Home loan borrowers can now deduct funding fees

Starting this year, Veterans, service members and their surviving spouses can deduct VA funding fees on their taxes when purchasing a home using the VA-guaranteed home loan.

The VA funding fee is a one-time payment that the Veteran, service member or survivor pays on a VA-backed or VA direct home loan. Generally, the VA home loan program doesn’t require the Veteran to make a down payment, and the program never requires monthly mortgage insurance. VA also grants exemptions of the funding fee to those who receive VA compensation for their service-connected disabilities, Purple Heart recipients still serving on active duty and others.

The funding fee ranges from 0.5%–3.3% depending on the loan type, loan amount, down payment amount and whether the Veteran is a first-time user of the VA home loan program. Veterans pay the funding fee at closing, in one of two ways: It can be generally included in the loan amount or paid at closing.

“VA just recently reached a milestone of granting the 29 millionth VA-guaranteed home loan to Veterans, service members and surviving spouses who served and sacrificed on behalf of our grateful nation,” said Patrick Zondervan, executive director of VA’s Loan Guaranty Service. “We are pleased that eligible new borrowers can now deduct the funding fee and potentially put more money back in their pockets, which is where it belongs.”

This post is for informational purposes only and is not intended to be, and should not be construed as, tax, legal or accounting advice. You should consult your own tax advisor or legal counsel regarding your specific situation before making any decisions.

To learn more, read about VA funding fees, VA Home Loans and the legislation.