Disclaimer: Beginning January 1, 2020, the VA funding fee will be changing to a range of 1.4% – 3.6% based on factors like your down payment or equity amount, your service status and whether this is a first or subsequent use of a VA loan.
The VA loan is a great option for any eligible veteran, active-duty servicemember or surviving spouse. It offers the chance to get into a home without a down payment and a one-time funding fee in place of mortgage insurance.
If you have a disability as a result of your time in the service of our country, you’ve made a special sacrifice. In recognition of this, the VA has some special loan guidelines and programs to help you when you get your VA loan.
Before we get there though, let’s discuss a basic question often asked by veterans.
Do Veterans Have To Pay Closing Costs?
There are closing costs associated with any mortgage that have to be paid by the client. VA loans are no exception, but the VA seller concessions policy allows the seller to pay for a larger amount of these costs then they could on many other loans.
There’s no limit on the amount someone can choose to contribute to the following categories:
- Origination fees
- Discount points-These are prepaid interest points. Prepaying some of your interest ahead of time enables you to lower your interest rate.
- Miscellaneous fees-these include things like paying for credit reports, property surveys and appraisals
There are certain things a seller can only pay up to 4% of the purchase price or appraisal for, whichever is lower. This limit applies to escrow items (prepaid property taxes and homeowners insurance) as well as the VA funding fee.
However, you may be able to get out of the funding fee. More on that below.
In addition to the seller concessions option, you can choose to take lender credits for part or all of the closing costs. In this case, these are built into the balance of the loan and paid off over the loan term.
Who Is Exempt from the VA Funding Fee?
If you have a service-connected disability, are a surviving spouse of someone who passed in action or as a result of their service-connected disability or you’re an active-duty service member who received the Purple Heart, you can get the funding fee waived.
If you currently receive disability benefits and have not yet closed on your VA loan, your funding fee is waived and you do not have to pay it. (This is true regardless of your level of disability.)
If you close on your loan prior to receiving benefits, the funding fee may be refundable if you were in the middle of applying for disability at the time of your purchase or refinance. For example, if a first-time home buyer is purchasing a $200,000 home with a VA loan and qualifies for disability, the 2.15% funding fee will be waived – saving the homeowner $4,300. Once your disability benefits are approved, you must apply in writing to your state’s VA Regional Loan Center to initiate the funding fee refund. If you financed the funding fee, the refund amount will be removed from your principal amount due, and if you paid with cash, the VA will issue you a check.
It is important to remember that if you do not currently receive disability benefits, you must have a pending claim for disability prior to the closing date of the loan. If the application for disability is dated after closing, you may not receive a refund.
Grants for Disabled Veterans
A disabled veteran may be able to purchase a home with a fee-free VA loan, but if the home also needs accessibility modifications, the Specially Adapted Housing (SAH) grant and the Special Housing Adaptation (SHA) grant are available to help. To qualify for these particular grants, you need to have a 100% service-connected disability rating from the VA.
The SAH helps qualified veterans with one of the following:
- Build a home with special disability-related modifications.
- Remodel and modify an existing home to meet adapted housing needs.
- Apply the grant against the principal mortgage balance of an adapted home that’s already been purchased without VA grant assistance.
The SHA helps qualified veterans with one of the following:
- Adapt an existing home that is already owned by the veteran.
- Adapt a home that the veteran intends to purchase.
- Help a veteran purchase a home that has already been adapted.
It’s important to note that if you’re considering a grant, the maximum amount allowed for the SAH is for fiscal year 2018 is $81,080. For the SHA, the grant limit is $16,217. Additionally, veterans must have their disability benefits approved prior to applying for housing grants.
Veterans who are eligible for either of these programs may also qualify for a Temporary Residence Adaptation (TRA) grant. This allows you to get funds to temporarily adapt the residence of a family member whose home you’re temporarily living in. The maximum loan amount for an SAH eligible veteran is $35,593. If you’re eligible for SHA, the maximum TRA grant is $6,355 for 2018.
Even if you don’t qualify for any of these particular programs, check with your local VA office as well as the local branch of the Department of Health and Human Services in your area. There may be other sources of funding, veteran specific and otherwise, that will allow you to accomplish goals related to housing or anything else made more difficult by your service-connected disability.
There Are Tax Credits and Exemptions with Homeownership
Once you use your VA loan benefit to buy a new home, you’re eligible for some very useful tax credits and exemptions that could help quite a bit. The Disabled Veterans Property Tax Exemption can help reduce the amount a disabled veteran pays per year in taxes. The amount varies by state, so it’s important to check with your local VA office in person or through their website to find out about your state-specific benefit. For example, some states offer a 100% tax exemption to all veterans, while others restrict it to 100% disabled veterans.
With a VA loan, you may also be eligible for a Mortgage Credit Certificate (MCC). The MCC is issued on the state level that allows you to claim a tax credit for a portion of the mortgage interest paid per tax year. The credit amount is determined on the state level, but is definitely a benefit worth taking advantage of.
Disability Payments Can Help You Get a VA Loan
If you’re currently receiving disability compensation from the VA, it can be counted as income, which, in turn, helps you meet VA loan income requirements. To be eligible for a VA loan, income must meet three standards – it must be stable, reliable and expected to continue. The key factor in using disability pension toward a VA loan is that your payments are likely to continue.
If you’re interested in your own VA loan, you can get started online or go ahead and give one of our Home Loan Experts a call at (800) 785-4788. We’re happy to help!
VA loans are in place to help veterans of the armed forces, so make sure to take advantage of these benefits if you qualify. Do you have any questions about these benefits? Ask in the comments below!
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