Disabled Veterans receiving VA disability compensation are exempt from the VA funding fee, and can have their disability income considered for loan qualification.
Understanding these benefits ensures you're taking full advantage of what you've earned through your service. This guide explains the special VA loan benefits available to disabled Veterans and how to access them.
VA Funding Fee Exemption:
A significant financial benefit for disabled Veterans is exemption from the VA funding fee. This one-time charge varies from 0.5% to 3.3% of the loan amount based on specific loan characteristics. The funding fee often amounts to thousands of dollars, so avoiding it represents substantial savings.
Who Qualifies for the Exemption
You're exempt from the funding fee if you're receiving VA compensation for a service-connected disability. The exemption applies regardless of your disability rating percentage. Whether you have a 10% rating or 100%, you don't pay the funding fee.
Purple Heart recipients are also exempt from the funding fee, even if they're not receiving disability compensation. Surviving spouses of Veterans who died in service or from service-connected disabilities may be exempt as well.
How Much You Save
The funding fee is between 0.5% and 3.3% of your loan amount depending on the loan program, down payment, and whether it's your first use of the benefit. On a typical home purchase, this exemption can save you several thousand to over ten thousand dollars.
How to Claim Your Exemption
Early on in the loan process, your lender should obtain a Certificate of Eligibility (COE) from the VA. This document will indicate whether you are exempt from the funding fee.
The VA funding fee is a closing cost and should be included on the Loan Estimate (LE) if you are responsible for paying it. As for anyone obtaining a mortgage loan, it’s important to review your disclosures carefully and ensure you understand the costs associated with the loan. Disabled veterans obtaining a VA loan should ensure they are not being charged the funding fee as part of their disclosure review.
VA Disability Income in Loan Qualification
If you receive VA disability compensation, this income can actually help you qualify for a larger loan amount than you might expect.
Tax-Free Income Gets "Grossed Up"
VA disability compensation is non-taxable, meaning you don't pay federal or state income taxes on it. Lenders recognize that this is worth more than taxable income by "grossing up" your disability income when calculating your qualifying income. This means lenders mathematically increase your tax-free income to reflect its true value compared to taxable income.
This improves your debt-to-income ratio and potentially allows you to qualify for a higher loan amount.
For example, if you receive $1,500 monthly in VA disability compensation, the lender may “gross-up” the $1,500 by 125% to $1,875 for the purposes of calculating debt ratios. This can make a big difference in how much home you can afford.
Stable, Reliable Income Source
VA disability compensation is considered highly stable income, and lenders view it favorably when evaluating your application.
Documentation Requirements
More often than not, your disability income will be included on your COE, which means additional income documentation for your VA disability income may not be necessary.
If additional documentation is required, an awards letter, or bank statements are commonly accepted as evidence of receipt of VA disability income.
While your lender can often obtain your COE instantaneously without documentation, you may need to provide your DD214 if your COE does not automatically generate within the VA’s system.
Specially Adapted Housing (SAH) Grants
Veterans with certain severe disabilities may qualify for Specially Adapted Housing grants that can be used in conjunction with a VA home loan to make homes more accessible.
What SAH Grants Cover
SAH grants provide funding to help purchase, build, or modify a home to make it more accessible. The grant can be used for large-scale modifications like widening doorways, installing ramps, modifying bathrooms for wheelchair accessibility, or lowering kitchen counters and cabinets.
The grant amount can be substantial and limits adjust annually. Veterans can use this grant multiple times up to the maximum allowable amount.
Eligibility Requirements
SAH grants help Veterans with serious service-connected disabilities live more comfortably and independently at home. You may qualify if your disability involves the loss or loss of use of both legs or arms, blindness in both eyes with very limited vision and the loss of one leg, or other conditions such as severe burns or the loss or loss of use of a lower limb.
They’re also available to Veterans whose disabilities affect mobility or make home adaptations necessary.
Using SAH with Your VA Loan
You can combine an SAH grant with a VA home loan to purchase or build an adapted home. The grant covers adaptation costs while the VA loan finances the home itself. This combination makes accessible homeownership more affordable for Veterans with certain disabilities.
Work with builders or contractors experienced with accessible design to ensure your adaptations meet your needs and comply with VA requirements.
Property Tax Exemptions and Reductions
Many states and localities offer property tax exemptions or reductions for disabled Veterans. While these aren't technically part of the VA loan program, they significantly reduce the cost of homeownership for qualifying Veterans.
State-Specific Benefits
Property tax benefits vary quite a bit by state. Some states offer complete exemptions for disabled Veterans. Others provide partial exemptions based on disability rating. Some states extend benefits to surviving spouses.
Check your state's veterans affairs office or department of revenue to learn what's available where you live. The VA's state benefits page provides information about state veterans affairs offices that can explain local benefits.
How to Apply
Property tax exemptions typically require applying through your county tax assessor or similar local office. You'll need to provide proof of your disability rating and property ownership.
Accessing Additional VA Resources
Disabled Veterans have access to various VA resources beyond home loans that support overall wellbeing and financial stability.
Vocational Rehabilitation and Employment
The VA's Vocational Rehabilitation and Employment program (VR&E) helps Veterans with service-connected disabilities prepare for, find, and maintain suitable employment. Steady employment makes homeownership more attainable and sustainable. If your disability affects your ability to work in your previous field, VR&E can help you retrain for new careers.
VA Healthcare Benefits
Maintaining your health through VA healthcare helps you stay financially stable. Medical expenses can derail homeownership plans, so taking full advantage of your VA healthcare benefits protects your finances.
For many disabled Veterans, VA healthcare is free or low-cost, which reduces overall living expenses and makes homeownership more attainable.
Working with Lenders Who Understand Disabled Veteran Benefits
Not all lenders have equal experience working with disabled Veterans. Finding a lender familiar with the benefits and considerations for disabled Veterans makes the process smoother.
Questions to Ask Potential Lenders
How do they handle VA disability income in qualification calculations?
Do they gross it up? By what factor? Understanding their approach helps you know whether they're maximizing your qualifying income.
What is their experience with funding fee exemptions?
A lender experienced with disabled Veteran benefits will have clear processes for documenting and applying exemptions.
Red Flags to Watch For
Be cautious of lenders who seem unfamiliar with funding fee exemptions or try to include the fee in your costs despite your exemption. This suggests they don't regularly work with disabled Veterans.
Lenders who don't understand how to properly count and calculate disability income may underestimate how much you can afford. This could mean missing out on homes within your actual budget.
Combining Benefits for Maximum Advantage
Veterans can stack multiple benefits to maximize their homeownership advantages.
Combine your funding fee exemption with your grossed-up disability income to qualify for a larger home with lower closing costs. If you qualify, add an SAH grant to make your home fully accessible without depleting your savings. Apply for state property tax exemptions to reduce ongoing ownership costs and maximize the value of what you've earned through your service and sacrifice.
Planning for Long-Term Homeownership
When you're a disabled Veteran considering homeownership, think long-term about how your disability and your home will work together.
Location and Healthcare Access
Consider proximity to VA medical facilities or other healthcare providers you use regularly. Easy access to healthcare becomes increasingly important over time and can significantly affect your quality of life.
Research VA facility locations in areas where you're considering buying. The VA facility locator helps you find medical centers, clinics, and other VA resources near potential homes.
Your Benefits Exist Because You've Earned Them
The enhanced VA loan benefits available to disabled Veterans represent recognition of your sacrifice in service to our country. These are benefits you've earned, and you should feel no hesitation in claiming every advantage available to you.
Many disabled Veterans don't realize the full scope of benefits available or assume they're too complicated to access. Don't let confusion or uncertainty prevent you from using what's rightfully yours. Work with knowledgeable professionals, ask questions, and advocate for yourself throughout the homebuying process.
Read more about VA loans and see how your VA benefits can help you achieve the homeownership you've earned.
FAQs
Do I need to have a certain disability rating to get the funding fee exemption?
No. Any VA disability rating qualifies you for the funding fee exemption, whether it's 10% or 100%. Purple Heart recipients are also exempt regardless of disability rating.
Can I use my disability income to qualify even if it's my only income?
Yes. VA disability compensation is considered qualifying income for mortgage purposes. If it's your only income, lenders will evaluate whether it's sufficient to cover your mortgage payment and other debts.
What if I apply for disability after I've already gotten a VA loan?
Unfortunately, you cannot get a refund of the funding fee if you receive a disability rating after your loan closes. The fee is assessed based on your status at closing.
Can surviving spouses of disabled Veterans get the funding fee exemption?
Yes, surviving spouses of Veterans who died from service-connected disabilities may be exempt from the funding fee.
