The Quick Read: A financed VA cash-out funding fee raises your loan balance by the fee amount, and that larger balance raises your monthly principal and interest by a modest amount. The fee is a one-time charge, not a monthly one. It is 2.15% of the loan for first-time use of the benefit and 3.3% for repeat use, and it is waived for veterans receiving compensation for a service-connected disability. The size of the payment bump depends on the fee percentage, your loan size, your note rate and your term.
What Is the VA Funding Fee on a Cash-Out Refinance?
The funding fee is a one-time charge paid to the VA, not to the lender. It helps defray the cost of the program, which is why VA loans carry no monthly mortgage insurance. Chapter 8 of the VA Lenders Handbook says each veteran pays the fee at closing to defray program costs, and that Congress may change the rates periodically.
On a cash-out refinance, the fee tier turns on one thing: whether this is your first use of the benefit or a later one. Across the wholesale programs Lendmire places VA files with, the cash-out fee is 2.15% for first use and 3.3% for subsequent use. A down payment does not lower it, because a refinance has no down payment. (Purchase loans work differently, with lower tiers for 5% or 10% down.) The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Lendmire is a mortgage broker, so these figures are program mechanics, not prices. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Key Terms Defined
Funding fee: A one-time charge paid to the VA on most VA loans, expressed as a percentage of the loan amount.
First use vs. subsequent use: First use means you have never used your VA home loan benefit. Subsequent use means you have used it before, even if you paid that loan off.
Reasonable value: The value an appraiser assigns to the home. It sets the ceiling on how much you can borrow.
Net tangible benefit: A VA test requiring that a refinance actually improves your position, such as through a lower payment or a move from an adjustable to a fixed loan.
Amortization: The schedule that spreads a loan balance over a set term, so each payment covers some interest and some principal.
Can You Roll the Fee Into the Loan?
Yes. For all types of VA loans, the loan amount may include the funding fee, per the same handbook chapter. The VA Buyer’s Guide likewise says the fee may be paid in cash or included in the loan at closing.
On a cash-out loan there is a catch. Chapter 8 says only the funding fee, and the cost of any energy efficiency improvements, can be added to increase the loan amount. Other allowable fees and points may be paid from the cash proceeds instead. So the fee is the one closing cost that can grow your balance on a VA cash-out.
How a Financed Fee Becomes a Monthly Payment
The fee does not raise your interest rate. It raises your balance, and the payment rises because there is more principal to pay down.
Here is the mechanic in plain steps:
1. The appraisal sets the home’s reasonable value.
2. The lender applies the fee percentage to the base loan amount.
3. The fee is added, creating a new, larger balance.
4. Your payment is calculated on that larger balance at your note rate and term.
A simple way to size it yourself: the added monthly payment is roughly the fee amount multiplied by the payment factor for your rate and term. That factor is the same one your lender uses for the whole loan. Because the fee is a fixed percentage of the loan, the added payment scales in proportion to four things:
- Loan size. A larger loan means a larger fee, and so a larger bump.
- Fee tier. Repeat use costs about 1.15 percentage points more than first use, so the bump is visibly larger.
- Note rate. A higher rate makes each financed dollar cost more per month.
- Term. A longer term spreads the fee thinner each month but costs more total interest.
A rough comparison helps. Because 3.3% is about 53% more than 2.15%, a repeat-use borrower’s fee-driven payment increase is about one and a half times a first-time borrower’s on the same loan. That ratio holds at any loan size, rate or term. The absolute amount is what changes.
Think of it this way: financing the fee turns a lump sum into a slightly larger payment spread across the term. It is small month to month. It is not small over decades.
What It Costs Over Time
A modest monthly bump is easy to wave away. The longer view is different.
Interest accrues on the financed fee just as it does on the rest of the balance. Over a full term, you repay the fee plus interest on it. The longer you hold the loan, the more that adds up. If you sell or refinance early, you pay back only the fee principal still outstanding, so a shorter hold period costs less.
There is also a second-order effect. Chapter 8 directs lenders to calculate the 1% flat charge on the principal amount after adding the funding fee, when the fee is paid from loan proceeds. A bigger financed balance therefore nudges that charge up as well. Lenders cap the flat charge at 1%, which keeps the effect small.
One more point: a refund of the fee does not reduce your financed balance. VA’s loan fee page notes that an older provision directing lenders to apply funding fee refunds to a financed fee’s balance was no longer in effect as of July 1, 2019.
Roll It In, Pay From Proceeds, or Pay Cash?
You have three routes. Each trades payment, cash in hand and total cost differently.
| Route | Monthly payment | Cash you receive | Total interest |
|---|---|---|---|
| Roll fee into loan | Higher | Unchanged | Higher |
| Pay from proceeds | Lower | Reduced by the fee | Lower |
| Pay cash at closing | Lowest | Unchanged, but you bring cash | Lowest |
Rolling it in preserves the most cash today and costs the most over time. Paying from proceeds keeps the balance smaller but shrinks the check you walk away with. Paying out of pocket is cleanest for the loan and hardest on your bank account.
For a borrower pulling out equity to fund a specific need, such as a repair or a debt payoff, the question is usually whether the need justifies a slightly larger balance. If the proceeds are already tight against a target amount, financing the fee may be the only way to hit it.
Where the 100% Ceiling Changes the Math
Financing the fee is not unlimited. The VA cash-out reaches up to 100% of the appraised value, and that figure includes the financed fee. VA Circular 26-19-05 defines loan-to-value as the total loan amount, including the funding fee, divided by the appraiser’s reasonable value. It also says a financed fee cannot push the loan above reasonable value.
The Federal Register rule goes one step further. Any portion of the fee that would push the new loan above 100% of reasonable value must be paid in cash at closing.
In practice, that means a borrower borrowing near the maximum may not be able to finance the whole fee. Either the cash-out amount shrinks, or the borrower brings cash for the overage. Some lenders also set a lower maximum than VA’s 100% as their own policy. That is a lender overlay, not a VA rule, and it varies from one lender to the next.
A common misconception deserves a correction here. Many people say VA cash-out is capped at 90%. The 100% ceiling is the actual maximum. The 90% figure shows up in the regulation as one way to pass the net tangible benefit test, not as a limit on the loan. Congress did set a 90% limit in 1989, but it was later revised.
The Fee Versus the Payment Change From the Whole Refinance
Borrowers often blame the funding fee for a bigger payment when most of the increase comes from somewhere else. A cash-out refinance changes three things at once:
- The balance grows by the cash you take out.
- The balance grows again by the financed fee.
- The note rate and term reset to the new loan’s terms.
The cash-out amount is usually the largest piece, and the new rate can move the payment up or down depending on where it sits against your old loan. The fee is typically the smallest of the three. When you review a Loan Estimate, ask your loan officer to show the payment with and without the fee so you can see its share. A useful baseline is the same loan with the fee set to zero, which is exactly what an exempt borrower pays.
Exemptions: When the Fee Is Zero
Veterans receiving VA compensation for a service-connected disability do not pay the fee. Other exempt groups exist, and the VA decides who qualifies. Confirm your own status on va.gov rather than relying on a list in an article.
Verification matters. If exempt status cannot be confirmed before closing, the fee is generally collected as if you were not exempt. Gather your VA documentation early, and check that your certificate of eligibility reflects your status.
How This Plays Out for Different Borrowers
Picture a first-time VA user taking a cash-out at 2.15%. The fee-driven bump is the smaller of the two tiers. If the borrower is exempt, it is zero.
Now picture a veteran on a second use of the benefit at 3.3%. The same loan carries a fee about 53% larger, and the payment rise is correspondingly larger.
Then consider a borrower close to the 100% ceiling. For that person, the question is less about the payment than about whether the fee fits under the ceiling at all.
The right route depends on your priorities:
- If keeping cash in hand matters most, rolling the fee in usually fits.
- If minimizing lifetime cost matters most, paying cash or from proceeds usually fits.
- If you plan to sell or refinance within a few years, the added interest on a financed fee stays small.
- If you plan to hold the loan for most of its term, the extra interest is harder to ignore.
What the Lender Looks For
A cash-out is fully underwritten. Expect a review of credit, income, residual income, the appraisal and the net tangible benefit. Across the wholesale programs Lendmire works with, residual income is the controlling test. The 41% debt-to-income figure is a guideline, not a cap, though a ratio above it calls for residual income well above the table. Wholesale programs start at a 580 decision score, and VA itself sets no minimum.
Circular 26-19-05 states that net tangible benefit standards apply to all cash-out refinancing loans. A financed fee raises your payment, so it feeds directly into debt-to-income and residual income. A larger balance can tighten the file even when the fee is small.
Seasoning applies as well. The same seasoning rules as other VA refinances apply to a cash-out, along with the net tangible benefit.
Type matters too. The circular distinguishes Type I cash-outs, where the loan including the fee does not exceed the payoff of the old loan, from Type II, where it does. Moving a non-VA loan, such as an FHA loan, into VA is treated as a cash-out and carries the cash-out fee, even if you take no cash.
Is a VA Cash-Out the Right Fit?
The VA cash-out refinance program reaches up to 100% of appraised value, refinances any loan type into VA, and carries no monthly mortgage insurance. For many borrowers with significant equity, that combination is hard to match.
It is not the best answer for everyone. If you already hold a VA loan and only want a lower rate or a change from adjustable to fixed, the IRRRL is a different product. It carries a 0.5% fee unless you are exempt, needs no VA appraisal and has no cash-out. If you need only a small amount of cash, a home equity line may leave your first loan untouched, and Lendmire’s piece Cash-Out Refinance vs HELOC for Funding Your Next Rental Down Payment walks through that tradeoff, though it is framed around a rental down payment.
The funding fee should not decide the question alone. It is one part of a larger set of tradeoffs: the new rate, the new term, how much equity you keep and what the money is for.
How to Check Your Own Number
You can verify the fee on your own Loan Estimate:
1. Find the loan amount shown, and see whether it includes the financed fee. 2. Ask the loan officer to state the fee percentage and its tier. 3. Ask for the payment with the fee financed, and again with it paid in cash. 4. Confirm whether your exemption, if any, has been entered. 5. Check how close the total loan is to 100% of the appraised value.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Is the VA funding fee a monthly charge?
No. It is a one-time fee paid to the VA. It shows up in your monthly payment only if you finance it, because a financed fee raises your loan balance. If you pay it in cash at closing, it never touches your payment.
Does a larger down payment lower the fee on a cash-out?
No. A cash-out refinance has no down payment, so the fee depends only on whether you have used the benefit before. The reduced tiers for 5% or 10% down apply to purchase loans. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Does the fee count toward the 100% limit?
Yes. The VA cash-out can reach 100% of appraised value including the financed fee. Any part of the fee that would push the loan over that ceiling must be paid in cash at closing.
Can the fee be waived?
For veterans receiving compensation for a service-connected disability, and for the other exempt groups, yes. The VA decides who qualifies, and your status must be verified before closing. If it cannot be, the fee is generally charged as though you were not exempt.
Will the fee change if I refinance again later?
Possibly. Each new VA loan carries its own fee based on the rules in effect and your usage history at that time. Congress can change the rates, so the figure today may not be the figure later.
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.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA Lenders Handbook (Pamphlet 26-7), Chapter 8
2. VA Home Loan Guaranty Buyer’s Guide
5. Federal Register, Revisions to VA Cash-Out Refinance Loans
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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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.