If youre looking to use a VA-backed mortgage, odds are youll run into the VA funding fee.
The VA funding fee is a set cost applied to most VA loans that helps cover losses if a VA loan goes into default. The funding fee applies to all purchase and refinance loans and is typically 2.15 percent of the loan amount for most first-time VA borrowers.
However, some Veterans are exempt from paying the VA funding fee, while others may pay the VA funding fee upfront yet qualify for a refund after closing.
Here we learn who qualifies for a VA funding fee refund and how to obtain that refund.
The VA funding fee is a charge paid by most veterans and servicemembers when using a VA home loan to purchase or refinance a home. This fee helps the VA manage risk and cover losses if a VA mortgage goes into default. But did you know it’s possible to get a refund on the VA funding fee after closing in certain situations?
As a veteran myself, I learned the hard way that the VA funding fee can significantly add to your homebuying costs. When I bought my first home, I paid over $2,500 in VA funding fees alone! However, some veterans may qualify to have their funding fee fully or partially refunded by the VA after closing.
In this article, we’ll cover everything you need to know about getting a VA loan funding fee refund. I’ll walk through VA funding fee refund eligibility, outline the refund process, and provide tips for maximizing your chances of getting money back.
Who is Eligible for a VA Funding Fee Refund?
The main instance where the VA issues refunds on funding fees is if a veteran receives a retroactive service-connected disability rating after closing on their mortgage.
Here are the eligibility criteria to receive a VA funding fee refund
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You must be a veteran who received a VA home loan Active duty servicemembers generally aren’t eligible
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You need a service-connected disability rating from the VA dated prior to the closing date on your home loan.
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The effective date on your disability award must be retroactive to a date before you closed on the mortgage.
This mainly happens with active duty veterans who file a pre-discharge claim prior to separation from service. If the VA assigns a retroactive effective date for the rating to before closing, you can request a refund.
For example, if you closed on a VA loan on March 1, 2022, then later received a VA disability rating effective February 1, 2022, you may request a funding fee refund.
How Do I Apply for My VA Funding Fee Refund?
The process of obtaining a refund on the VA funding fee involves contacting either your mortgage lender/servicer or VA Regional Loan Center.
Contact your lender or servicer: As the VA pays refunds directly to the borrower, your first step is to inquire with your lender or mortgage servicer. Inform them you received a retroactive VA disability rating predating your home loan closing. They can advise if you qualify for a refund.
Contact VA Regional Loan Center: You can also contact your VA Regional Loan Center directly at 1-877-827-3702 to verify eligibility and begin the refund process. Have your VA disability award letter ready to verify dates.
Timeframe: Once approved, it takes approximately 10 business days to receive VA funding fee refunds. The refund will come directly from the VA as a mailed check.
Tips to Maximize Your Funding Fee Refund
Follow these tips if you have a pending disability claim and want to maximize chances of receiving a VA funding fee refund:
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File your disability claim pre-discharge – Get your claim submitted prior to separation from active duty for the best shot at a retroactive effective date on your rating.
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Consider waiting to buy – If possible, waiting to purchase until after you have a final rating decision can help avoid paying funding fees altogether.
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Ask about proposed ratings – Inquire with your lender whether a proposed or memorandum rating from the VA meets refund eligibility requirements.
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Understand COE limits – Your Certificate of Eligibility won’t denote refund eligibility; lenders need documentation directly from the VA.
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Track status changes – Monitor your disability claim status and notify your lender immediately if your rating changes.
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Appeal if denied – You can appeal to the VA if your refund request gets denied. Submitting an Intent to File preserves your effective date.
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Reapply annually – Request a refund every year after closing in case of status changes. The VA won’t do this automatically.
Can I Receive a Partial Refund on the VA Funding Fee?
The VA issues either full refunds or no refund at all on VA loan funding fees. Unfortunately, there is no provision for partial VA funding fee refunds.
If your disability rating entitles you to a full exemption from funding fees, you can get the entire amount back. But if your disability claim gets approved at a rating below the threshold for 100% exemption, no refund will be granted.
Do Refunds Impact My Mortgage Balance or Payments?
When you receive a VA funding fee refund check, the amount is paid directly to you as the veteran. The refund doesn’t automatically get credited towards your mortgage principal balance.
However, you have the option to take your refund check and make a one-time principal curtailment on your VA loan. This essentially makes a penalty-free extra payment on your mortgage to pay down the principal faster without altering your monthly payments. Doing so saves on interest charges over the loan term.
Before submitting extra payments, check with your lender or servicer to ensure the amounts get applied correctly. Mistakes can happen, so verify how unplanned lump-sum payments get handled for your specific mortgage.
Does the Refund Count as Taxable Income?
Unfortunately, yes. The IRS counts any VA funding fee refunds as taxable income for the year received.
So if you get a $2,500 refund, be prepared to pay income taxes on that amount when you file your return for the year. The refund isn’t treated as a tax-exempt benefit like certain other VA disability compensation.
When Do I Need to Repay the Funding Fee Refund?
The VA can seek recoupment of funding fee refunds if your disability rating is reduced below the threshold for exemption within the first 3 years after closing.
For example, say you received a refund due to having a 60% rating at closing. But in year 2 post-closing your rating gets lowered to 50% disabling. In that scenario, the VA may request you pay back the original funding fee refund amount.
To avoid repayment, make sure to appeal any proposed rating reductions within 1 year of notification from the VA. Get assistance from a veteran service officer or VA accredited attorney to fight improper reductions.
Am I Eligible for Retroactive Refunds on Prior VA Loans?
VA funding fee refunds can only be granted on your most recent VA home loan. Unfortunately, retroactive refunds aren’t available on older VA mortgages you previously paid off or refinanced.
The VA has no mechanism to reimburse funding fees from past loans, even if you later got rated disabled. Ensure you request refunds in a timely manner on your current mortgage to maximize recovery.
Can Surviving Spouses Get VA Funding Fee Refunds?
Yes, surviving spouses may also qualify for VA funding fee refunds under certain conditions.
If the deceased veteran spouse received a retroactive VA disability rating predating the home loan closing, the surviving spouse can request a refund after the veteran’s death.
Surviving spouses who haven’t remarried can also be exempt from the funding fee when obtaining a VA home loan in their own name. Make sure to explore all options to avoid paying the fee.
When Should I Request My Refund?
You have 1 year from the date on your retroactive disability award letter to apply for a VA funding fee refund.
I recommend requesting your refund ASAP once you receive notice of a retroactive rating to maximize chances it gets approved. Don’t let the 1-year deadline lapse.
Even if denied, reapply every year on the loan closing anniversary date. Disability rating changes could make you eligible for refunds on subsequent requests. Persistence and diligent record-keeping are key.
Can I Dispute a Denied VA Funding Fee Refund Request?
Yes, you can dispute a refund denial by submitting a Notice of Disagreement to the VA Regional Loan Center within 1 year of decision notification.
Clearly explain why you feel the denial was made in error and provide supporting documentation, such as your disability award letter. This preserves your effective date while the dispute gets reviewed.
Seek assistance from accredited VA attorneys or claims agents to help navigate the appeals process. Don’t let an unjustified denial cost you money owed!
Takeaways on VA Loan Funding Fee Refunds
Hopefully this article provided you with extensive knowledge on how to get refunds on VA home loan funding fees. Here are some key takeaways:
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Retroactive service-connected disability ratings can qualify you for refunds if predating your loan closing date.
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Work quickly and diligently to get your claim filed and obtain any proposed ratings before discharge from active duty.
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Contact your lender and VA Regional Loan Center to verify eligibility and initiate refund requests.
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Refunds come from the VA as one-time checks, but can be applied to mortgage principal for interest savings.
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Appeal any denied refund requests, and reapply annually in case your rating changes.
Navigating VA processes can be frustrating. But getting back funding fees you were overcharged is
Funding Fee Refunds and ETS
Questions on funding fee exemption can be especially tricky for buyers transitioning from the service back into civilian life. The VA has updated guidance in this area in recent years.
Today, service members with a pending pre-discharge claim can be exempt from the fee, provided the lender obtains a proposed or memorandum rating from the VA prior to the loan closing. Without that documentation in hand, the buyer would not be exempt from the fee.
Since the VA funding fee goes directly to the Department of Veterans Affairs (VA), its ultimately up to the VA to determine your refund eligibility.
Funding Fee Refunds and Your COE
Your Certificate of Eligibility (COE) typically denotes whether youre exempt from paying the funding fee. But there are times when things arent as straightforward.
In some cases, borrowers will have a disability claim pending at the time of their loan closing. Others might be planning to file a claim at a later date. Depending on the circumstances, some borrowers will be eligible for a refund of the funding fee after closing.
In terms of the mortgage process, its the lenders responsibility to verify the borrowers funding fee exemption status.
Lenders will rely on the VA for guidance. Veterans and service members will need to pay the funding fee at closing unless lenders have clear documentation from the VA indicating theyre exempt, which includes borrowers with a pending disability claim.
How Does a VA Funding Fee Refund Work?
FAQ
Is the VA funding fee refundable?
Can I claim VA funding fee on taxes?
Is the VA funding fee included in the loan?
Did VA complete home loan funding fee refund initiative?
VDOMDHTMLtml> VA completes home loan funding fee refund initiative – VA News The U.S. Department of Veterans Affairs (VA) recently completed an aggressive initiative to process home loan funding fee refunds to Veteran borrowers, issuing more than $400 million in refunds.
Can I get a refund of my VA funding fee?
The effective date of the disability compensation must be retroactive to a date prior to the date of loan closing. If you feel that you are entitled to a refund of the VA funding fee, please contact your mortgage holder or VA Regional Loan Center at (877) 827-3702 to request a refund.
Can I get a funding fee refund after closing on a VA loan?
The key is when the pre-discharge claim is adjudicated. According to VA policy guidelines, service members who receive a proposed or memorandum rating dated after closing on their VA loan are not eligible for a funding fee refund. If you’re unsure of your refund status, contact your lender, servicer or the VA Regional Loan Center at 1-877-827-3702.
What is a VA funding fee?
If you’re looking to use a VA-backed mortgage, odds are you’ll run into the VA funding fee. The VA funding fee is a set cost applied to most VA loans that helps cover losses if a VA loan goes into default. The funding fee applies to all purchase and refinance loans and is typically 2.15 percent of the loan amount for most first-time VA borrowers.
How do I get a refund from the VA?
If the VA approves your request, you typically receive the refund in one of two ways, depending on how you initially paid the funding fee. If you paid the fee in cash at closing, you will receive a cash refund for the amount of the funding fee.
Can a VA loan be refunded to a veteran?
Note: As VA issues funding fee refunds directly to the Veteran, VA will not pursue collection from the Veteran or otherwise be able to assist the lender in the event the lender pre-emptively reduces the principal balance of the loan or issues a refund to the Veteran.