How Your VA Disability Rating Impacts VA Home Loans

The VA loan program is one of the most powerful homebuying benefits available to eligible servicemembers and Veterans. But if you’re receiving VA disability pay, you may qualify for additional advantages that can significantly reduce your upfront and long-term costs.

In this guide, we’ll break down how VA disability impacts the loan process, key cost-saving benefits, available housing grants, and common myths to avoid.

VA Loan Benefits for Veterans Receiving Disability Compensation

One of the biggest advantages of a VA loan is that it offers a zero-down payment option. On top of that, interest rates for VA loans tend to be lower than conventional mortgage loans. VA loans also don’t include private mortgage insurance (PMI) and offer a streamlined refinance option through the Interest Rate Reduction Refinance Loan (IRRRL).

Those aspects already make it a cheaper option if you’re looking to buy a home. However, VA disability recipients receive additional financial perks.  

VA Loan Funding Fees

Veterans receiving VA compensation for a service-connected disability do not need to pay a VA loan funding fee. 

The VA loan funding fee is a one-time fee the VA charges a Veteran when they receive a VA loan to help offset the costs of the VA loan program. Depending on the type of loan, this fee ranges from 0.5% to 3.3% of the total loan amount – potentially thousands of dollars. Many borrowers roll this fee into their loan balance, which increases both the total loan amount and the interest paid over time.

Here’s how not paying the funding fee can improve affordability:

Example 1: If you’re buying a $350,000 home with no down payment on a 30-year loan at a 6% interest rate, your loan would include a funding fee of $7,525, bringing the total loan amount to $357,525.

At that rate, assuming a 1.2% property tax rate and 0.35% homeowners insurance, your monthly payment would be approximately $2,596.

Example 2: Using the same scenario, but assuming you qualify for a VA disability exemption, you would not pay the funding fee. This keeps your loan amount at $350,000.

With the same loan terms, your monthly payment would be approximately $2,551.

That’s a savings of about $45 per month, or roughly $16,200 over the life of the loan.

VA Disability as Income

VA disability pay comes as guaranteed monthly payments from the VA. An additional perk for VA disability recipients is that they’re able to count their monthly disability compensation as income. That’s helpful for qualifying for a VA loan.

During the loan process, the lender will look over your financial paperwork to see if you make enough money to pay back the loan. Since some Veterans can work and accept VA disability pay, that VA disability pay may help boost the amount you’re able to borrow to buy your house. 

Property Tax Exemptions for Disabled Veterans

Veterans living with a disability may be eligible for property tax exemptions depending on where they live. These are state-level policies, as there is no federal property tax exemption for disabled Veterans.

Some states offer partial exemptions, while others provide significant reductions or caps. In certain cases, Veterans with a 100% permanent and total disability rating may qualify for a full property tax exemption. This can lead to substantial long-term savings and a lower monthly housing payment.

Example: Using the same $350,000 loan scenario above, your monthly payment without a funding fee was approximately $2,551.

If you qualified for a full property tax exemption, your monthly payment could drop to about $2,201.

That’s a reduction of roughly $350 per month. Over the life of a 30-year loan, that adds up to approximately $126,000 in savings, assuming you remain in an area that offers a full exemption.

Because these benefits vary by state, it’s important to check with a tax professional or local authority to understand what applies to your situation.

Grants & Programs For Disabled Veterans

In addition to mortgage-related savings, several VA programs can help cover the cost of making a home more accessible:

• Specially Adapted Housing Grant (SAH): Helps Veteran homeowners pay for specific changes to make the home more accessible for the service member based on medical and accessibility needs related to a qualifying medical condition(s).
• VA Special Housing Adaptation Grant (SHA): Helps Veterans buy, build, or modify a permanent residence or the residence of a qualifying family member where the Veteran will live full-time.
• VA Home Improvements & Structural Alterations Grant (HISA): Helps pay for improvements to make homes more accessible for disabled veterans, this grant does not have a list of qualifying medical conditions or injuries. (Requires written documentation from physician)
• VA Temporary Residence Adaptation Grant (TRA): Helps pay for modifications to a family member’s home when a Veteran is living there temporarily.

If you believe you may qualify, reviewing each program’s requirements can help determine which options fit your situation. 

VA Home Loans for Disabled Veterans Who Are Rated Incompetent

Suppose a Veteran is ruled incompetent due to health-related issues and cannot manage their benefits. In that case, the VA will appoint someone to receive and manage their disability compensation.

To get a VA loan, the VA-appointed individual would need approval from the VA to close on a home. The VA review process, which can take a few months to complete, is aimed at ensuring the decision benefits the Veteran.

VA Loan Funding Fee Refunds After Disability Ratings Update

In the event you filed a VA disability claim before closing on your VA loan, but have not received a final decision from the VA, you will be required to pay the funding fee.

However, if you receive a rating from the VA after closing, and the effective date is prior to your VA loan closing date, you will get your VA loan funding fee refunded. You’ll need to reach out to the VA to navigate through that process. 

VA Disability Myths Regarding VA Loans

Myth 1: You need a disability rating to qualify for a VA Loan

False. You do not need a VA disability rating to use your VA loan benefit. The VA loan is available to eligible service members and Veterans regardless of whether they receive disability compensation. Your military service, not your disability status, determines your eligibility.

Myth 2: A low disability rating disqualifies you from VA loan benefits

False. Veterans with a qualifying service-connected disability are typically eligible for key benefits like the VA funding fee exemption, regardless of their rating percentage.

Myth 3: You can’t get a VA Loan if the VA has rated you Incompetent

False. You can still get a VA loan if the VA has deemed you incompetent, but your fiduciary will need to assist with the loan process. The VA will review and approve the transaction to ensure it’s in your best interest.

Myth 4: Property Tax Exemptions are automatically included with VA loans

False. Property tax exemptions for disabled Veterans are determined at the state level, not by the VA loan program. 

Final Thoughts

A VA disability rating doesn’t change your eligibility for a VA loan, but it can significantly improve your financial outcome.

From eliminating the funding fee to potentially reducing property taxes and strengthening your qualifying income, these benefits can make homeownership more affordable both upfront and over time.

---