The Quick Read: A lender does not decide whether you are exempt from the VA funding fee. VA decides, and the lender follows what VA shows on your Certificate of Eligibility (COE). A disability claim that is still pending is not an exemption. If VA has not confirmed your status by closing, the fee is collected. If VA later awards compensation with an effective date before your closing date, you can ask for a refund, and VA pays it to you directly.
Key Takeaways
- Exemption comes from VA’s records, not from the lender and not from the fact that you filed a claim.
- A pending claim at closing means the lender collects the fee. On a cash-out refinance that is 2.15% on first use and 3.3% on later use, subject to lender guidelines.
- A refund is possible only if the award’s effective date falls before your closing date. A rating that arrives after closing does not remove the fee.
- The VA cash-out rules stay the same whatever your status: the appraisal, the 100% cap, the net tangible benefit and the seasoning test.
- The cleanest fix is a current COE before closing, not a plan to “close now, refund later.”
Key Terms Defined
Funding fee: A one-time charge VA collects on most VA loans. It can be financed into the loan, and it is waived for exempt borrowers.
Certificate of Eligibility (COE): The VA document that shows your entitlement and your funding fee status. The loan officer pulls it first.
Effective date: The date VA says your compensation starts. It can be earlier than the date VA makes its decision. It is the date that controls a refund.
Proposed or memorandum rating: A preliminary VA rating issued to someone still on active duty. Issued before closing, it can support an exemption.
Net tangible benefit: One of VA’s listed ways a cash-out refinance must help you. Examples include moving to a lower payment or taking out a risky loan type.
Seasoning: The waiting period required when you refinance an existing VA loan. More on that below.
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.
What Does a Lender Actually Do With a Pending Claim?
The lender reads your status, follows it, and documents it. That is the whole job. Nothing in the process lets the lender waive the fee on a hunch, a filed claim, or a promise that a decision is coming.
VA’s Lenders Handbook spells out the lender’s duties. The lender works out the fee owed by any non-exempt borrower. It sends that fee to VA electronically through VA’s Funding Fee Payment System. It prints proof of payment. Then it puts proof of either payment or exemption in the closed-loan package.
That last piece matters. Every file ends with one of two documents: proof you were exempt, or proof the fee was paid. A pending claim produces the second one.
Why can’t the lender just assume approval? Because the lender is on the hook for due diligence, and VA is the only party that can confirm your status. Guessing wrong in your favor would mean a fee that was owed and never paid. Guessing wrong against you is the safer error, and VA has a refund route built for it.
Here is the rule in plain words. If your exempt status cannot be verified before closing, the fee is collected as though you were not exempt. That includes a pending disability compensation claim. VA’s own handbook language is the source for that rule, so ask your loan officer to show you the current chapter if you want to read it yourself.
How Is the File Handled, Step by Step?
The deal works through a fixed sequence. Where the pending claim matters is steps two and three. Everything else is the normal VA cash-out path.
1. Pull the COE. The loan officer retrieves your Certificate of Eligibility. It shows your entitlement and whether VA lists you as exempt or non-exempt, or tells the lender to contact the VA Regional Loan Center.
2. Compare the COE to your story. If you say you have a pending or recently decided compensation claim and the COE shows non-exempt, that mismatch is flagged. The lender asks VA for an updated COE. You supply the award or decision letter.
3. Use the verification form when the COE can’t settle it. VA’s lender circular on exemptions and refunds tells lenders to keep exemption information current and not to ignore information that could signal an exemption. Where the COE doesn’t answer the question, the lender submits VA Form 26-8937, Verification of VA Benefits.
4. Order the VA appraisal. Cash-out needs one. Exemption status does not change that.
5. Underwrite the loan. Residual income is the controlling test, and the net tangible benefit and the other required tests apply alongside it. The lender looks at what is left each month after your obligations and living costs.
6. Confirm the funding fee status. The funding fee treatment follows the exemption status on file. If VA shows you as exempt, the fee does not apply. If exemption is unverified, the fee applies and is either paid at closing or financed.
7. Close and document. The lender files proof of exemption or proof of payment with the package.
8. Afterward. If VA later awards compensation retroactive to before closing, you request the refund.
A fresh award paired with a stale COE is the main trap. You may already be rated, yet the COE does not show it. Catching that before closing is far cheaper than chasing a refund after.
What Do the Different COE Statuses Mean for the Fee?
Your COE tells the lender which of three paths applies. Wording varies by document and over time, so treat these labels as a working guide and not a quote from VA.
- Exempt: The lender collects no funding fee and files proof of exemption.
- Non-exempt: The lender collects the fee. A pending claim sits here until VA says otherwise.
- Contact the Regional Loan Center: VA wants the lender to ask before treating the file either way.
Active-duty borrowers can see a different label. For a claim filed before discharge, VA has used a status along the lines of “non-exempt, in development.” The older circular that described it has been rescinded, so don’t lean on that label. The rule that matters now is simpler: a proposed or memorandum rating issued before closing can support an exemption.
Does Exemption Change the Cash-Out Rules?
No. Many borrowers expect exemption to loosen the rules, but exempt or not, the same gates apply to a VA cash-out refinance.
Across the wholesale programs Lendmire places VA files with, the shared framework looks like this. The VA cash-out reaches up to 100% of the appraised value, and that figure includes any financed funding fee. It can refinance any loan type into a VA loan. There is no mortgage insurance. With full entitlement there is no VA loan limit. Wholesale programs generally start at a 580 decision score, though each lender sets its own overlays. All of it is subject to lender guidelines and full file review.
VA’s circular on cash-out refinances sets the loan cap and the seasoning definition. Net tangible benefit applies to every VA cash-out. Seasoning applies when the loan you’re paying off is itself a VA loan. A VA loan counts as seasoned when it is at least 210 days past the first payment and six monthly payments have been made. The half-percent rate-reduction and fee-recoupment tests belong to the streamline refinance (IRRRL). They don’t apply to the cash-out.
You can read about the program in Lendmire’s VA cash-out refinance program page, which covers how the structure fits different homeowners.
Why a Financed Fee Eats Into Your Cash
Here is where the pending claim bites on a cash-out specifically. The 100% cap includes the financed fee. So if you finance a fee you may later be refunded, that fee uses room under the cap that could have been cash in your pocket.
Think of it as a fixed bucket. The loan, the payoff of your old mortgage, any allowed costs, and a financed fee all draw from the same bucket. An exempt borrower has one fewer item in it.
On a cash-out, allowable fees and points can come out of the cash proceeds. Only the funding fee, plus the cost of any energy-efficiency improvements, can be added to the loan amount. So the fee is the one closing cost that can be rolled into your balance.
Two practical points follow:
- A financed fee raises the balance, and that nudges the payment up slightly.
- A later refund goes to you, not to your loan balance. It does not shrink what you owe.
Your Loan Estimate and Closing Disclosure will show how the fee is treated on your file. Compare the two documents line by line.
Where Do Pending-Claim Files Break Down?
The general rule is simple, and the exceptions are where borrowers get hurt. Each of these edge cases comes straight out of how VA sets status.
| Situation | Lender action | Fee collected? | Refund possible? |
|---|---|---|---|
| Claim pending, no rating | Treat as non-exempt | Yes | Only if later award is retroactive to before closing |
| Rated, COE is stale | Request updated COE or submit Form 26-8937 | No, if VA confirms | Not needed |
| Active duty, proposed rating issued before closing | Submit Form 26-8937 | No, if VA confirms | Not needed |
| Active duty, no rating before closing | Treat as non-exempt | Yes | No |
| Awarded after closing, effective date before closing | Already closed with fee | Yes | Yes, for a veteran who has left service |
| Claim denied | Treat as non-exempt | Yes | No |
A few of these deserve a closer look.
Pre-discharge claims. A proposed or memorandum rating issued before closing can support exemption. If you close before discharge with no such rating, there is no exemption and no refund. A rating that arrives after closing doesn’t help.
Rating after closing, effective date before closing. For a veteran who has left service, this is a refund case. For an active-duty member, a proposed rating issued after closing is not.
Other exempt groups. Surviving spouses receiving DIC and Purple Heart recipients also appear on VA’s exempt list. The Purple Heart category depends on providing evidence by closing. Pull the full list from VA’s funding fee page before assuming where you stand.
Not a VA-to-VA loan. If you’re refinancing a non-VA loan into VA, there is no VA seasoning test. Net tangible benefit and owner occupancy still apply. VA cash-out is a primary-residence product.
How Does the Effective Date Decide a Refund?
The effective date, not the decision date, is what counts. Picture three markers on a line: the effective date VA assigns, your closing, and the day VA tells you its decision.
- Effective date before closing, decision after closing: You were entitled to the exemption on closing day, even though nobody knew. A refund is available.
- Effective date after closing: You weren’t entitled yet at closing. No refund.
- Decision after closing with no retroactive date: The fee stands.
VA’s loan fees page says a borrower may be entitled to a refund when a claim was pending at closing and was later awarded with an effective date retroactive to before closing. It also warns that a proposed or memorandum rating received after the closing date does not remove the fee.
Same logic, different outcome depending on one date. That is why you should ask about the effective date when VA’s letter arrives. Don’t stop at the rating itself.
Should You Close Now or Wait for the Decision?
This one is a genuine judgment call, and the honest answer depends on your file. Lenders are expected not to steer borrowers toward closing on the assumption of a refund. A refund is not automatic. It depends on VA’s effective-date decision, and on you or your servicer starting the request.
Here is how to weigh the choice.
Waiting makes sense when:
- You already have a rating and the COE simply hasn’t caught up. Get the update first.
- A decision looks close and the fee on your file would be material to your cash proceeds.
- You are active duty and a proposed rating could plausibly arrive before closing.
Closing now makes sense when:
- The refinance has a firm reason to proceed, such as paying off a risky loan type.
- The claim’s outcome is uncertain, and delay has its own cost.
- You are comfortable that the fee is a cost you may or may not recover.
Don’t count on a refund as part of your math. Treat it as a possible bonus. If your numbers only work with the refund, they don’t work.
One more point on qualifying. Pending benefits can’t be counted as income until they’re confirmed. Back pay or an expected rating increase doesn’t help your residual income test until it is real. A pending claim isn’t a mark against you. It just isn’t money you can use on the application.
How Do You Get the Refund?
If you paid the fee and VA later awards compensation retroactive to before closing, you ask for the refund. Contact your servicer or the VA Regional Loan Center. VA lists the Loan Center (TTY 711) on its funding fee page.
Have these ready:
- The VA award or decision letter showing the effective date.
- Your closing documents showing the fee was paid or financed.
- Your loan number and the closing date.
VA issues the refund directly to you. That means VA does not go after the lender to collect it. It also means the money doesn’t automatically reduce your mortgage. If you want it applied to the balance, that’s a separate decision you make after you receive it. If you refinance or pay off the loan before VA decides, keep your closing paperwork. The refund question runs off your records, not off the loan staying open.
What To Bring to Your Loan Officer
A short checklist helps you avoid avoidable problems:
- Your most recent VA award or decision letter, if you have one.
- The date you filed, and any notice about proposed or memorandum ratings.
- A current COE, or permission for the loan officer to pull it.
- A question: “Does my COE match my latest VA letter?”
- A second question: “How is the fee shown on my Loan Estimate, and what happens if my status changes?”
Ask the status question at the start, not near closing. The best programs for your situation depend on your property, your credit profile and how much equity you want to reach. A broker that shops several wholesale lenders can match the file to the program, but no program can override what VA’s records show.
If you’re weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Its team can also walk through how a pending claim fits your file. For more on the exemption itself, see Lendmire’s piece How to Get a VA Cash-Out Fee Exemption With a Pending Disability Rating. Program figures here are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Does my pending disability claim exempt me from the VA cash-out funding fee?
No. A filed claim is not an exemption. The fee is collected unless VA verifies your exempt status before closing. If VA later awards compensation with an effective date before your closing date, you can request a refund.
What if I’m already rated but my COE says non-exempt?
That is a stale COE, and it’s fixable. Give the loan officer your award letter. The lender can request an updated COE or submit VA Form 26-8937 to verify your benefits. Do this before closing, because a refund is slower and less certain than a correct COE.
Does my rating percentage change the answer?
The status VA shows on your COE is what the lender follows. Your own reading of a rating letter doesn’t substitute for it. Ask the loan officer to confirm what VA’s records say about your compensation status.
Can I get the fee back if I finance it?
Yes, if the refund conditions are met. Financing the fee doesn’t remove the refund right. VA pays the refund to you, not to the loan balance. On a cash-out, a financed fee also uses room under the 100% cap while it sits in the loan.
I’m still on active duty with a claim in progress. What do I need?
A proposed or memorandum rating issued before closing can support an exemption, and the lender submits Form 26-8937 to verify it. A rating issued after closing does not change that.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
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 Lenders Handbook, Chapter 8, Borrower Fees and Charges and the VA Funding Fee
2. VBA Circular 26-23-19, VA Funding Fee Exemption and Refund Procedures for Lenders
3. VBA Circular 26-19-05, VA Cash-Out Refinance
4. VA.gov, Funding fee and closing costs
5. VA Home Loans, Loan Fees page
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 Refinance vs Conventional Cash-Out on How Much Cash You Can Get · How a Lender Classifies a Type I VA Cash-Out With Rolled-in Costs · How a VA Lender Sizes a Full-Value Cash-Out on an Appreciated Home
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
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.