The VA funding fee exemption is one of the most underutilized benefits in the entire VA loan program. In my experience, the reason it gets missed isn't complicated it's just that nobody asked the right questions.
Here's what I mean.
Who's Exempt
Veterans who receive VA disability compensation are exempt from the VA funding fee entirely. So are surviving spouses of veterans who died in service or as a result of a service-connected disability. If you qualify, that exemption can save you thousands of dollars. For example on a $400,000 loan at the subsequent use rate, we're talking over $13,000.The problem is that exemption doesn't apply automatically. Someone has to identify it.
The Question Most Lenders Don't Ask
When a couple comes to me for a VA loan, I ask both spouses whether they've served in the military. Not just the one whose benefit we're planning to use, instead both. That might sound obvious, but it gets skipped more often than you'd think. I've seen situations where a husband is active duty, the loan gets structured under his entitlement, and nobody thinks to ask about the wife. But she served too. And she has a VA disability rating. And she was exempt the whole time. That's not a hypothetical. I had exactly that situation with a client. Another lender had already quoted them using the husband's entitlement without asking a single question about whether the wife had served. I asked. She had. She had a disability rating. We restructured the loan under her entitlement, she was exempt from the funding fee, and I saved them thousands of dollars that the other lender was about to cost them without even realizing it.
They became long-term clients. I'd like to think it's because I did my job but really it's because I asked a question that should be standard and isn't.
The Other Angle: Prior Use
Here's a second reason I ask about both spouses. If the person whose entitlement we're planning to use has already used their VA benefit before, their funding fee is higher. But if the other spouse has never used theirs and also qualifies, we may have the option to use their entitlement instead and avoid the subsequent use increase entirely. It's not always possible and it depends on the specifics of the transaction. But it's always worth asking.
One More Thing: File for Your Disability Before Closing
If you've recently separated from the military and you're planning to file for VA disability but haven't yet, file before we close your loan. Here's why: if your disability claim is approved after closing and it's determined you had a service-connected disability at the time of closing, there's a possibility the VA will refund your funding fee. I want to be clear that this is not guaranteed, it's at the VA's discretion, and it doesn't work out in every case. But I've had multiple clients receive that refund. Filing after the fact when you were already planning to file anyway costs you nothing and leaves the door open. It's the kind of thing I mention because I'd want someone to mention it to me.
The Bottom Line
The funding fee exemption exists to protect veterans who've given the most. Making sure it actually gets applied is the least a lender can do. If you're not sure whether you or your spouse might be exempt, that's exactly the conversation we should be having before your loan gets structured and not after.
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