropriate if:

  • an exempt veteran paid a funding fee, or
  • a miscalculation of the fee caused an overpayment.

If the veteran was overcharged, the following applies:

  • A veteran who paid cash for the funding fee receives a cash refund for the amount of the overpayment.

In the case of a veteran who paid the funding fee out of loan proceeds, the lender must apply the overpayment against the loan balance.  Submit evidence to VA that the refund was applied to the loan’s principal balance. ”

Do you have questions about the VA loan process? Ask us in the comments section.

16 Comments
  1. chasity degroat

    I just received my rating am I eligible for the refund on the funding fee??

    • Joe Wallace

      Call the VA about the VA loan funding fee refund application at 1-800-827-1000.

  2. Larry Zimmerman

    I paid $7755 in June of 2009. I had gooten my 10% service connected in April of 2009. I did not know it was waived or disaled Vets. In Oct of 2012 I sold the property. Is there any recoupment of that 7k now? Alos I am AGR that retires in April of 2013. Larry

    • Joe Wallace

      Hi Larry, thanks for your question. Contact the Department of Veterans Affairs at 1-800 827-1000 to inquire about a VA loan funding fee refund. You will need any loan documentation paperwork available to submit a refund claim. Hope this helps!

  3. Kerry Lyon

    I purchased my home in March 2010 and paid va funding fee (full rate). I refinanced about a year ago and paid va funding fee. I want to refi once more but I have to pay the va funding fee again on the same property (2.5%).

    • Joe Wallace

      Hi Kerry, that is correct--a new VA loan will require a VA loan funding fee unless you are exempt from the VA loan funding fee due to receiving or being eligible to receive VA loan disability benefits.

  4. JK rose

    I am in the process of getting a VA loan (July 2013). I will be retiring the end of Sep 2013 and have started the VA disability process (paperwork submitted, waiting on physical). Even though my disability rating will come after I close on my loan, am I still able to have the funding fee refunded?

    • Joe Wallace

      Yes--if you receive or are eligible to receive VA compensation for service-connected conditions. You may have to pay the VA funding fee up front, then apply for the refund (it is not automatic) once you have confirmation of your status with the VA.

  5. JK Rose

    Can you clarify this point for me + I have submitted a BBD - benefits before discharge and it was received by the VA in Detroit, MI, on 9 July 13. When I checked E-benefits, it stated that my claim is under review and my effective date is 1 Oct 13, one day after I retire. I hope to close on my VA loan next week and was told that I would not have my funding fee refunded if the effective date was after the closing date which it is. Is my disability is service related and was listed prior to my retirement physical (June 13), is this information correct or would I still be able to have the fee refunded? My lender unfortunately is giving me a run around and bad information.

    • David Marino

      I am in the exact same situation, except my retirement date is 31Oct13. Please answer. I plan to file for the refund as soon as I get my SC rating anyway, just good to know if I am going to have to fight for it. Thanks

  6. David Marino

    I did find this on the VA website. By reading the part between the *** it would seem we are eligible. You do not have to pay the fee if you are a: Veteran receiving VA compensation for a service-connected disability, OR ***Veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay*****, OR Surviving spouse of a Veteran who died in service or from a service-connected disability Here is the link: http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_fee.asp

  7. sixto d pacheco

    Can I get funding fee refund if I pay the full amount of the mortgage in one year instead of 30 years? Can I get a funding fee refund if I am service connected, but at 0% disability at this time?

    • Joe Wallace

      The answer to your first question is no--the VA loan funding fee is not refundable under such conditions. The answer to your second question may depend on a number of factors--you'll need to discuss the specifics of your case with the VA directly by calling 1-800 827-1000.

  8. Jan Rosales

    Hello: We have applied for and have received notification from the VA that our funding fee will be refunded to us with a cashier's check. We were told in the letter that this refunded amount must be paid on the principle of our home loan. We paid over $15,000 down in cash at closing because we were instructed by our lender it benefited us regarding the VA fees of our loan. It sounds from all I've read, if we are issued cash back, that is our money. Otherwise, the VA pays the refund directly to our lender. Is that correct? Thanks for any clarification you can add.

    • Joe Wallace

      Whatever guidance you received--from the Department of Veterans Affairs--would likely be the correct guidance. If that information came from the lender, you may wish to call the VA to get clarification. The nature of the VA loan funding fee refund may depend on how the funding fee was paid. If the funding fee was financed as part of the loan, it's likely that yes, that refund would be applied to the loan amount. Borrowers should know that a down payment on a VA loan is not the same as paying the VA loan funding fee up front--those who make a home loan down payment to lower the VA loan funding fee or because it was required up front in some situations--would not see that money refunded. Those who paid the VA loan funding fee in cash--which is viewed as a different transaction than making a down payment--should expect the funding fee to be refunded in the same way, in cash. Regardless, you should call the VA at 1-800 827-1000 for further clarification.

      • Jan Rosales

        Thanks for your input. I guess all that wasn't made clear when we closed on our house. We understood that since my husband was retiring from AD and we wouldn't have his disability rating for several months (a year, as it turned out), I thought our down payment funds were applied appropriately so that we could get that funding fee "back". I'm thinking now that might not have been the case. I'm not sure how to verify that but I'll keep searching. Our HUD-1 form lists our payment but does not break-down how it was applied. It just looks like a lump sum to our lender. I don't even see a place on the form that clarifies that the funding fee could be "paid by buyer" or "borrower". Disappointing that it's just another thing we've had to learn the hard way, I guess.

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