The Quick Read: If you already have a VA loan, a VA cash-out refinance carries a 3.3% funding fee unless you are exempt. That is the subsequent-use tier, and it applies because you have used the benefit before. The fee is a percentage of the new loan amount, it is paid to VA, and it can be rolled into the loan. Program figures are subject to lender guidelines and full file review.
Key Terms Defined
Funding fee: a one-time charge paid to VA on most VA loans. It helps cover the cost of running the program, and it replaces the monthly mortgage insurance other loans carry.
First use: the first time you use your VA home loan benefit. A cash-out on a first-use basis carries the lower fee tier.
Subsequent use: any use of the benefit after the first. Having an existing VA loan puts you here.
Cash-out refinance: a new loan that pays off your current mortgage and hands you the difference in cash, drawn from your home equity.
VA streamline refinance: the Interest Rate Reduction Refinance Loan (IRRRL), VA’s streamlined refinance for an existing VA loan. It does not pay out cash.
Certificate of eligibility (COE): the VA document that confirms you qualify for the benefit and shows your history of use.
Net tangible benefit: a real, demonstrable gain from the refinance. VA expects every refinance to show one.
What Is the Fee on a VA Cash-Out If You Already Have a VA Loan?
The fee is 3.3% of the new loan amount. A cash-out refinance has just two tiers. First use is 2.15%. Subsequent use is 3.3%.
Your existing VA loan decides which one applies. The tier follows your history with the benefit. It does not follow your equity or how much you put down.
The VA funding fee page is the official schedule. Congress sets these percentages and can change them. Check that page before you commit to a plan.
Here is how the tiers line up across the loan types on a primary residence:
| Loan type | Fee tier |
|---|---|
| Cash-out, first use | 2.15% |
| Cash-out, subsequent use | 3.3% |
| VA streamline refinance | 0.5% |
| Any VA loan, exempt borrower | Waived |
The fee applies to the whole new loan, not just the cash you take out. That is why it can feel large. You are paying it on the balance that pays off your old mortgage, plus the cash.
Which Tier Am I In?
Work through these cases in order:
- You have a VA loan now. You are subsequent use. The fee is 3.3%.
- You paid off or sold a prior VA loan. Prior use of the benefit is the usual trigger for the higher tier. Whether restoring your entitlement changes the tier is a question for your loan officer and your COE. Do not assume it resets you.
- Your current loan is conventional or FHA, and you have never used VA. That is first use. The fee is 2.15%.
- You are exempt. The fee is waived, and your tier does not matter.
Your COE is the tiebreaker. It shows your entitlement and your prior use. Across the wholesale programs we place VA files with, the COE is one of the first documents pulled. It settles most tier questions before they become problems.
Why Down Payment and Equity Don’t Lower the Fee
Here is the myth that trips up many homeowners. On a purchase, a down payment of 5% or more lowers the funding fee. People assume equity does the same job on a refinance, so they expect a large equity cushion to lower the fee. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Equity does not lower the fee on a refinance. A cash-out has no down-payment tier. You could have large equity and still pay 3.3%. The down-payment reduction is a purchase feature, not a refinance one.
This is also why a cash-out from a conventional loan is not automatically subsequent use. The tier follows your history with VA. It does not follow the loan you are paying off.
How the Fee Is Handled, Step by Step
The process is simple once you see the order. The VA Lenders Handbook, Chapter 8 puts the work on the lender. Here is how it plays out.
1. The tier is set. The lender reviews your COE and your VA loan history. It works out the fee owed.
2. Exemption is checked before closing. VA expects exempt status to be settled up front. Lenders must use due diligence and cannot ignore signs that you might be exempt.
3. You choose how to pay. You can pay the fee in cash or add it to the loan.
4. The fee is collected at closing. It goes to VA, not to your lender or broker.
The Handbook is clear on step 3. On a cash-out, the fee and the cost of energy-efficiency improvements are the only items that can be added to the loan amount. Other allowable closing costs come out of your cash proceeds instead.
That catches people off guard. They expect to roll every closing cost into the balance. On a VA cash-out, only the fee goes in that way. The rest reduces the check you receive.
Pay It Upfront or Roll It In?
Rolling the fee in is the common choice, and it keeps cash in your pocket at closing. The tradeoff is a larger balance. A larger balance means a modestly higher monthly payment and more interest over the life of the loan.
Lendmire’s piece How Much a VA Cash-Out Funding Fee Adds to Your Monthly Payment walks through that effect. This article stays on the fee itself.
Picture a homeowner with a VA loan who wants cash for a renovation. If she pays the 3.3% fee out of pocket, her loan is smaller and her cash at closing is lower. If she rolls it in, her cash is higher on day one, but she carries and pays interest on the fee for years.
Neither choice is wrong. It comes down to whether the cash you need today is worth the interest on the fee later.
How the Fee Interacts With the Value Ceiling
The VA cash-out reaches up to 100% of the appraised value, and that limit includes the financed fee. The fee does not sit on top of the ceiling. It competes with your cash for room under it.
Say your home appraises for a certain value and your payoff plus the financed fee already reaches 100% of it. There is no cash left to take. A larger fee means less room for cash.
This matters most for owners with modest equity. The 3.3% fee can eat a real share of the cash you were counting on. Any amount above the ceiling would have to be paid in cash. Confirm the exact rule with your loan officer, since the structure of your loan and appraisal both drive the result.
Who Pays No Fee at All?
Exempt borrowers pay nothing. The groups that are generally exempt include:
- Veterans who receive VA compensation for a service-connected disability
- Veterans entitled to that compensation who are not receiving it because they are on active duty or drawing retirement pay
- Surviving spouses who receive Dependency and Indemnity Compensation (DIC)
- Active-duty service members with a Purple Heart
Confirm your own status against the Handbook and your COE. The list above is a summary, not a ruling on your file.
Timing matters here. VA Circular 26-23-19 says exemption status should be established before closing. It also says lenders should not tell you to close now and request a refund later. If exempt status cannot be verified in time, the fee is remitted as if you were not exempt.
So if you have a disability rating pending, raise it at the start. Do not wait until the closing table.
One more edge case. A surviving spouse who qualifies for an IRRRL is not treated as exempt unless she receives DIC. That distinction is easy to miss.
Cash-Out vs. IRRRL: Is the Extra Fee Worth It?
This is the decision most existing VA borrowers actually face. The two loans do different jobs.
| Factor | VA cash-out | IRRRL |
|---|---|---|
| Fee | 3.3% (subsequent use) | 0.5% |
| Cash to you | Yes | No |
| Purpose | Tap equity or change loan type | Lower rate or switch to fixed |
| Appraisal | Required | Not required |
| Tangible benefit | Required | Required |
An IRRRL refinances your existing VA loan to a lower rate, or from adjustable to fixed. It needs no VA appraisal. Its fee is a flat 0.5% unless you are exempt. Both loans share the same seasoning: the later of 210 days from your first payment and the sixth payment.
The gap in fees is wide. If your only goal is a better loan structure, the IRRRL is cheaper in fee terms. A cash-out earns its extra cost only when you need the cash.
Ask yourself two questions:
- What is the cash for, and does it justify a 3.3% fee on the whole new balance?
- Could I reach the goal another way, such as an IRRRL now and a separate plan for the cash?
A cash-out also does something an IRRRL cannot. It can refinance any loan type into VA. If you are moving a non-VA loan over, the cash-out is the only path, and the first-use tier may apply.
What Else Is in the Closing Costs?
The fee is the biggest single VA charge, but it is not the only one. A cash-out is a full underwrite, so expect an appraisal, title work, and the usual lender and third-party charges. Those appear on your Loan Estimate and Closing Disclosure, and you should compare them line by line.
A flat origination charge for VA loans is capped, which limits one category of cost. Beyond that, charges vary by lender and by file. As noted, those other costs come out of your proceeds. They cannot be rolled into the balance the way the fee can.
Underwriting on a cash-out leans on residual income, which is what you have left each month after your major obligations and living costs. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above VA’s table. The wholesale programs we place loans with start at a 580 decision score, though VA itself sets no minimum.
For a broader look at what you walk away with, see Lendmire’s article How Much a VA Cash-Out Nets After the Funding Fee and Closing Costs.
How a Cash-Out Fits Into the Bigger Picture
The VA cash-out refinance program offers up to 100% of appraised value, with no mortgage insurance and no loan limit on full entitlement. That is a strong feature. The funding fee is the price of admission, and it replaces monthly mortgage insurance entirely.
Honestly, this one is a toss-up for many borrowers. The 3.3% fee looks steep. But a VA loan carries no monthly mortgage insurance, which a conventional loan at high leverage would. Whether the trade favors you depends on how much equity you take, how long you keep the loan, and what the cash does for you.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Common Mistakes With the Fee
- Assuming equity lowers the fee. It does not on a cash-out.
- Assuming all closing costs can be financed. Only the fee and energy improvements can.
- Waiting to claim the exemption. Establish it before closing, not after.
- Skipping the IRRRL comparison. If you want no cash, the cheaper loan may be the streamlined one.
- Using stale figures. Older fee schedules carried different percentages. Check the current VA page.
- Thinking the fee goes to the lender. It is paid to VA.
Frequently Asked Questions
How much is the funding fee on a VA cash-out if I already have a VA loan?
It is 3.3% of the new loan amount, unless you are exempt. That is the subsequent-use tier. The 2.15% first-use tier is for borrowers who have never used the benefit. Congress sets the schedule, so confirm the current figure on the VA funding fee page.
Does a larger down payment or more equity reduce the cash-out fee?
No. A cash-out has no down-payment tier. Purchase loans earn lower fees at higher down payments, but refinances do not. Your history with the benefit decides the tier.
Can I roll the funding fee into the loan?
Yes. The fee can be added to the loan amount, and so can energy-efficiency improvements. Other closing costs are paid from your proceeds or upfront. The financed fee counts toward the 100% value ceiling, so it reduces the cash available to you.
Is a cash-out from my conventional loan subsequent use?
Not if you have never used VA. It is first use, at 2.15%, because the tier follows your VA history and not the loan you are paying off. If you have used the benefit before, you are in the subsequent tier.
Can I get the fee refunded if I turn out to be exempt?
Do not count on it. VA’s circular says lenders should not advise closing first and claiming a refund later. Establish exemption before closing. If it cannot be verified in time, the fee is paid as though you were not exempt.
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 licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA funding fee and closing costs
2. VA Lenders Handbook (Pamphlet 26-7), Chapter 8: Borrower Fees and the VA Funding Fee
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: How to Choose a VA Cash-Out Lender for an Existing VA Loan · VA Cash-Out Entitlement Rules for an Existing VA Loan Refinance · VA Cash-Out Occupancy Requirements on an Existing VA Loan
Brandon Miller
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.