Disabled veterans can get some great benefits when getting a VA loan that can help with their finances when purchasing a home and in the future.
VA loans have some amazing features as it is — no down payment, no private mortgage insurance and low interest rates. But the potential of other benefits for those with disabilities take it over the top.
One of the best benefits includes a waiver of the upfront VA Funding Fee. The fee helps the VA keep the loan guaranty program running.
Many times, that fee is put into the loan itself which increases the monthly payments and the overall amount paid throughout the loan, says Shirley Mueller, senior loan originator specializing in Texas veteran and VA loans through First Choice Loan Services Inc. in Austin.
However, veterans with a 10 percent or more disability rating don’t have to pay that fee. That can be a huge savings. For instance, if a first-time homebuyer is buying a $300,000 home with a VA loan and qualifies for disability, the 2.15 funding fee is not charged. That saves the borrower $6,450.
That funding fee can go up all the way to 3.3 percent for veterans who already had a VA loan before and aren’t going to put any money down on the loan.
“Right now, I’m doing a loan for $390.000, and he had a VA loan before. So the funding fee goes up to 3.3 percent and that pushes is over the $12,000 mark,” Mueller says. “A funding fee can be very significant.”
Of course, many veterans don’t pay any down payment. So, the funding fee is higher for these individuals. For example, a regular military person putting no money down will pay 2.15 percent for the amount of the loan, if they are a first time user of a VA loan. That adds up to about $4,300 for a $200,000 loan. The money can be rolled into the loan. If this person already had a VA loan, the price would go up to 3.3 percent. Reservists or National Guard veterans or service members pay 2.4 percent for first time users.
About one-third of those getting a VA loan end up not paying the fee, most of them being disabled or spouses of deceased veterans.
Tax Exemptions Save Big Money for Disabled Veterans
Once a disabled veteran buys a house, they can be eligible for property tax exemptions and credits that help them out even more financially. The Disabled Veterans Property Tax Exemption varies from state to state. So check out the VA eBenefits portal to find what you might be eligible for in your area.
Some states – for example in Texas, Virginia, Florida and Hawaii — offer a full property tax exemption for veterans who are 100 percent disabled as a result of service. Other states offer certain dollar amounts of property tax exemptions for veterans disabled from 10 percent up as result of their service.
Tennessee gets specific by saying that a disabled veteran may receive a property tax exemption of up to the first $100,000 of his or her primary residence if the veteran is 10 percent disabled, has lost the use of two or more limbs or is blind in both eyes as a result of service.
“My best advice is to really finding someone (a lender) who is knowledgeable about the VA loan program,” Mueller says. “Some lenders don’t even know about the disabled part of it. That could be expensive for the veteran.”
Disabled Veterans buying a house might get income tax help
With a VA loan, some participants might also get another benefit in the form of a Mortgage Credit Certificate (MCC). This certificate permits a qualifying applicant purchasing a home to claim a tax credit that may reduce the applicant’s federal income tax liability.
It all depends on what your state deems as the credit amount, but it could still have a big effect on your bottom line. This is better than a tax deduction. If they meet the qualifying income limits, veterans can get a 20 percent tax credit off the amount of annual mortgage interest paid. A tax credit is taken directly off of the actual amount of federal tax due, which is even more beneficial than a tax deduction that simply deducts mortgage interest paid from your taxable income.
The veteran can then still write off the remaining 80 percent of the mortgage interest paid each year as a tax deduction.
Mueller said that disabled veterans must have a VA Disability Awards letter which states what their monthly benefit amount is and their disability rating.
“I work with a lot of disabled veterans, and many of them hadn’t been informed about all of their benefits, especially about VA loans,” she says.
“But even those who do know about their benefits are having to wait a long time to get them.”
In fact, she is working with a veteran who was just recently rated 100 percent disabled, had been waiting since 2010 for the VA to rate him.
“He wasn’t able to qualify for any of the programs for disabled veterans because they hadn’t rated im,” she says.
“But now, he’s getting a house with a VA loan, and he’s getting $3,100 in income which allowed him to qualify for that loan,” Mueller says.
Lee Nelson of the Chicago area writes for national and regional magazines, websites, and business journals. Her work has recently appeared in Realtor.org, Nurse.org, Yahoo! Homes, ChicagoStyle Weddings, and a bi-weekly blog in Unigo.com.