Disabled Veterans May Be Entitled to a Refund

Thousands of disabled Veterans who received a VA-backed home loan will soon receive letters notifying them of impending refunds of funding fees that were erroneously charged. The U.S. Department of Veterans Affairs (VA) normally charges such funding fees to Veterans applying for VA-backed home loans. However, an Inspector General audit of the VA identified thousands of instances where disabled veterans qualifying for exempt status being wrongly charged a funding fee.

VA approves over $100M in refunds to erroneously charged Vets   

Starting September 30, 2019, the VA expects to process the funding fee refunds for about 53,200 disabled Veterans. A July article in Military.com stated that the VA had approved over $100 million in refunds as a result of a VA Office of the Inspector General (OIG) report released in June saying that funding fees were erroneously charged to disabled veterans receiving VA-backed home loans.

Veterans who obtain VA-backed home loans must ordinarily pay a one-time funding fee that ranges from 1.25% to 3.3% of the loan amount. A Veteran, however, is exempted from paying a funding fee if he or she currently receives, is about to receive or would be entitled to receive (if he or she did not receive retirement or active duty pay) a service-related disability compensation. Surviving spouses of Veterans who have died in service or from service-related disabilities are also exempted from paying a funding fee.

The review of the OIG found out that from calendar years 2012 to 2017, the Veterans Benefits Administration (VBA) erroneously collected approximately $286.4 million in funding fees from veterans who should have been exempted from paying such fees. The OIG learned that exempted Veterans were charged an average of $4,483 in funding fees. The highest funding fee charged to an exempt Veteran was $19,470. Veterans who believe they qualified for the exemption should review their loan closing documents for a funding fee charge so a refund can be requested.

Some erroneous collections were unavoidable because the concerned disabled Veterans were awarded with service-related disability compensations after getting their Certificate of Eligibility (COE) during the time they still had a “non-exempt” status. Funding fees were thus erroneously charged as a result of their COE’s failure to reflect a status update. On the other hand, instances were noted where lenders erroneously collected funding fees from Veterans even with an updated COE reflecting their exempt status.    

Why Vets use their VA Home Loan benefits?

The VA provides many home loan benefits to Veterans who have served their country. Aside from a down payment exemption, VA-backed loans are attractive since there is no private mortgage insurance requirement, no penalty for loan prepayment, no credit score requirement, and interest rates that are generally lower than on conventional loans.  

What do you need to do if you are owed a VA Funding Fee refund?

Contact your mortgage servicer or request a refund through the VA Regional Loan Center by calling (877) 827-3702.