The Quick Read: being exempt from the VA funding fee changes one cost on both loans, and it leaves nearly every other requirement in place. The IRRRL (the VA streamline) is built for a veteran who already has a VA loan and wants to change its terms without taking cash. The VA cash-out is built for a veteran who wants equity, or who has a non-VA loan and wants to move it into a VA loan. Which one fits depends on what you want from the refinance, not on the exemption.
Key Takeaways
- The exemption takes the funding fee to zero on both loans. It does not waive seasoning, the net tangible benefit test, occupancy rules, or closing costs.
- An IRRRL gives you no cash and refinances only an existing VA loan. The cash-out can pay off any loan type and can put cash in your hands.
- The IRRRL carries lighter paperwork, with no VA appraisal. The cash-out carries a full appraisal and a full look at credit, income and residual income.
- Exempt status has to show up in your file before closing. Check it on your Certificate of Eligibility and again on your Closing Disclosure.
Side-by-Side
Here is how the two loans compare for a veteran who is exempt from the fee. Every row is subject to lender guidelines and full file review.
| Factor | VA IRRRL | VA Cash-Out |
|---|---|---|
| Funding fee if exempt | Zero | Zero |
| Existing loan | Must be a VA loan | Any loan type |
| Cash to you | None allowed | Yes, if equity supports it |
| Leverage | Reuses the existing VA loan | Up to 100% of appraised value, fee included |
| Appraisal | No VA appraisal | Full appraisal |
| Credit and income | No VA credit package; lender may add | Full credit, income, residual income |
| Credit floor | Set by the lender | 580 decision score on wholesale programs |
| Mortgage insurance | None | None |
| Occupancy | Prior occupancy certified | You, or spouse/dependent if active duty |
| Second mortgage | Cannot be paid off; must subordinate | Can be paid off |
| Seasoning | Later of 210 days from first payment or 6th payment | Same seasoning |
| Net tangible benefit | Required | Required, one of eight tests |
Key Terms Defined
IRRRL: The Interest Rate Reduction Refinance Loan, VA’s streamline refinance for an existing VA loan.
Funding fee: A one-time VA charge on most VA loans that can be financed into the loan and is waived for exempt veterans.
Net tangible benefit (NTB): A test showing the refinance helps you in a measurable way, such as a lower payment or a move from adjustable to fixed.
Seasoning: The waiting period before you can refinance. For these programs it is the later of 210 days from the first payment or the sixth payment.
Recoupment: How long it takes the savings to pay back the refinance costs. VA’s lender materials point to 36 months.
Residual income: The money left each month after debts and living costs. It is the controlling test on a VA loan.
Certificate of Eligibility (COE): The VA document that confirms your eligibility and, in most cases, your exempt status.
Entitlement: The amount of VA guaranty you have available to use.
What Exempt Status Actually Removes
It removes one line: the funding fee. The fee is the one-time VA charge on most VA loans. On the programs Lendmire places, it runs 0.5% on an IRRRL and 2.15% on a first-use cash-out. A later-use cash-out is 3.3%. An exempt veteran owes none of those.
VA News lists who qualifies:
- Veterans receiving VA compensation for a service-connected disability.
- Veterans eligible for compensation who receive retirement or active-duty pay instead.
- Certain surviving spouses receiving Dependency and Indemnity Compensation.
- Service members with a proposed or memorandum rating dated before closing, issued ahead of discharge.
- Active-duty members with evidence of a Purple Heart by closing.
VA also reports that more than half of recent VA-guaranteed home loan borrowers were exempt. So this is common, and it is easy to assume it handles itself. It doesn’t. The status must be established before closing, and the COE is where it should show. Exemption is VA’s rule, not a lender’s favor, so a fee that appears on your paperwork is worth questioning.
“Exempt” also doesn’t mean “no closing costs.” VA’s own cash-out page warns that refinance closing costs can add up to thousands of dollars. Appraisal, title and lender-side charges are separate from the funding fee. On an IRRRL, VA says those costs can be rolled into the loan or covered through a higher rate. That is a trade-off you weigh, not a cost that disappears.
When the IRRRL Is the Better Fit
The IRRRL fits when you have a VA loan, you like your home, and you want different loan terms with no cash. Typical reasons are a lower rate, or a move from an adjustable rate to a fixed one. VA’s own IRRRL fact page says the loan is VA-to-VA and that no cash may come from the proceeds.
The paperwork is lighter. VA requires no appraisal and no credit underwriting package. Lenders can add their own requirements, so “streamline” does not mean “no questions.” You only certify that you previously occupied the home, which helps if you have since moved out. You also reuse the entitlement from the original loan, so nothing new is drawn.
Picture a veteran with a service-connected disability rating, two years into a VA loan. The monthly payment feels heavy, and there is no need for cash. The IRRRL is the natural starting point. The exemption removes the funding fee, and the work shifts to the benefit test and the cost recovery period.
Even here, the rules still apply:
- Seasoning applies: the later of 210 days from the first payment or the sixth payment. VA’s lender conference materials confirm that IRRRLs must meet a net tangible benefit test, seasoning, and recoupment of fees and charges.
- The loan can pay off only the existing VA loan. A second-mortgage holder must agree to subordinate, so the new loan sits in first position.
- If your current loan is behind on payments, expect extra scrutiny. That is a conversation to have with a loan officer.
The IRRRL is also less flexible on the loan itself. If your VA loan has a second mortgage you want gone, the IRRRL can’t help. If you want a rate change and cash from the same transaction, it can’t help there either.
When the VA Cash-Out Is the Better Fit
The VA cash-out fits when you want equity, when you have a second lien to clear, or when your current loan isn’t a VA loan. VA says the cash-out can pay off debt, fund school, pay for home improvements, or refinance a non-VA loan into a VA-backed loan. Lendmire’s VA cash-out refinance program page lays out how those files are arranged through wholesale lenders in the 16 states where Lendmire does consumer lending.
The reach is the main draw. Across the wholesale programs Lendmire works with, a VA cash-out can go up to 100% of the appraised value, with the financed fee counted inside that number. Exempt veterans don’t have a fee to finance, so that room is entirely for balance and costs. There is no mortgage insurance on top of the loan. With full entitlement there is no VA loan limit, and with remaining entitlement a down payment may apply. Ask a loan officer how your entitlement sits.
The price of that flexibility is the full file:
- A full appraisal, because the loan is sized to the home’s value.
- Satisfactory credit. VA sets no minimum score, but the wholesale programs Lendmire uses start at a 580 decision score.
- Income documented, with residual income as the controlling test. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
- Seasoning and a net tangible benefit. VA’s materials describe a list of eight qualifying benefits for cash-outs, and the loan must meet at least one.
- A Certificate of Eligibility, with exempt status confirmed on it.
Occupancy matters too. A cash-out is for a home you occupy, or one a spouse or dependent occupies if you are on active duty.
There is an overlooked use. A cash-out doesn’t have to put cash in your hands. It can work as a plain rate-and-term move for someone with an FHA, conventional or USDA loan who wants a VA loan instead. That is a real option for an exempt veteran with a non-VA loan. The IRRRL isn’t open to that borrower at all.
The cost is entitlement and equity. A cash-out generally draws on your entitlement, which can limit what is left for a future purchase. Ask how much would remain. It also turns equity into debt, which raises the balance and may raise the payment. VA’s cash-out page tells borrowers to understand how the new loan amount relates to the home’s value. Take that seriously.
For a closer look at the cash-out side, Lendmire’s walkthrough for a veteran who wants a little cash out goes through that choice with a smaller cash goal.
Three Short Scenarios
Lowering the payment, no cash needed. A veteran with a VA loan, a disability rating, and no appetite for new debt. Start with the IRRRL. The key questions are seasoning, the benefit test, and whether the savings repay the costs within VA’s recovery period.
Taking equity for repairs. The same veteran wants to fund a major repair and has a second mortgage to clear. The IRRRL can’t give cash and can’t pay off the second lien. The cash-out can. The full file applies: appraisal, credit, income, residual income.
A rating granted mid-process. Say the disability rating is approved after application but before closing. Tell your loan officer right away so the COE can be updated before the Closing Disclosure is issued. If the effective date falls after closing, ask both your lender and VA whether a refund is possible. Don’t assume it is.
Mistakes to Watch For
Most problems with the exemption come from timing, not eligibility.
- Assuming the exemption is automatic. A rating on file at VA doesn’t guarantee the file shows it. Check the COE.
- Skipping the Loan Estimate and Closing Disclosure. Look for the funding fee line. If it shows a charge, raise it with your loan officer before closing, not after.
- Treating “streamline” as “no requirements.” Seasoning, the benefit test and recoupment still apply.
- Expecting cash from an IRRRL. VA says it can’t be done.
- Trusting official-looking mail. VA and the CFPB have warned about refinance offers that look official but promise too much. That includes promises of very low rates, skipped payments, or cash back.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
The Balanced Verdict
Neither loan is better in the abstract, and the exemption doesn’t tip the scale. It makes both cheaper by the same fee. What separates them is what you need.
Choose the IRRRL if you have a VA loan, want to change its terms, and don’t need cash. You get lighter paperwork, no VA appraisal, and no new entitlement use. You give up cash, second-lien payoff and any chance to move a non-VA loan.
Choose the VA cash-out if you want equity, need to clear a second lien, or hold a non-VA loan. You get more reach and more flexibility. You take on a full appraisal, full credit review, a higher balance, and entitlement use.
Run the benefit test on both. Ask how long the savings take to repay the costs. A refinance only works if you stay in the home long enough to recover them.
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. All program figures here are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Does being fee-exempt mean my refinance has no closing costs?
No. The exemption removes only the VA funding fee. Appraisal, title and other closing charges still apply, and VA warns they can add up to thousands of dollars. On an IRRRL, those costs can be rolled into the loan or covered through a higher rate. Either way you pay them over time.
Can an IRRRL pay off my second mortgage or give me cash?
No. VA says an IRRRL may pay only the existing VA loan, and no cash may come to you. A second-mortgage holder must agree to subordinate. If you want that lien paid off or cash in hand, the VA cash-out is the loan built for it.
Can I use an IRRRL if my current loan is FHA or conventional?
No. An IRRRL must refinance an existing VA loan. If your current loan is FHA, conventional or USDA, the VA cash-out can refinance it into a VA loan. You can use it with no cash taken out if all you want is the VA loan.
What if my exempt status isn’t on my Certificate of Eligibility?
Raise it with your loan officer immediately and send your VA award letter. Status has to be established before closing, so the sooner the file shows it, the better. If a funding fee still appears on your Closing Disclosure, ask for it to be corrected. If the effective date falls after closing, ask your lender and VA about a refund.
Do I have to live in the home for an IRRRL?
No. VA only asks you to certify that you previously occupied the home. A cash-out is different. The home must be your residence, or a spouse’s or dependent’s if you are on active duty.
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.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. VA News – Funding fee: who pays, who is exempt
2. VA – Cash-out refinance loan
4. VA Loan Guaranty Conference – Refinancing Loans
5. CFPB and VA – Refinancing offers that sound too good to be true
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: Can a Veteran Do a VA Cash-Out Within the First Year? · Can a Texas Veteran Do a VA Cash-Out for the Full Value? · VA IRRRL vs VA Cash-Out for a Veteran Who Wants Some Cash Back
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.