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 loan benefits have some amazing features as it is — no down payment, no private mortgage insurance, and low interest rates — that are available to eligible veterans, active-duty service members, and surviving spouses. But the potential of other benefits for those with a service-connected disability are also very valuable.
One of the best benefits includes a waiver of the upfront VA Funding Fee. The fee helps the U.S. Department of Veterans Affairs keep the loan guaranty program running.Check your VA home loan eligibility. Start here (Sep 23rd, 2023)
What is the VA funding fee?
The VA funding fee is a percentage of the total loan amount that is paid to the U.S. Department of Veterans Affairs upon closing.
This fee was established to enable the VA home loan program to be financially self-sustaining.
How much is the VA funding fee?
The amount of the funding fee is typically between 2.3% and 3.6% of the total loan amount, but this is variable based on the size of the down payment, the type of loan (refinance or purchase), and the nature of the borrower’s military service.
For example, a veteran or active-duty service member putting no money down will pay 2.3% of the loan amount if they are a first-time user of a VA loan. That’s a savings of roughly $4,600 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 3.6 percent. Reservists or National Guard veterans also pay 2.3% percent for first-time use.
About one-third of VA loan borrowers are eligible for a funding fee exemption, which means they pay no funding fee toward the purchase of their new home. The funding fee represents a significant portion of the closing costs for a VA loan, which means the savings can be substantial.
The funding fee for a refinance loan is much smaller. Borrower can expect to pay a funding fee of 0.5% when refinancing, regardless of how many times they do it.
Though the funding fee is due at loan closing, a VA lender will allow you to finance it into the overall amount of the loan — which means you’ll pay off the funding fee as you make monthly payments toward your mortgage.
VA funding fee exemptions
While most borrowers will pay a funding fee, some borrowers are eligible for a funding fee exemption.
Talk to your lender about a funding fee waiver if you:
- Receive VA disability compensation
- Receive active duty or retirement pay even though you’re eligible for disability pay
- Are the surviving spouse of a veteran who died in the line of duty or from a service-related disability
- Are on active duty and have received the Purple Heart
A VA mortgage lender will be able to help you determine by status, including by requesting your Certificate of Eligibility (COE). A funding fee waiver can make becoming a homeowner easier.
What that means for VA borrowers
Veterans with a 10% to 100% disability rating don’t have to pay the VA funding fee, which can mean huge savings.
If a first-time homebuyer is buying a $300,000 home with a VA mortgage loan and qualifies for disability, the 2.3% funding fee is not charged. That saves the borrower $6,900.Check your VA mortgage rates. Start here (Sep 23rd, 2023)
Tax exemptions could 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. Check out the VA eBenefits portal to find what you might be eligible for in your area.
Some states – for example Texas, Virginia, Florida, and Hawaii — offer a full property tax exemption for veterans who are 100% disabled as a result of service. Other states offer certain dollar amounts of property tax exemptions for veterans disabled from 10% and up.
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% disabled, has lost the use of two or more limbs, or is blind in both eyes as a result of service.
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.
If they meet the qualifying income limits, veterans can get a 20% 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.
After that, the veteran can still write off the remaining 80% of the mortgage interest paid each year as a tax deduction.
Disabled veterans: How to qualify
To qualify, disabled veterans must have a VA Disability Awards letter which states what their monthly benefit amount is and their disability rating.
Disabled veteran home loan FAQ
Can I buy a house with 100% VA disability?
A borrower’s disability status has no effect on their eligibility for a VA loan. However, veterans with a 100% disability rating may qualify for a funding fee exemption, which could see them money on the overall cost of their new home.
Does the VA offer 100% financing?
VA loans offer 100% financing, require no mortgage insurance, and feature more flexible qualifying requirements than some other loan programs.
What fees are waived with a VA loan disability?
If you receive VA compensation for a service-related disability then you may be eligible for a VA funding fee exemption.
Do disabled veterans get lower interest rates?
While disabled veterans don’t get access to lower interest rates than any other VA borrower, the VA guarantee means that VA loans are safer for lenders. Because of this government agency-backing, VA lenders are able to offer lower interest rates than on other types of loan.
What credit score do you need for a VA loan?
While the VA itself sets no minimum credit score, each lender will have their own qualifying standards, in order to be confident you can pay back the loan.
What is the maximum you can borrow with a VA loan?
There are no loan limits for VA loans. A VA lender can help you request your Certificate of Eligibility, which indicates your VA entitlement — or the amount of money the VA will guarantee toward your loan.
Is a VA loan better than an FHA loan?
Ultimately, the best loan for any borrower will depend on the specifics of their financial circumstances and goals. However, the VA loan program requires no down payment or mortgage insurance, which could represent significant savings compared to the FHA loan program, which requires both.
Bottom line: Disabled veterans could save
There are substantial VA home loan benefits available to qualifying military borrowers. These benefits – including zero down payment, no private mortgage insurance, and competitive interest rates — could put homeownership within reach of many vets and service members, and allow them to begin building home equity.Check your VA home loan eligibility. Start here (Sep 23rd, 2023)