Do Disabled Veterans Have to Pay Closing Costs?
Disabled veterans often qualify for significant VA loan closing cost exemptions. Learn about eligibility criteria and how to secure these important financial benefits.
VA loans offer substantial benefits for eligible service members, veterans, and their surviving spouses. Disabled veterans often inquire about closing costs. While VA loans typically involve these costs, certain exemptions can significantly reduce the financial burden, particularly for those with service-connected disabilities.
Understanding VA Loan Closing Costs
Closing costs are fees and expenses paid at the culmination of a real estate transaction. For VA loans, these include the VA funding fee, appraisal fees, title insurance premiums, recording fees, and lender charges like origination fees or discount points. Closing costs for a VA loan generally range from 1% to 6% of the total loan amount.
The Department of Veterans Affairs (VA) establishes guidelines for what fees can be charged to a veteran borrower. Certain charges are “non-allowable” and cannot be directly passed on to the veteran. These often include attorney fees, brokerage fees, application fees, escrow fees, and rate lock-in fees. These costs must be covered by the seller or the lender.
Sellers can contribute towards a buyer’s closing costs, including the VA funding fee, through seller concessions. The VA permits seller concessions up to 4% of the total loan amount. These concessions can cover various fees and pre-paid items like property taxes and homeowner’s insurance.
Exemptions for Disabled Veterans
Disabled veterans are exempt from the VA funding fee, a one-time charge typically applied to VA loans. This fee is waived for specific qualifying individuals and applies to both home purchase and refinance loans, offering substantial savings. The funding fee can range from 0.5% to 3.6% of the loan amount, potentially saving thousands of dollars.
Veterans receiving VA compensation for a service-connected disability are exempt from this funding fee. This exemption also extends to veterans eligible for disability compensation but receiving retirement or active-duty pay. Active-duty service members who have received the Purple Heart are also exempt.
Other qualifying conditions for the funding fee exemption include veterans with a proposed or memorandum rating from the VA prior to loan closing, indicating compensation entitlement. Surviving spouses of veterans who died in service or from a service-connected disability, or those receiving Dependency and Indemnity Compensation (DIC), are also eligible.
Applying for Exemptions
The VA funding fee exemption is often automatically recognized if the VA system identifies the veteran as eligible. This status is typically noted on the veteran’s Certificate of Eligibility (COE). Veterans should confirm their exemption status with their lender early in the loan process.
Lenders verify eligibility for the funding fee exemption. Veterans may need to provide supporting documentation, such as their VA award letter. This letter, issued by the VA, outlines the veteran’s disability rating and monthly compensation.
If the exemption is not automatically applied or if a disability claim is pending at closing, the funding fee may be charged. If eligibility for compensation is later confirmed retroactively, a refund can be sought. Veterans can contact their original lender or the VA Regional Loan Center for refunds. Consistent communication with the lender and real estate agent helps ensure the exemption is properly applied.