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??

  • 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!

  • 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%).

  • 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?

  • 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 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

  • 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?

  • 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.

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