VA Home Mortgage Refinancing: exemptions from the funding fees
When you refinance your home loan with one either the Cash-Out Refinancing or the Interest Rate Reduction Refinance Loan (IRRRL) program, you are required to pay a funding fee at the time of closing. This fee helps mitigate some of the expenses associated with the VA Loan program. To pay this fee, you may choose to do so at the closing of the loan or have the fee amount rolled into your VA Mortgage.
The funding fee can range from 0.5 percent with an IRRRL or Streamline loan to 3.3 percent with the Cash-Out refinance program. For example, if you are refinancing and your first VA Mortgage was for a manufactured home that was not attached to a foundation, your standard or Cash-Out funding fee is only 1 percent of the financed amount.
The amount you pay may also vary depending if your status is regular military, National Guard, or Reserves, and if you pay a down payment.
How can you become exempt from paying a refinancing funding fee?
There are a handful of situations where a VA Loan borrower who is refinancing their mortgage may qualify to have their funding fee waived. Here are the scenarios:
- If you are receiving benefits for a disability (service-related)
- If you are not receiving VA disability benefits but would if you were not receiving active duty pay
- If you would receive VA disability benefits but are receiving military retirement pay instead
- If you were determined to be eligible for VA disability benefits after completing a pre-discharge rating and exam
- If during your pre-discharge review, your medical records were reviewed and it was determined you were eligible for disability compensation and rating
- If you are the spouse of a military member who passed away in a service-related incident or died due to a service related disability. This is even if you yourself are a service member or veteran and have your own VA benefits and even if you are using your VA Loan benefits
What if you receive exemption after closing?
If you have not yet been approved as exempt from paying a funding fee at the time of closing, you must pay it. In the event that you are determined to be exempt after your VA refinancing has closed, it is possible to receive a refund for the fee.
Just to see how beneficial it is for you to attempt to receive exemption from the funding fee, here’s an example of what it might look like: refinance loan amount = $250,000, funding fee of 3.3 percent = $8,250. It’s definitely worth it to go after that refund if you are declared eligible for exemption.
If you are eligible, how do you go after your refund?
In the event that you are determined to be exempt from your IRRRL or Cash-Out refinance loan funding fee after the loan has already closed, you will want to apply to for a fee refund with your VA Regional Loan Center, once your approval for exemption has gone through. If you decided to have your funding fee rolled into your loan, the fee will be credited toward your loan. If you opted to pay cash for your funding fee, you will receive a cash refund.
To request quotes, ask questions about funding fees, or to learn more about the refinancing process with a VA Home Loan, contact one of the qualified lenders in our network.