How Much Does the VA Funding Fee Exemption Save a 100% P&T Veteran on a $400K Loan?
Billy is a veteran rated permanent and total. He is a fictional example, but his situation comes up often. He found a home, got a VA loan estimate for $400,000, and saw a funding fee line he assumed was simply part of the deal. It was not. Billy receives VA disability compensation, which means he is exempt from the funding fee. Here is what that is worth, and how to make sure it shows up on your paperwork.
What the VA funding fee is
The VA funding fee is a one-time charge on most VA-backed home loans. It helps keep the VA loan program running without a monthly mortgage insurance requirement. The amount depends on how much you put down and whether you have used your VA loan benefit before.
The numbers on a $400,000 loan
Under the current VA fee chart, a first-time use with less than 5% down carries a fee of 2.15%. On $400,000 that is $8,600. A repeat use with nothing down carries a fee of 3.3%, which is $13,200. Putting money down lowers the fee, but a veteran who is exempt does not need to think about that math at all.
For Billy, the funding fee is zero. That means the exemption saves him $8,600 if this is his first use of the benefit, or $13,200 if he has used it before. Always confirm the current fee chart with the VA, since the schedule can change.
There is a second saving
Most borrowers roll the funding fee into the loan rather than paying it at closing. When that happens, the fee becomes part of the balance, and you pay interest on it for as long as you carry the loan. An exempt veteran skips both the fee and the interest that would have built up on it.
Who qualifies for the exemption
The exemption is not limited to veterans rated 100% permanent and total. In general, veterans who receive VA disability compensation are exempt. Veterans who would receive compensation but for receiving retirement pay can also qualify, as can surviving spouses who receive Dependency and Indemnity Compensation. Purple Heart recipients on active duty may be exempt as well. Your Certificate of Eligibility is the document that tells the story, so start there.
What the exemption does not cover
The exemption removes the funding fee only. Appraisal, title, recording, and other closing costs still apply. Your loan also still has to meet the VA's credit, income, and residual income requirements. Being exempt does not guarantee approval, but it does remove one of the largest single costs in the transaction.
What to do today
First, get your VA Certificate of Eligibility and check whether it shows you as exempt from the funding fee. If you recently received a disability rating and your Certificate has not caught up, the VA can update it, and it is worth sorting out before you write an offer.
Second, when you receive a Loan Estimate, find the funding fee line and make sure it reads zero. Check it again on your Closing Disclosure before you sign. A fee you do not owe can slip into the paperwork if the exemption is not documented, and it is much easier to fix before closing than after.
Third, ask your lender to explain every line in your closing costs. If a line does not make sense, ask until it does.
The takeaway
For a veteran who receives VA disability compensation, the funding fee should be zero. On a $400,000 loan, that is a real saving, whether it is $8,600 on first use or $13,200 on a repeat use, plus the interest you would otherwise pay on a rolled-in fee.
I am Jason Sharon, a licensed mortgage broker at Home Loans Inc. If you want me to look at your Certificate of Eligibility and your numbers, call 843-LOW-RATE. I find the path.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
