The Quick Read: A pending claim does not exempt you at closing. VA waives the funding fee only when you already receive compensation, or hold a proposed or memorandum rating issued before the closing date (the pre-discharge route for service members). If the rating comes later with an effective date that reaches back before closing, you can ask VA for a refund. Nothing about that refund is automatic.
What Does a Pending Claim Actually Change at Closing?
Nothing. On closing day, the lender treats you as non-exempt unless your paperwork says otherwise.
VA cash-out estimate
Seeded with an example value, a typical balance, and a round cash request at the first-use fee; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a VA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the full-value VA cap with the first-use funding fee financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a VA cash-out refinance quote; a VA loan is priced by the lender at lock. The total loan, funding fee included, is capped at the program leverage on the reasonable value; the fee follows the tier chosen. The cash available is what the cap allows less the balances paid off and the fee, before closing costs, which are not included. The HELOC line is the line program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. The debt-to-income figure is a guideline; residual income decides a VA file. Licensed in sixteen states for consumer mortgages.
The Certificate of Eligibility (COE) is the document that decides this. It is the VA record that confirms you are eligible for the benefit, and it carries your funding fee status. When a claim is still open, the status will not show exempt. The fee gets collected the way it would for any other borrower.
VA’s own borrower acknowledgment form says it plainly: filing a pre-discharge claim does not guarantee an exemption. A proposed or memorandum rating issued before closing is what supports an exemption at the table. A refund is a separate question, and it depends on VA later awarding compensation with an effective date before closing. That distinction matters most for active-duty borrowers, and it comes back below.
Here is the good news. A pending claim is not a dead end. It changes your strategy, not your eligibility for the loan itself.
Why the Exemption Matters More on a Cash-Out
The cash-out funding fee sits in the highest tier. Across the wholesale programs Lendmire arranges for its VA loans, the cash-out refinance fee is 2.15% for first use and 3.3% after that. Those percentages apply to the loan amount.
Compare that with the other VA fees. A purchase with 10% or more down carries 1.25%. A streamline refinance (the VA’s streamlined refinance of an existing VA loan, called an IRRRL) carries 0.5%. So the cash-out is where an exempt status saves the most.
Because the VA cash-out reaches up to 100% of the appraised value including the financed fee, the fee also has a second effect. If you finance it, it becomes part of the balance. You borrow more, and you carry that larger balance until a refund shows up, if one ever does. Lendmire’s VA cash-out refinance program page lays out how that leverage works.
VA says that more than half of Veterans with a VA-guaranteed loan have been exempt since 2021. Exemption is common. It just has to be documented at the right moment.
Who Is Exempt Right Now?
VA’s list of exempt borrowers is short and specific:
- Veterans receiving VA compensation for a service-connected disability.
- Veterans entitled to compensation who receive retirement or active-duty pay instead.
- Certain surviving spouses receiving Dependency and Indemnity Compensation (DIC).
- Service members with a proposed or memorandum rating issued before closing, based on a pre-discharge claim.
- Active-duty members who can show a Purple Heart received on or before closing.
Notice what is missing. There is no minimum rating percentage on that list. What counts is whether you are receiving, or are entitled to, compensation, not how large it is.
The retiree line trips people up. If you are entitled to compensation but you draw retired pay, VA still treats you as exempt. You do not need to be collecting a separate disability check.
Key Terms Defined
Certificate of Eligibility (COE): The VA document showing you qualify for the loan benefit and what funding fee status applies to you.
Proposed or memorandum rating: A written rating decision VA issues to a service member with a pre-discharge claim, before the claim becomes a final award.
Effective date: The date VA says your compensation starts. It can be earlier than the day the decision is made.
Award letter: The VA letter that states your rating, your compensation and your effective date.
Funding fee: A one-time VA charge on the loan, financeable into the balance, waived for exempt borrowers.
How Does the Process Work, Step by Step?
Start with the COE. It shows one of three funding fee statuses: exempt, non-exempt, or a note to contact the regional loan center. Your loan officer pulls it early, so you know where you stand before the file goes any further.
Then the path splits.
Path one: your COE already says exempt. Done. The fee is waived, and the appraisal and underwriting run the same as for any other VA cash-out. Exemption changes the fee. It does not change the approval standard. It can change your income picture, though, since VA compensation is tax-free income. Residual income, the leftover monthly money after your obligations and living costs, remains the controlling test.
Path two: you have an award letter but the COE says non-exempt. Give the lender the award letter. Under VA Circular 26-23-19, a lender can submit VA Form 26-8937, the Verification of VA Benefits, to get your status confirmed.
Path three: your claim is pending. Per the VA Lenders Handbook chapter on borrower fees, VA determines your status when the claim is decided and refunds the fee if appropriate. Until then, the lender collects the fee as it would for any non-exempt borrower, and you keep your closing documents so the fee can be proven later. If you are a service member with a proposed or memorandum rating issued before closing, hand it to the lender so the COE can be checked. A good loan officer will not tell you to close and plan on a refund. That is a bet, and you should know it is a bet.
The Pre-Discharge Exception
This is the one place a pending claim can work in your favor at closing.
If you are still on active duty and filed a claim before separation, you can get a proposed or memorandum rating in writing from VA. Get it before the closing date. If it exists at closing, you are exempt, and the fee is waived.
If it does not exist at closing, the exemption does not apply at closing, and the fee is collected. A rating that arrives a week after closing does not waive the fee on the spot. A refund is possible only when VA’s award carries an effective date that precedes your closing, and that date is VA’s to set. The timing is strict because the rule is strict.
So a service member close to separation has a real task: ask VA whether a proposed or memorandum rating is on the way, and line it up with the closing date. Ask your loan officer to hold the closing schedule loosely until you know.
Can You Get the Fee Back After Closing?
Yes, in one situation. VA states that the fee is refundable if VA later awards compensation with an effective date retroactive to before your loan closed.
Two dates decide everything:
1. The effective date of your compensation award.
2. Your closing date.
If the effective date comes before closing, you have a refund case. If it comes after, you do not. Your rating percentage does not enter into it.
A wording note worth knowing. VA’s web page says “retroactive to before” closing. VA’s General Counsel opinion says refunds are owed when the award is effective on or before the date the fee was collected. If your effective date lands on the closing day itself, confirm with VA how they will treat it. Do not assume.
Many granted claims carry an effective date reaching back to the date the claim was filed. That is why a claim filed months before closing, and granted months after, can still produce a refund. But “can” is the word. VA decides the date, not your lender.
How to Request the Refund
Refunds are not automatic. You start them.
1. Wait for the award letter. It shows your rating and the effective date.
2. Gather your closing paperwork. The Closing Disclosure shows the fee you were charged.
3. Contact the VA Regional Loan Center. Confirm the current phone number on VA.gov before you call.
4. Send both documents. The award letter proves the date. The Closing Disclosure proves the charge.
5. Keep copies and follow up. VA issues refunds directly to the Veteran, according to the circular.
Lenders collect the fee and submit it through VA’s Funding Fee Payment System. The VA Office of Inspector General’s audit of funding fee exemptions and refunds confirms Circular 26-23-19 governs this process, and that retroactive disability ratings can result in exemption and refunds. Your loan officer can point you toward the right steps, but the request itself goes to VA.
Scenario Table: Claim Status vs. What Happens
| Your situation at closing | Fee at closing | Refund possible? | Best move |
|---|---|---|---|
| Receiving compensation, COE says exempt | Waived | Not needed | Close |
| Award letter in hand, COE says non-exempt | Resolve first | Not needed if corrected | Submit award letter before closing |
| Active duty with proposed or memorandum rating | Waived | Not needed | Close with rating in writing |
| Active duty, no rating before closing | Charged | Only if VA later sets an effective date before closing | Get a rating in writing first, or weigh waiting vs. closing |
| Civilian claim pending | Charged | Yes, if effective date precedes closing | Weigh waiting vs. closing |
| Rating arrives after closing, effective date later | Charged | No | Nothing to claim |
Close Now or Wait? How the Decision Looks in Practice
This one is a genuine judgment call, and the answer depends on what you are doing with the money.
Wait if a decision looks imminent and the cash can wait. If you expect a rating soon and your cash-out has no deadline, waiting avoids the fee entirely. You keep the balance smaller from day one.
Close if you need the funds on a timeline you cannot move. Maybe you are consolidating high-cost debt or covering a repair. Then you close, accept the fee, and plan to request a refund later. Understand the risk. You carry a bigger balance until VA acts, and the refund depends on an effective date VA has not yet set.
A few questions help sort it out:
- Is the claim already decided, or still being reviewed?
- When did you file? An earlier filing date helps the effective date.
- Is this your first use of the benefit? Subsequent use moves the fee to the higher 3.3% tier, so the stakes rise.
- Can the cash-out realistically wait?
If you are unsure, the most useful thing is to find out where your claim stands before you lock in a closing date.
Worked Example: Financed Fee vs. Fee Paid in Cash
Say you are a first-time VA user with a pending claim, refinancing into a VA cash-out at the full 100% of appraised value. The 2.15% fee gets financed into the loan. That keeps your cash needs at closing low, but it pushes the balance higher, and because the loan already reaches 100% of value, the fee comes out of your available proceeds rather than adding on top.
Now say the rating comes through eight months later, with an effective date before closing. You request the refund. VA sends it to you. At that point, you can put it toward the balance, or you can use it as you wish. The financed fee only goes away if you apply the refund to the loan yourself.
Compare that with paying the fee in cash at closing. Your balance stays smaller, but you tie up cash that you may not get back for months. Neither approach is better in every case. Financing keeps your cash free, while paying in cash keeps your balance lower.
For a second use, the same fee jumps to 3.3%. The same logic holds, but the gap between the two paths grows.
Where the Rule Breaks
A few edge cases deserve names.
- Proposed rating arrives after closing. It does not support a refund. The pre-discharge rule requires it before closing.
- Retroactive award after closing. This can still produce a refund if the effective date precedes closing.
- Construction-to-permanent loans. VA’s circular treats these as cash-out refinances for fee purposes.
- Other loan types. The exemption applies across purchases, cash-outs and IRRRLs.
- Pending legislation. A proposal called the VALOR Act (H.R. 7598) would reimburse Veterans whose claims were pending at closing. It is not law, so do not plan around it.
- Denied or 0% rating. No compensation means no exemption. A 0% award is still a service-connected rating, but confirm with VA how it affects your fee status.
- Changing lenders or paying off early. Neither one gets the fee back. A refund only comes through a retroactive disability exemption.
Common Mistakes
- Assuming a filed claim exempts you.
- Waiting for a “high enough” percentage that does not exist.
- Closing a pre-discharge loan without the proposed rating in hand.
- Assuming the refund arrives on its own.
- Skipping the closing documents, then trying to prove the fee later.
- Treating any approval after closing as a refund trigger. Only the effective date counts.
Frequently Asked Questions
Does the rating percentage affect my exemption?
No. VA’s published categories set no minimum percentage. What matters is that you receive or are entitled to compensation for a service-connected disability.
Is the exemption the lender’s choice?
No. The rules are VA’s. Lenders collect the fee under VA’s regulations and cannot waive it on their own. They can only apply the exemption when VA’s records support it.
What should I tell my loan officer about a pending claim?
Say so up front, with your filing date. Bring any award letter, proposed rating or VA correspondence. The earlier the loan officer knows, the more options you have on timing.
Can I ask to pause my closing until the rating arrives?
Yes, you can ask. Your closing date is a scheduling choice you make with the lender and the seller or title company where relevant. Whether a delay works depends on your goals. Nothing here is a commitment to lend, and every program figure is subject to lender guidelines and full file review.
How does a refund affect a later refinance?
The refund goes to you, not the loan. If you want it to reduce the balance, you apply it yourself. A later refinance is evaluated on its own terms, including seasoning and net tangible benefit.
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. You can request a scenario review to start.
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 Form 26-0592 borrower acknowledgment
2. VA News: Funding fee, who pays and who is exempt
4. VA Lenders Handbook chapter on borrower fees
5. VA.gov: Funding fee and loan closing costs
6. VA General Counsel opinion VAOPGCPREC 2-2019
7. VA Office of Inspector General audit of funding fee exemptions and refunds
This article is part of Lendmire’s VA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: VA Cash-Out vs Jumbo Cash-Out to Buy Out an Ex Who Is on Title · How to Use a VA Cash-Out to Fund a Condo Renovation · How to Meet VA Jumbo Cash-Out Reserves and Cover the Funding Fee
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.