Home Loans for Disabled Veterans

The reality of military service is that many of our service members and veterans suffer physical and mental health consequences from their time in uniform. The Department of Veterans Affairs (VA) has a process of evaluating your level of disability through which the VA issues you a percentage disability rating to determine your level of care and compensation. Roughly 30% of our country’s veteran population receives some level of VA disability compensation from the VA.

You may wonder how often we work with disabled veterans. Well, last month (January 2025) 83% of our homebuyers were disabled veterans and 66% of our homebuyers were 100% disabled veterans. Disability ratings are more common than you may expect.?The good news is that veterans with a service-connected VA disability rating are given special benefits when buying a home in Texas and that is what we are looking at today.

Waiver of the VA Funding Fee

One benefit for all disabled veterans getting a VA loan is that the VA funding fee is waived every time you use the program. All you need is a 10% or more VA disability rating to have the VA funding fee waived. That fee ranges from 0.50% to 3.30% of your VA loan amount. The highest funding fee of 3.30% is for someone who is NOT a disabled veteran and who has used their VA loan before. On a $400,000 VA loan, that fee is $13,200 and is typically added to your loan, but it can also be paid out of pocket at closing. When added to your loan, the larger loan amount adds roughly $84 to your monthly payment in this example. For disabled veterans, that fee is completely waived every time you get a VA loan, thus saving you thousands of dollars over the life of the loan. (See my April 2024 newsletter for more information on the VA funding fee.)

A 25% Increase of Non-taxable Income

When it comes to buying a home, every dollar counts -- especially for disabled veterans using your VA benefits. One powerful, yet often overlooked advantage, is how VA disability income can significantly boost your buying power.

The income veterans receive through VA disability compensation is non-taxable. Lenders usually assess income on a pre-tax basis, so they are allowed to “gross up” non-taxable income by up to 25%, but the exact amount may vary by lender.?Grossing up your VA disability income increases your buying power. For example:?

• With $4,000 per month in non-taxable income, you might qualify for a $320,000 home.
• By grossing up your non-taxable income by 25%, your qualification increases to a $400,000 home.
• That’s a 25% increase in buying power, which clearly makes a big difference!

Reduction of Property Taxes

Another benefit for disabled veterans in Texas is a partial or full waiver of property taxes on your primary residence. This is a frequently misunderstood topic because the State of Texas refers to it as an “exemption”, but that exemption is not applied to the taxes due, but rather as a reduction in the assessed value of your property. Here is a table summarizing the various tiers based on your VA disability rating:

As you can see by the table, if you have a 50% VA disability rating, you get a $10,000 exemption on property taxes. That $10,000 is how much your property value will be reduced prior to the tax bill being calculated. So, if the county assesses your primary residence at a value of $400,000 this year, then after applying your $10,000 exemption, they will use $390,000 as the value when calculating property taxes due. (This is not taking into account the Homestead Exemption or other exemptions you may also have on the property.) In this case, if your tax rate is 3%, then your tax savings for this year is 3% times $10,000, which comes to $300. Divided by 12, you get a savings of $25 per month. That may not be a huge savings, but it adds up over time and can easily save you thousands of dollars over the life of your loan.

Full Waiver of Property Taxes for 100% Disabled Veterans

By far the biggest savings comes from being a 100% disabled veteran. This also applies to disabled veterans with less than a 100% disability rating, but with a "100% unemployability" determination from the VA. In either case, 100% of the property taxes are waived on your primary residence. As long as you live in that property, you are 100% exempt from property taxes in Texas.

Waiver of Property Taxes Escrows with Some Lenders

At Veterans United, if you are 100% exempt from property taxes in the State of Texas, we do not include property taxes in your debt-to-income ratio and we allow you to exclude taxes from your monthly payment immediately, prior to you actually filing for the exemption.?This proactive approach makes a significant difference by lowering your debt-to-income ratio and reducing your initial monthly payment obligation. It also provides peace of mind, knowing that your lender understands and honors your property tax exemption benefit upfront, before you even close on your new home. Not all lenders do it that way.

On a side note… if you are purchasing a multi-unit property and you are a 100% disabled veteran, the 100% exemption will only apply to the unit you will be occupying as your primary residence. So, if you purchase a duplex, you will be exempt from 50% of the property taxes, and if you purchase a 4-plex, you will be exempt on 25% of the taxes.

Option to Use the Veterans Housing Assistance Program

If you currently reside in Texas, you may benefit from adding the Veterans Land Board’s (VLB) Veterans Housing Assistance Program (VHAP) to your VA, FHA, or Conventional loan. The whole purpose of VHAP is to obtain a potentially lower interest rate, known as the “discounted rate”, which is available to veterans with a 30% or more VA disability rating. That interest rate comes at a cost of 2% of the loan amount in the form of a 1% Origination Fee and a 1% Participation Fee. It is essentially a buydown program, whereby you are paying more in closing costs (the 2% fee) to get a potentially lower interest rate. The lender assists you in comparing the interest rate available on VHAP to the other interest rate buy down options that you have available on your VA loan.

We have found that VHAP usually benefits military veterans the most when they have a 30% or more VA disability rating AND lower than average credit scores. When you have the assets to pay for the program or you are able to get the cost of the program covered by the seller, it can make a considerable difference in your monthly payment.

Please note that this is NOT a down payment assistance program. You are actually paying more in closing costs, not less, to use the program. Also, this program is only available through VLB Participating Lenders. I have been using this program and making it available to our VA buyers for over 16 years. (See my May 2024 newsletter for further details regarding the VLB program, but note the loan limit on the program has since been increased to $806,500 in 2025.)

Adapted Housing Grants for Disabled Veterans

Disabled veterans may also take advantage of the Specially Adapted Housing (SAH) Grant and the Special Housing Adaptation (SHA) Grant which are available to veterans with certain types of disabilities (e.g., loss of limbs, severe burn injuries, or blindness). The SAH Grant provides funds to build or modify a home to meet the needs of a veteran with certain severe disabilities. The SHA Grant provides funds to adapt an existing home to accommodate your disabilities. (Use this link to learn more about disability housing grants offered by the VA.)

In Summary….

Disabled veterans have access to several home loan benefits that can significantly reduce the costs of purchasing a home in Texas. These programs are designed to make homeownership more accessible and affordable for veterans who have sacrificed in service to their country. From VA loans to Texas state bond programs, property tax exemptions, and adapted housing grants, disabled veterans have a variety of resources to explore. By understanding and utilizing these options, you can maximize your financial support and secure the home of your dreams!

Got questions about VA loans?

Great, just email?[email protected]?or call/text 512-357-7762.

Would you prefer my monthly VA newsletter by email, which includes information about my VA CE classes for Realtors in Texas? If so, subscribe here: https://mailchi.mp/chadbowman/newsletter.

Legal Disclosures: Veterans United Home Loans is a VA-approved lender, not affiliated or endorsed by any government agency, including the VA. Chad Bowman, Austin Branch Manager, NMLS 191475. Company NMLS 1907. Equal Opportunity Lender. More info. at ChadBowman.com.