The Quick Read: There is no separate “exempt” VA program. The standard VA cash-out refinance is the program, and the exemption is a status attached to you, the borrower. If you qualify, you pay no funding fee on the loan, which leaves more room under the value cap and keeps the new balance lower. The best fit for your situation depends on your seasoning date, appraised value, and documented exemption status.
Key Takeaways
- The funding fee exemption comes from your VA status, not from a special loan.
- On a cash-out, the fee is 2.15% for first use and 3.3% after, unless you are exempt.
- The exemption must be documented before closing. It is not automatic.
- It covers the funding fee only. Appraisal, title, and other costs remain.
- A cash-out must still pass a net tangible benefit test and a seasoning test.
What Is a VA Cash-Out Refinance?
A VA cash-out refinance replaces your current mortgage with a new VA-backed loan and lets you borrow against your equity. You can take the difference as cash. The program reaches 100% of the appraised value, including any financed funding fee. It also refinances any loan type into VA, so an FHA, USDA, or conventional borrower can switch.
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: 7.24% as of October 29, 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.
Other VA features carry over. Across the wholesale programs Lendmire places files with, there is no mortgage insurance of any kind. There is also no VA loan limit when you have full entitlement. Lendmire’s VA cash-out refinance program page lays out the program details.
Don’t confuse it with the VA streamline refinance. The VA streamline refinance refinances an existing VA loan to a lower rate or from adjustable to fixed. It has no VA appraisal and no cash out. It is a different tool.
What Does “Best” Mean When You’re Fee-Exempt?
For an exempt borrower, “best” stops being about the fee and starts being about everything else. The fee is the one line item the exemption removes. Here’s what is left to compare:
- Whether a net tangible benefit exists. The refinance has to help you in a way the program recognizes.
- How much room your appraisal gives you. The appraised value sets the cap on how much you can borrow.
- Whether the lender applied your exemption. Some files miss it.
- Whether the program fits your credit and income. Wholesale programs Lendmire works with start at a 580 decision score, though VA itself sets no minimum, and lenders differ.
- Which lender fits your scenario. That depends on your property, credit profile, and how much equity you need.
That last point is where a broker earns its place. Lendmire is a mortgage broker, not a lender. It works with a nationwide network of wholesale cash-out refinance lenders and matches your scenario to the program that fits. The lenders that write the loan well for you depend on your file. No ranking could tell you that.
Who Qualifies for the Funding Fee Exemption?
Exemption is a matter of status. VA’s funding fee page is the authority, and you should confirm your category there. The commonly listed groups are below.
| Group | What typically shows it | Watch for |
|---|---|---|
| Veterans receiving VA disability compensation | Certificate of Eligibility (COE) | Status must be on the COE |
| Veterans eligible for compensation but paid retirement or active-duty pay | COE or VA documentation | Needs documenting |
| Surviving spouses receiving DIC | COE | Tied to receiving DIC |
| Service members with a proposed or memorandum rating before closing | Rating documentation | Rating must exist before closing |
| Active-duty Purple Heart recipients | Documentation at closing | Applies to active-duty status |
One more point deserves attention. There is no mention of a minimum disability percentage here. Qualification turns on the category, not a rating threshold, so check the VA page for current terms.
How Do You Claim the Exemption?
You claim it with paperwork, and the paperwork has to be in place before closing. The process looks like this:
1. Pull your COE. Your Certificate of Eligibility is where VA records exemption status. If it doesn’t show the exemption, you need other documentation.
2. Update it if it’s stale. A COE issued before your rating was awarded may not reflect it. Request a fresh one.
3. Hand the documentation to your loan officer early. Don’t assume the lender sees it.
4. Check the Loan Estimate. The funding fee line should read zero. If it shows a fee, ask why before you go further.
5. Check the Closing Disclosure. Make sure nothing changed between the two.
Here’s the catch: the exemption isn’t automatic. A veteran with a long-standing rating can still get charged if nobody documents it. If a rating is made effective before your closing date but arrives after, a refund may be possible. Verify that process with VA directly.
How Does a Cash-Out Get Underwritten, Step by Step?
Underwriting a VA cash-out follows a fixed order. Each step can stop the file.
Step 1: Classification. The lender sorts the loan by comparing the new loan to the payoff of the old one. When the new loan doesn’t exceed the payoff, it is treated as a lighter-touch refinance. When it does, it is a full cash-out with extra requirements. VA’s Cash-Out Refinance Quick Reference Guide describes the distinction.
Step 2: Appraisal. VA sets a reasonable value for the home, and that value caps the loan. A financed funding fee counts toward the loan amount. You have none, so you keep that room.
Step 3: Net tangible benefit. The refinance must deliver at least one recognized benefit. A lower rate is one example. A stronger loan-to-value position is another. Some cash-outs don’t pass this test, and that is the point of it.
Step 4: Seasoning. If you are paying off a VA loan, the new loan must meet the seasoning standard: the later of 210 days from your first payment and your sixth payment. A file that misses this date can’t get the guaranty. Some lenders apply the same test to non-VA payoffs as their own policy. That is an overlay, not a VA rule.
Step 5: Income and residual income. Residual income is the controlling test. It measures what you have left each month after debts and living costs. The 41% debt-to-income figure is a guideline, not a cap. A higher ratio needs residual income well above the table. Credit and loan-to-value limits set by individual lenders are lender policy, so they vary.
Step 6: Lender disclosure. Lenders give cash-out borrowers a comparison of the old and new loans. Read it. It exists because cash-outs don’t always help.
Exempt vs. Non-Exempt: What Changes in the Numbers
| Factor | Exempt borrower | Non-exempt borrower |
|---|---|---|
| Cash-out funding fee | None | 2.15% first use, 3.3% after |
| Financed into the loan? | Nothing to finance | Fee can be added to the balance |
| Room under value cap | More | Less |
| Other closing costs | Still apply | Still apply |
VA Circular 26-23-06 Exhibit B lists the cash-out fee schedule. It also states that the reduced down-payment tiers don’t apply to refinances. On a refinance you can’t shrink the fee by putting money down the way a purchase buyer can.
Picture a homeowner with a service-connected disability rating who refinances a loan into VA at the maximum value cap. A non-exempt borrower in the same house would have the fee added on top of the balance. The exempt borrower’s balance is that much lower. That also means a lower payment than the non-exempt version of the same loan.
Using the benefit for a cash-out can shift later fee tiers for non-exempt borrowers. Exempt borrowers owe zero regardless. Confirm the subsequent-use rules.
Cash-Out or IRRRL for an Exempt Borrower?
The IRRRL carries a 0.5% fee for non-exempt borrowers. Exempt borrowers pay nothing on it either. So the fee no longer separates the two loans. What separates them is your goal.
| Question | IRRRL | Cash-out |
|---|---|---|
| Do you need cash? | No | Yes |
| Existing loan type | VA only | Any loan type |
| VA appraisal | Not required | Required |
| Seasoning and net tangible benefit | Yes | Yes |
| Balance change | Rarely rises | Usually rises |
If you want to lower the cost of an existing VA loan and need no cash, the IRRRL is simpler. If you need equity, or you are leaving an FHA or conventional loan, the cash-out is the tool. A non-VA borrower moving into VA may also drop mortgage insurance, which is worth weighing.
Where the Rules Break: Edge Cases
Pending claims. A pending disability claim doesn’t exempt you. A proposed or memorandum rating before closing can. If your claim is close, timing the refinance matters. A retroactive award after closing may support a refund.
Surviving spouses. The exemption ties to receiving DIC and ends on remarriage. Confirm yours.
Purple Heart recipients. The exemption applies to active-duty recipients at closing. Check the current wording.
Non-VA payoffs. FHA, USDA, or conventional loans moving into VA still count as a cash-out. They carry the cash-out fee unless you are exempt.
Loan-to-value. Lendmire’s parameters reach 100% of appraised value, but every file is subject to lender guidelines and full file review. Many lenders set stricter limits than that, so the maximum available on a given file depends on the lender and the loan.
For how the fee changes the loan balance on non-exempt files, see Lendmire’s explanation of how the funding fee changes a VA cash-out refinance.
Key Terms Defined
Certificate of Eligibility (COE): The VA document that shows you qualify for the benefit and records exemption status.
Funding fee: A one-time VA charge, a percentage of the loan, that can be financed. Exempt borrowers don’t pay it.
Net tangible benefit: A concrete, recognized improvement the refinance gives you, such as a better loan structure.
Seasoning: The waiting period before a new VA loan can be refinanced, measured from your first payment and payment count.
Residual income: The money left each month after debts and living costs. It is VA’s controlling underwriting test.
IRRRL: VA’s streamline refinance for an existing VA loan. It has no cash out.
Common Misconceptions
“Exempt means no closing costs.” It doesn’t. The exemption removes the funding fee only. Appraisal, title, and other charges remain.
“A cash-out always lowers my payment.” It doesn’t. A cash-out raises the balance, so weigh the benefit against the total cost. The CFPB’s order against NewDay USA described cash-out loans that looked cheaper than the original mortgage but cost more. The same order flagged repeated, unnecessary refinancing of veterans.
“Offers that promise cash back and no cost are fine.” Be careful. Costs are built into the balance or the loan terms. A “no-cost” pitch only moves them. VA News has also republished tips on spotting VA home loan scams, including callers who claim a government tie.
Tax questions. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
What to Prepare
Gather these before you talk to a loan officer:
- Your COE, or documentation of your exemption category
- Your current mortgage statement and first payment date, for seasoning
- Your reason for taking cash, and the amount you actually need
- Income and debt documents for the residual income test
Then ask each lender one question: where does my exemption show on the Loan Estimate? Honestly, a lender that can’t answer clearly has told you something.
Cashing out is the wrong move in some cases. If you need little money, a smaller loan may serve better. If your current loan is already well structured, a cash-out can raise your balance for no real gain.
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. Lendmire arranges VA loans through wholesale lenders, and every program detail here is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
Frequently Asked Questions
Do disabled veterans pay the funding fee on a VA cash-out refinance?
No, veterans receiving VA compensation for a service-connected disability are exempt, and that includes cash-out refinances. The exemption has to appear on your COE or be documented before closing. Otherwise the fee can be charged. Confirm your category on VA’s funding fee page.
Is there a minimum disability rating for the exemption?
The categories turn on your status, such as receiving compensation, not on a stated percentage. Verify current terms with VA before you rely on this.
What if my rating arrives after I close?
A refund may be possible if the rating is made effective before your closing date. A pending claim alone does not exempt you. Ask VA or your loan officer how to request a refund.
Can I refinance an FHA or conventional loan into a VA cash-out?
Yes. A VA cash-out refinances any loan type into VA. It carries the cash-out fee unless you are exempt, and it requires a net tangible benefit. Moving off an FHA or conventional loan may also remove mortgage insurance.
Does the exemption cover my closing costs?
No. It removes the funding fee only. You will still see appraisal, title, and other closing charges on your Loan Estimate.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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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.gov: Funding Fee and Closing Costs
2. VA Cash-Out Refinance Quick Reference Guide
3. VA Circular 26-23-06 Exhibit B
5. VA News: Consumer fraud alert
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: Can a Veteran’s Family Qualify for a VA Cash-Out Refinance? · How to Refinance a VA Loan Under Streamline or Cash-Out Guidelines · VA Cash-Out Waiting Period Rules After a Prior Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.