VA Loan Funding Fees and Exemptions After October 1, 2011

Recently we reported on the VA announcement that VA loan funding fees would decrease on October 1, 2011.

According to VA Circular 26-11-12, “For loans closed on or after October 1, 2011, the fee for subsequent use loans with less than 5 percent downpayment and subsequent use regular refinance loans will be 2.8 percent for both active duty Servicemembers, Veterans, and persons qualifying based solely on service in the Reserves or National Guard.”

These changes are due to the passing of the Restoring GI Bill Fairness Act of 2011, but other VA loan funding fee changes are also happening at the same time. VA loan funding fees for subsequent use VA loans were already “set to change based on previous legislation.”

With the changes in VA loan funding fees, some veterans may wonder if there are alterations to the exemption requirements as well. VA loan applicants are exempt from having to pay VA loan funding fees under the following circumstances:

• Veterans receiving VA compensation for service-connected disabilities
• Veterans entitled to receive compensation for service-connected disabilities if they did not receive retirement pay
• Surviving spouses of veterans who died in service or from service-connected disabilities

At the time of this writing there has been no change to the VA loan requirements for funding fee exemption–the VA requirements are exactly the same under the new funding fee structure as it is under the old one–borrowers must have VA-recognized disabilities established on their records. 

The procedures remain exactly the same before and after October 1, 2011 when the new VA loan funding fee structure takes effect.

If a borrower is under review for disability compensation but a final determination has not been made at the time the VA loan is issued, the borrower may be required to pay the funding fee and apply for a refund once his or her disability status is official.

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