The Quick Read: The VA cash-out funding fee has two tiers, one for first use of the benefit and a higher one for subsequent use, per VA.gov. Your down payment and home equity do not change the tier. Your history with the VA benefit does. Veterans who receive compensation for a service-connected disability, and a few other groups, may be exempt from the fee, subject to VA guidelines.
Key Takeaways
- Two tiers apply to a cash-out: 2.15% first use, 3.3% subsequent use.
- Equity does not lower the fee. The reduced tiers exist only for purchase and construction loans.
- The fee can be paid in cash at closing or financed into the loan.
- Exempt borrowers pay zero, but the exemption has to be documented before closing.
- Check VA.gov for the current schedule. Older articles often show stale numbers.
What Is the VA Cash-Out Funding Fee?
It is a one-time charge for the VA guaranty. That guaranty is what lets a VA loan skip mortgage insurance and still offer up to 100% financing. The fee goes to VA, not to the lender or the broker.
Think of it as the VA program’s substitute for mortgage insurance. Conventional and FHA borrowers pay for insurance in their own way. VA borrowers pay this fee instead, unless they are exempt.
The fee is set by federal statute, 38 U.S.C. § 3729, and VA publishes the current percentages. Those numbers were reset in 2023 and carry a scheduled sunset much later. You don’t need to track the dates. Just confirm the figure on VA.gov before you decide.
How Do You Know If It’s First Use or Subsequent Use?
Your tier depends on whether you have used a VA home loan benefit before. That is the whole test. It does not matter what loan you are paying off or how much equity you hold.
Here is how common situations sort out:
| Your history | Cash-out fee tier |
|---|---|
| Never used a VA loan | First use, 2.15% |
| Used a VA loan before, still own that home | Subsequent, 3.3% |
| Used a VA loan before, since sold or paid off | Subsequent, 3.3% |
| VA loan used only for a manufactured home | First use, 2.15% |
| Refinancing a non-VA loan, no prior VA use | First use, 2.15% |
| Refinancing a non-VA loan, prior VA use | Subsequent, 3.3% |
Two rows surprise people. First, paying off your old VA loan does not wipe the slate. VA’s published tiers key on first use versus after first use. Restored entitlement affects how much guaranty you have left, and you should not assume it resets the fee tier.
Second, VA states that if you used a VA-backed or direct loan only to buy a manufactured home, you still pay the first-time fee.
Your Certificate of Eligibility (COE) is the document that confirms your service eligibility and remaining entitlement. Pull it early. It settles most of these questions before an application goes anywhere.
How Is the Fee Calculated?
The percentage applies to the loan amount. Here’s the formula: new loan amount × fee percentage = funding fee.
You can pay it in cash at closing, or you can finance it. When you finance it, the fee rides inside the new loan. The loan balance grows by the fee, and you pay interest on it for as long as you hold the loan.
Across the wholesale programs Lendmire places VA files with, the VA cash-out reaches up to 100% of the appraised value, including the financed fee. That matters for how much cash you actually walk away with. A financed fee takes a slice out of the equity you can reach.
Say you hold a first-use cash-out and a subsequent-use cash-out on identical homes with identical balances. The subsequent-use borrower owes a larger fee on the same loan amount. Financed, that larger fee also means a bigger balance. Run both versions through a loan officer before choosing.
The percentage is the rule, and your loan amount is the only input that changes the result.
Does Equity or Down Payment Change the Fee?
No. On a cash-out, the fee stays at 2.15% or 3.3% no matter how much equity you have. VA says refinance fees don’t change with the down payment amount.
The confusion comes from purchase loans. On a purchase, the fee drops as your down payment grows:
| Loan type | Fee structure |
|---|---|
| Purchase, first use | 2.15% under 5% down, 1.5% at 5% to under 10%, 1.25% at 10% or more |
| Purchase, subsequent use | 3.3% under 5% down, then the same 1.5% and 1.25% tiers |
| Cash-out refinance | 2.15% first use, 3.3% after |
| IRRRL | 0.5% flat |
So the 1.5% and 1.25% tiers never apply to your cash-out. If an article tells you a big equity cushion cuts the fee, it is describing a purchase.
The IRRRL, VA’s streamlined rate-reduction refinance, is a different product. It carries a flat 0.5% fee, per VA News. Don’t mix the two up when comparing costs. An IRRRL lowers the rate or moves you from adjustable to fixed. It doesn’t pay you cash.
Who Pays Nothing?
Exempt borrowers owe a funding fee of zero. This is the single biggest way to save money on a VA cash-out, and it is easy to lose through paperwork gaps.
VA’s exemption list includes:
- Veterans receiving VA compensation for a service-connected disability
- Veterans who are eligible for compensation but receive retirement or active-duty pay instead
- Surviving spouses receiving Dependency and Indemnity Compensation (DIC)
- Service members with a proposed or memorandum rating from a pre-discharge claim
- Active-duty service members who are Purple Heart recipients
The Purple Heart wording is about members serving on active duty. Some websites say every Purple Heart veteran is exempt. Read VA’s own wording before you assume that applies to you.
What the lender needs from you
The lender usually sees exempt status on your COE. Confirm it before the Closing Disclosure is issued, because the lender has to reflect the zero fee on the loan documents. If the COE doesn’t show your status, bring your VA award letter early.
What if your rating is still pending?
This is where the general rule breaks. If your claim is pending at closing, the fee is typically collected as if you were not exempt. If VA later awards compensation retroactive to a date before closing, you can ask the VA regional loan center for a refund.
Can You Finance the Fee? What Does That Do?
Yes. Federal rules let the fee be paid in cash or included in the loan, without regard to the property’s reasonable value or the computed maximum loan amount. Overall leverage limits from the lender and program still apply. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Financing has three effects worth knowing:
1. Your balance rises. You borrow the fee and pay interest on it.
2. Your cash out shrinks. On a loan capped at a share of value, the fee uses part of that room.
3. Your payment goes up slightly. The increase is small, but it lasts for the life of the loan.
Paying in cash avoids all three but costs you money at closing. That’s the actual choice. Most borrowers who take cash out want the cash, so financing is common. It is still a decision, not a default.
Is the Cash-Out Worth the Fee?
It is worth it when the cash you raise does more for you than the fee costs, and when the new loan makes sense on its own terms. The fee is usually one of the larger costs in a cash-out refinance, so it deserves a hard look.
VA expects lenders to document a net tangible benefit for these refinances, along with seasoning. Seasoning is the waiting period between your first payment on the existing loan and the new one. The VA cash-out refinance quick reference lays out the concept, including fee recoupment: how long the savings take to repay what the refinance cost. That document is several years old, so use it for the ideas, not current limits.
A higher fee stretches the recoupment period. That is why the 3.3% tier needs a stronger reason than the 2.15% tier does.
Before you proceed, work through this checklist:
- Do you know whether this is your first use or subsequent use?
- Have you confirmed exempt status on your COE?
- Do you plan to pay the fee in cash or finance it?
- Does the cash you raise have a clear purpose, such as paying off higher-cost debt or funding repairs?
- Would keeping your current loan serve you better?
One more fact: Lendmire’s wholesale VA programs start at a 580 decision score. VA sets no minimum credit score of its own, and some lenders set a higher floor. Residual income, which is what you have left each month after major obligations and living costs, is the controlling underwriting test. The 41% debt-to-income figure is a guideline, not a cap. All of this is subject to lender guidelines and full file review.
Occupancy matters too. A VA cash-out generally requires that you live in the home as your primary residence. If you’re thinking about a rental or second home, occupancy decides the leverage, and this program is built for the home you live in.
Equally important, a VA cash-out can refinance any loan type into VA. A conventional or FHA borrower with VA eligibility can use it to move into the VA program and drop mortgage insurance, but the fee still applies.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Funding fee: A one-time charge paid to VA for guaranteeing your loan. It replaces mortgage insurance on VA loans.
First use: Your first time using a VA home loan benefit, including a loan used only for a manufactured home.
Subsequent use: Any later use of the benefit, even if the earlier loan is paid off or the home is sold.
Certificate of Eligibility (COE): The VA document confirming your eligibility, remaining entitlement and, usually, exempt status.
Net tangible benefit: A documented, real advantage to you from the refinance, which lenders must show on certain VA refinances.
Seasoning: The waiting period between your first payment on an existing loan and when you can refinance it.
Frequently Asked Questions
Is the fee higher the second time I use my VA benefit?
Yes. A cash-out refinance carries 2.15% on first use and 3.3% after first use. The difference comes from your benefit history alone, not from your loan balance or equity.
Does restoring my entitlement reset the fee to first-use?
Not as a rule. Restoration changes how much guaranty you have available, but VA’s published tiers key on first use versus after first use. Confirm your specific history on your COE and with VA before assuming a reset.
If I refinance a non-VA loan into a VA cash-out, is that first use?
It is first use only if you have never used the benefit before. The tier follows your VA history, not the loan being paid off. A conventional or FHA loan paid off through a VA cash-out counts toward your use like any other.
Can I be refunded if my disability rating comes through after closing?
Possibly. If compensation is awarded retroactive to a date before closing, you can request a refund from the VA regional loan center. Ask your loan officer about the documents VA wants.
Is the cash-out fee the same as the IRRRL fee?
No. The IRRRL fee is a flat 0.5% unless you are exempt, while the cash-out tiers are 2.15% and 3.3%. They are different products with different purposes.
What to Do Next
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Start with the VA cash-out refinance program to see how the loan fits your situation. Program details are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA.gov – Funding fee and closing costs
2. VA News – Funding fee: who pays and who is exempt
3. VA Loan Guaranty – Cash-Out Refinance Quick Reference
This article is part of Lendmire’s VA Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: VA IRRRL Vs VA Cash-out: Choosing The Right VA Refinance · VA Cash-out Refinance To Pay Off A Non-va Loan: Type I Vs Type II Explained · VA Cash-out Refinance: How The 100 Percent Ceiling Really Works
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.