What is a VA Funding Fee Refund?

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A VA Funding Fee is a fee that is part of any VA loan. This fee is paid at closing but there are instances when an eligible borrower can be exempted in paying this fee. When the borrower’s application for exemption is pending at the time of closing, the fee should still be paid. But the borrower can seek for a due refund afterwards.

Borrowers who are typically given an exemption from paying the funding fee are those veterans who are eligible to receive a VA compensation for service-connected disabilities. It may also be granted to those who are deemed eligible to receive disability compensation as a result of a pre-discharge examination.

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Remember that when you take out a VA loan, you are required to get a Certificate of Eligibility. Your lender is responsible for verifying your funding fee exemption status. Should your status fail to be determined before closing, a payment is due at closing. The fee is collected at closing, which is then put back to the VA to keep the program funded. If your exemption is only determined afterwards, you are entitled to a refund. But that is not automatic. You should be able to follow up with your lender about this.

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Rules and Limits

There are rules that can place limits on how the refund is disbursed. One of such rules is the rule on new purchase borrowers not getting cash on their transactions. This does not apply to funding fee refunds, however. But the way they are disbursed is dependent also on how the funding fee was originally paid. If the borrower chose to wrap the fee into the loan, the refund would be applied to the loan balance; and when the borrower paid it in cash, he or she also takes it back in cash.

When is a refund appropriate?

According to the chapter 8 of the VA Lender’s Handbook, a refund is only possible under the following conditions: a) if a veteran who is exempt has paid the funding fee at the loan’s closing event; or b) a miscalculation on the payment has caused an overcharge on the borrower.

If the latter is the case, the borrower gets a refund of the overpaid amount in cash.

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