VA loans

VA Loan Questions: VA Loan Funding Fee Refunds

July 19, 2013

VA Loan Questions: VA Loan Funding Fee Refunds


A reader asks, “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?”

The VA loan funding fee may be refundable in cases where the borrower’s status could not be determined before the loan closes. Let’s examine what VA Pamphlet 26-7 Chapter Eight has to say on this issue. This is written as guidance to the loan officer processing the VA home loan:

“If the veteran’s exempt status cannot be verified prior to loan closing, the funding fee must be remitted as if the borrower was not exempt. Indicate in the closing package that the veteran claims exempt status. VA will determine the borrower’s status and refund the funding fee if appropriate.”

Additionally, Chapter Eight says, “If the veteran has a pending disability compensation claim at the time of loan closing, the funding fee must be remitted as if the borrower was not exempt. Advise the veteran to contact the VA Regional Loan Center to request a refund if it is later determined that the veteran is entitled to compensation retroactively to a date prior to loan closing.”

VA loan funding fee refunds are NOT automatic. The borrower can work together with the lender to request this refund, but don’t expect the refund to be initiated by the VA–the borrower must make the request and provide evidence that VA compensation is being received or that the borrower is eligible to receive such compensation.

It’s important to point out that the VA has the final say in all cases regarding VA loan funding fee refunds. The VA determination is final–borrowers should consult the Department of Veterans Affairs as soon as they anticipate the possibility that they could be eligible for a VA loan funding fee refund. Call 1-800 827-1000 to learn how to apply for the refund and get advice on how to proceed.

Do you have questions about VA home loans? Ask us in the comments section.

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