The Quick Read: For an exempt veteran, the VA funding fee on a cash-out refinance drops to zero. That leaves two choices: a loan smaller by roughly the fee percentage, or more cash from the same loan ceiling. The smaller loan means a lower payment on the same payoff and the same cash. The bigger-cash route keeps the loan size and raises what you walk away with.
Key Takeaways
- The cash-out fee is 2.15% for first use and 3.3% for later use of the benefit. Exempt borrowers pay none.
- The fee is a percentage of the whole new loan, so the savings scale with the loan.
- VA tests the loan amount, fee included, against the appraised value. Removing the fee frees room under that ceiling.
- Exemption does not change closing costs, the appraisal, or the other refinance tests.
- Confirm your exempt status before the Closing Disclosure is issued, not after.
What Is the Fee, and What Does “Exempt” Mean?
The VA funding fee is a one-time charge on most VA loans. It is a flat percentage of the loan amount. On a cash-out refinance, the percentage depends on whether you have used your VA benefit before. It does not shrink with more equity.
Across the wholesale programs Lendmire places VA files with, the cash-out fee runs 2.15% on first use and 3.3% after that. VA publishes the same schedule in VA Circular 26-23-06 Exhibit B. Older, higher tables still circulate online. If a site shows different cash-out numbers, it is likely out of date.
“Exempt” means the law bars anyone from collecting the fee. Under 38 U.S.C. § 3729, that covers a veteran receiving VA disability compensation. It also covers certain surviving spouses and active-duty members with a Purple Heart on record by closing. A lender cannot waive the fee for you, and cannot charge it once you are exempt.
Many borrowers assume the exemption only applies to purchases. It applies to the cash-out refinance too. The statute has no loan-type carve-out.
How Does the Fee Work Inside a VA Cash-Out?
The fee is not paid separately from the loan on most cash-outs. It gets added to the new balance. The statute allows the fee to be included in the loan. That means the fee grows the loan and is then charged interest like the rest of it.
Here is the build-up for a non-exempt borrower:
1. Start with the payoff of the old loan.
2. Add the cash you want to take out.
3. Add closing costs that are rolled in.
4. Add the funding fee, which is a percentage of that new total.
An exempt borrower skips step four. The same payoff and the same cash need a smaller loan.
VA also counts the fee when it tests the loan against the home’s value. Its Circular 26-19-05 says loan-to-value (LTV, the loan divided by the appraised value) uses the total loan with the fee included. A VA cash-out reaches up to 100% of the appraised value including a financed fee, on the programs we work with. So the fee eats into that ceiling.
How Much Does the Exemption Change Your Cash?
It changes cash in one of two ways, depending on how you use the savings.
Same cash, smaller loan. You ask for a set amount of cash. The exempt loan comes out smaller than the non-exempt loan by about the fee percentage.
Same loan size, more cash. When your request runs into the LTV ceiling, the fee takes part of the room. Exempt borrowers keep that room as extra cash. If the appraisal comes in low, the available cash falls for everyone. The exemption does not rescue a weak appraisal.
Here is a side-by-side with no dollar amounts. Picture two homeowners with the same home, the same payoff, and the same cash goal.
| Item | Exempt | Non-exempt, fee financed |
|---|---|---|
| Fee charged | None | 2.15% or 3.3% of new loan |
| New loan size | Smaller | Larger by about the fee |
| LTV on same value | Lower | Higher |
| Cash received | Same, or more at the ceiling | Same, or less at the ceiling |
| Payment direction | Lower | Higher |
A third path exists: a non-exempt borrower can pay the fee from their own funds. On a cash-out, that defeats much of the point. VA notes that allowable fees and closing costs on a cash-out can come out of the loan proceeds, so most borrowers finance it.
How Much Does the Exemption Change the Payment?
It lowers the payment in proportion to the loan. A smaller balance at the same terms means a smaller payment. The size of the drop tracks the fee percentage, so a subsequent-use borrower sees a bigger effect than a first-use borrower.
Think of it as a share of the loan. On a first-use cash-out, the fee is 2.15% of the new loan. Take that away and the balance, and the payment tied to it, shrinks by about that share. On a subsequent-use cash-out, the share is 3.3%. Ask your loan officer to run both versions side by side so you see the real figures.
Two effects get mixed up here, so separate them:
- The fee effect. This is the exemption’s contribution. It is only the fee share.
- The cash effect. Taking cash out raises the balance and the payment no matter what. That increase is bigger than the fee effect.
An exempt cash-out still usually carries a higher payment than the old loan did, because the balance went up and the term reset. The exemption makes it smaller than it would have been. It does not make it lower than before.
One caution on comparisons. When you weigh a new payment against your old one, compare like with like. If the old payment includes taxes and insurance, the new one must include them too. A principal-and-interest figure next to a full payment can make the new loan look cheaper than it is. VA lenders have been criticized for exactly that comparison.
Who Qualifies for the Exemption?
The core test is whether you receive VA disability compensation. Here are the groups the statute names:
- A veteran receiving compensation for a service-connected disability.
- A veteran who would receive compensation but for taking retirement or active-service pay.
- A surviving spouse of a veteran who died of a service-connected disability, or in service.
- An active-duty member who shows evidence of a Purple Heart on or before closing.
The statute turns on receiving compensation, not on the rating percentage. Surviving-spouse cases can be fact-specific, so the Certificate of Eligibility (COE, the VA document that confirms your eligibility) and VA review matter. A veteran who earned a Purple Heart but left service before closing generally needs a different category, such as compensation.
Your COE should show your funding fee status. If it is wrong or silent, the lender can ask VA to update it, usually with your VA award letter as support. Check this early. Exempt files have been charged the fee anyway because nobody verified status before the Closing Disclosure. Look at that document and confirm the funding fee line is zero.
What If Your Rating Is Pending or Arrives After Closing?
Timing can move you from non-exempt to exempt, but the fix is not automatic. These are the common situations:
- Rating already in place. Status shows on the COE. The fee is removed before closing.
- Rating pending at closing. You may be charged the fee. A refund is possible in some cases, covered below.
- Rating granted after closing. If VA sets the effective date before your closing, you may be owed a refund.
VA says a refund may be due when a compensation claim was pending at closing and the award is retroactive to a date before closing. You contact your mortgage holder or the VA Regional Loan Center, whose contact details are on VA’s funding fee refund page. Refunds do not arrive on their own. You have to ask.
A bill called the VALOR Act has been proposed to widen reimbursement. It is only proposed, so do not plan around it.
If a rating decision is close, tell your loan officer. It can change how you sequence the refinance.
What the Exemption Does Not Change
The exemption removes one cost. Everything else on a VA cash-out stays in place.
- Closing costs. Appraisal, title, and other charges still apply.
- The appraisal. VA’s Notice of Value sets the reasonable value that caps your loan.
- Seasoning. When you refinance a VA loan, a waiting period applies. The programs we place with use the later of 210 days from your first payment and your sixth payment.
- Net tangible benefit (NTB). VA requires the refinance to leave you better off in a measurable way, such as a reduced interest rate or a lower LTV. Because the fee counts toward LTV, an exempt borrower sits closer to meeting an LTV-based test.
- Underwriting. Residual income, the money left each month after major obligations and living costs, is the controlling test. The 41% debt-to-income figure is a guideline, not a cap. A higher ratio needs residual income well above the table.
- Credit. VA sets no minimum score. The wholesale programs we place with start at a 580 decision score, subject to lender guidelines and full file review.
- Your entitlement. The cash-out uses it, and first versus subsequent use still sets the non-exempt fee level.
How Do You Run Your Own Numbers?
Use this checklist when you talk to a loan officer:
1. Get your COE and confirm the funding fee status.
2. Note whether this would be your first or a later use of the benefit.
3. Decide your cash goal in words first: debt payoff, repairs, or reserves.
4. Ask for two versions of the quote: with the fee and without it.
5. Compare the new loan balance, the cash you receive, and the payment. Use taxes and insurance in both.
6. Check the LTV against your appraised value and the NTB test.
7. Decide whether to take the savings as a smaller loan or more cash.
Both versions show up on the Loan Estimate and the Closing Disclosure. An exempt borrower’s documents should show a zero funding fee. VA also suggests contacting several lenders, because terms vary. Be wary of unsolicited “VA refinance” offers, which VA and consumer regulators have flagged for misleading marketing.
When Does the Exemption Make a Cash-Out Worthwhile?
The exemption makes the math better. It does not make every cash-out a good idea. A cash-out resets your term and raises your balance. That is the case whether or not you pay the fee.
It tends to help most when you:
- Have a subsequent-use fee that would otherwise be 3.3%.
- Are using the cash to retire higher-cost debt.
- Need the extra LTV room to reach your cash goal.
It helps less when you only want a small amount of cash, or when the old loan has a payment and term you would rather keep. In that case, compare a cash-out against keeping the loan you have.
Key Terms Defined
Funding fee: A one-time VA charge, set as a percentage of the loan, that can be financed into the loan.
Exempt: Barred by law from being charged the funding fee, such as a veteran receiving disability compensation.
Certificate of Eligibility (COE): The VA document confirming your eligibility and showing your funding fee status.
Loan-to-value (LTV): The total loan, fee included, divided by the appraised value of the home.
Net tangible benefit (NTB): VA’s requirement that a refinance leave you measurably better off.
Residual income: The money left each month after major obligations and living costs, which is the controlling VA test.
Seasoning: The waiting period required before you can refinance an existing VA loan.
Frequently Asked Questions
Does the exemption apply to a VA cash-out or only a purchase?
It applies to both. The statute bars the fee for qualifying borrowers with no loan-type exception. A cash-out refinance that converts a non-VA loan into a VA loan is covered too.
Do I need a high disability rating to be exempt?
No minimum rating is stated in the statute. What counts is that you receive compensation for a service-connected disability, or would but for retirement pay. Your COE shows how VA has you recorded.
Can I get a refund if I paid the fee and my rating came later?
Possibly. VA says a refund may be due if your claim was pending at closing and the award is retroactive to a date before closing. Contact your mortgage holder or the VA Regional Loan Center. It will not happen on its own.
Does more equity lower the cash-out fee?
No. Only purchases get down-payment tiers. On a cash-out, the percentage depends on whether this is your first or a later use of the benefit.
Is the exemption different on a streamlined refinance?
It applies there too, since the statute covers VA loans in general. The streamlined product (the IRRRL) carries a 0.5% fee unless you are exempt. It is a different loan from a cash-out and works under different rules.
Next Step
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. The VA cash-out refinance program page covers the basics. All figures here are subject to lender guidelines and a full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA Circular 26-23-06 Exhibit B
2. 38 U.S.C. § 3729 (House Office of Law Revision Counsel)
5. VA News, “You could be losing thousands”
6. VA Funding Fee Refunds page
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: Does a Disability Rating Exempt You From the VA Cash-Out Fee? · Can a Veteran Do a VA Cash-Out Within the First Year? · 4 Myths About the Risk of a VA Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.