The Quick Read: The cost is a one-time funding fee plus ordinary closing costs, and neither disappears just because the loan is VA-backed. The funding fee is 2.15% of the loan on first use and 3.3% on later use, and it is waived for borrowers who are exempt. Other charges come from third parties and the lender, and some are capped by VA rules. Most of the confusion comes from four myths, covered below.
Key Takeaways
- A VA loan skips the down payment and monthly mortgage insurance. It does not skip closing costs.
- The funding fee is set by VA, not by your lender, so there is nothing to negotiate. Exempt borrowers owe none.
- Lender origination charges have a ceiling under VA rules. Third-party costs like the appraisal sit outside it.
- Rolling costs into the loan raises your balance and lowers your cash out. It does not erase the cost.
What Does a VA Cash-Out Refinance Cost?
A VA cash-out refinance has two layers of cost. The first is the funding fee. The second is the usual set of closing costs: appraisal, title work, recording, credit report and lender charges.
Here is the picture from the files Lendmire arranges. Across the wholesale lenders behind the VA cash-out refinance program, the new loan can reach 100% of the home’s appraised value. That 100% includes any fee you finance. So the cost and the cash you receive are tied together.
The table below maps the cost stack. Treat it as a map, not a price list.
| Cost item | Who sets it | Can you shop it? | Can it be financed? |
|---|---|---|---|
| VA funding fee | VA | No | Yes |
| Lender origination charge | Lender, within VA limits | Yes | Often paid from proceeds |
| VA appraisal | VA process, fee varies | Limited | Usually paid at closing |
| Title, recording, credit report | Third parties | Some | Usually paid at closing |
Net cash is simple arithmetic. Take the new loan amount. Subtract your old loan payoff, any other liens paid off, the funding fee and your closing costs. What remains is what you receive.
Now the myths.
Myth 1: “A VA Loan Has No Closing Costs”
The belief: VA loans are the “no money down, no PMI” loans, so the closing table must be light.
What is true: You skip the down payment and the monthly mortgage insurance. That is a real saving. But the funding fee still applies on a refinance unless you are exempt, and the ordinary closing costs still exist.
The funding fee on a cash-out refinance is 2.15% for first use of the benefit and 3.3% for later use. Those figures are percentages of the loan amount, not of your home’s price. A larger loan means a larger fee. Veterans who receive compensation for a service-connected disability are exempt, and so are some other groups, such as surviving spouses receiving DIC. Your Certificate of Eligibility (COE) is the document that confirms an exemption.
Why the myth sticks: “No down payment” and “no mortgage insurance” get shortened in conversation to “no costs.” They are different things. A mortgage insurance premium is a recurring charge. A closing cost is an upfront one. A VA loan removes the first and still carries the second.
The fair takeaway: When someone says a refinance has “no closing costs,” ask where the costs went. In practice they are built into the rate or the balance, not erased. Ask for the full cost list and compare it line by line.
Myth 2: “The Funding Fee Is a Lender Fee I Can Negotiate”
The belief: The funding fee sounds like a lender charge, so a good negotiator can shave it down. A bigger down payment must lower it, as it does on a purchase.
What is true: VA describes the funding fee as a one-time payment on a VA-backed loan. It helps offset the cost to taxpayers, since the program has no down-payment requirement and no monthly mortgage insurance. The money goes to VA. No lender sets it, and no lender can discount it.
The percentage depends on how you use the benefit. On a purchase, a larger down payment can lower the tier. On a cash-out refinance, the tiers are simpler: 2.15% for first use and 3.3% after that. You are not putting money down on a cash-out, so there is no down payment to move the number.
VA’s page also confirms that the fee is calculated on the loan amount. That matters for the next point. Because the fee scales with the loan, a financed fee gets a fee of its own in the new balance, which is one reason to look at the whole loan and not just the headline percentage.
Exemptions are about eligibility, not negotiation. If you receive VA compensation for a service-connected disability, the fee is waived. VA also lists veterans who would be entitled to compensation but receive retirement or active-duty pay instead, along with active-duty Purple Heart recipients. A lender has to verify the exemption. It is not a favor. If a rating is granted after closing but is effective before it, a refund may be possible. Ask your loan officer how that process works.
Why the myth sticks: The fee appears on the same page as lender charges. It reads like one more line the lender controls.
The fair takeaway: Spend your negotiating energy on what is negotiable. That means the lender’s origination charge and your choice of lender. The funding fee is not on that list. Confirm your exemption status first, since it changes the total more than any haggling would.
Myth 3: “Lenders Can Charge Whatever Origination Fees They Want”
The belief: A refinance is a pile of junk fees, and VA loans are no different.
What is true: VA loans have a schedule of permitted charges. Under the federal rule at 38 CFR 36.4313, a lender may charge a flat amount of up to 1% of the loan amount for origination. That flat charge is “in lieu of all other charges relating to costs of origination not expressly specified” in the schedule. In plain terms, the lender cannot stack extra origination-type fees on top of it.
The same rule lets you pay reasonable and customary amounts for itemized third-party items. The VA appraiser’s fees and recording fees are examples. VA Circular 26-17-11 lists common allowable items:
- Appraisal
- Recording
- Credit report
- Taxes and assessments
- Hazard insurance
- Surveys
- Title
- Flood determination
The circular also says a lender may charge a cost that is not listed only if it fits inside that 1% flat charge. The rule exists to protect veterans from fees nobody expressly allowed. The Federal Register notes that the permitted fees are fairly limited compared with a conventional loan.
The caveat that matters: The 1% ceiling covers origination-type charges. It does not cap the appraisal, title work or recording. Those are separate and must be reasonable. A low origination line does not mean a low total, and a total that looks high is not proof of a violation. Read each line.
Why the myth sticks: Closing costs are real, they come in many lines, and they feel opaque. That feeling is accurate for many loan types. VA’s rules narrow the opening, but they do not close it.
The fair takeaway: Ask each lender for its origination charge as a separate line. If it exceeds what the schedule allows, that is a question for the loan officer, not a cost of doing business.
Myth 4: “If I Finance It, It Doesn’t Cost Anything (and It Must Be Worth It)”
The belief: The cash-out refinance lets you roll costs into the loan, so you pay nothing at the table. And if the loan is approved, the math must work in your favor.
What is true: Financing a cost moves it. It does not delete it. When you roll the funding fee or other costs into the loan, three things happen:
1. Your new balance is larger.
2. Your monthly payment is higher than it would be otherwise.
3. You pay interest on those costs over the life of the loan.
Financing costs also reduce your cash. Because the new loan is capped at 100% of the appraised value, including financed fees, every financed dollar of cost leaves less room for the cash you wanted. A financed fee comes out of your proceeds before it ever reaches you. If a fee would push the loan above the cap, it has to be paid in cash instead.
A low appraisal changes the math, too. The appraisal sets the “reasonable value” that the 100% cap is measured against. A lower value shrinks the loan, while the costs stay about the same. Net cash drops, but the funding fee percentage does not.
VA does build in a test. VA requires a net tangible benefit for a cash-out loan. The lender must show at least one of a list of benefits. Examples include:
- Eliminating monthly mortgage insurance
- Shortening the loan term
- Lowering the monthly principal-and-interest payment
- Converting an adjustable loan to a fixed one
- Increasing monthly residual income
The lender must also give you a comparison disclosure at application and again at closing.
Where a VA loan is refinanced into a new VA loan and the new loan does not exceed the old payoff, VA adds a recoupment test. Under the 2018 final rule, the fees must be recovered through lower monthly payments within 36 months. Taxes, escrow amounts and funding fees are left out of that calculation. Recoupment does not apply to a true equity pull, and it is not listed for a non-VA loan refinanced into VA. Those loans still face the net tangible benefit test.
One more point on the old rule of thumb. The limit used to be 90%. The current VA cap is 100% of reasonable value, with financed fees included, and 90% now shows up as one of the tangible-benefit options. Individual lenders may still set tighter limits than VA does, and that choice comes from the lender, not from VA.
Why the myth sticks: “Approved” feels like a verdict that the deal makes sense. The tests check specific conditions only. They do not check whether the cash you want justifies the cost of taking it.
The fair takeaway: Judge the loan by what the money replaces. Paying off higher-cost debt or ending mortgage insurance can justify the cost. A spending want may not. For more on how this program’s risk side works, see Lendmire’s piece on the myths about the risk of a VA cash-out refinance.
How Do You Read the Cost on a Loan Estimate?
Lenders subject to federal mortgage disclosure rules generally provide a Loan Estimate and, later, a Closing Disclosure, though requirements can vary by loan type and purpose. These forms make cost comparison practical. The CFPB’s Loan Estimate guide explains that closing costs are the upfront costs to get the loan, and that “Estimated Cash to Close” shows the amount you bring.
On a cash-out refinance, the numbers can run the other way, since you are receiving proceeds. Use this short checklist:
- Find the origination line. Compare it between lenders, and check it against the 1% flat-charge ceiling.
- Find the funding fee. It should match your use of the benefit, or be zero if you are exempt.
- Separate third-party costs. Appraisal, title and recording are not the lender’s profit lines.
- Check what is financed. Look at the closing costs financed line and what it does to your balance.
- Confirm net proceeds. Do the subtraction yourself: new loan, minus payoff, minus fee, minus costs.
- Compare the disclosures. The VA comparison disclosure should show how the new loan stacks up against the one you have.
Treat any fee you read online as a snapshot. Programs and charges change. The disclosures from the lender you are working with are the figures that count.
How Does the Cost Compare With a Streamline Refinance?
A VA interest rate reduction refinance loan (IRRRL) is the cheaper cousin, but it does a different job. It refinances an existing VA loan to a lower rate or from adjustable to fixed. It carries a 0.5% funding fee unless you are exempt. There is no VA appraisal, and there is no cash out. It requires a net tangible benefit and seasoning of the later of 210 days from the first payment and the sixth payment.
So the comparison is about purpose. If you want a lower rate or a more stable loan, the streamline costs less. If you want equity in cash, you need the cash-out loan. The cash-out loan also refinances any loan type into VA, which the streamline does not. Some of the cost difference simply reflects that you are buying more with the cash-out.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Funding fee: A one-time charge paid to VA on a VA-backed loan, calculated on the loan amount and waived for exempt borrowers.
First use and subsequent use: First use means you have not used your VA loan benefit before. Subsequent use means you have, and it carries the higher cash-out fee.
Reasonable value: The value VA’s appraisal assigns to your home. The 100% loan cap is measured against it.
Net tangible benefit: A measurable improvement that VA requires a cash-out refinance to deliver, such as a lower payment or the end of mortgage insurance.
Recoupment: Recovering the cost of the refinance through lower monthly payments. For a Type 1 VA-to-VA refinance, the window is 36 months.
Net cash: The money you actually receive: new loan, minus payoff, minus the fee, minus costs.
Frequently Asked Questions
How much is the VA funding fee on a cash-out refinance?
It is 2.15% of the loan amount on first use of the benefit and 3.3% on later use. There is no down-payment tier on a cash-out refinance, so putting money in does not change it. The fee is waived for veterans who receive compensation for a service-connected disability and for other exempt groups, subject to lender guidelines and full file review.
Can I roll the funding fee into the loan?
Yes, the fee can generally be financed into the loan balance. The tradeoff is a larger balance and less cash in your hand. Because the loan is capped at 100% of the appraised value including financed fees, a fee that would push you over the cap has to be paid in cash instead.
Who pays no funding fee?
Veterans receiving VA compensation for a service-connected disability are exempt. VA also lists veterans who would be entitled to compensation but receive retirement or active-duty pay, surviving spouses receiving DIC, and active-duty Purple Heart recipients. Your COE confirms the status, and the lender must verify it.
Is the cost the same if my current loan is not a VA loan?
The funding fee tiers depend on whether you have used the benefit before, not on the type of loan being replaced. The recoupment test applies to VA-to-VA refinances of a certain type, so the test list can differ. A non-VA loan refinanced into VA still needs a net tangible benefit.
Does a lower appraisal change what I pay?
It changes what you keep. A lower appraised value shrinks the 100% cap and, with it, the loan. The fee percentage stays the same, and most closing costs do not shrink with the loan. That leaves less net cash.
Weighing It Against Keeping Your Loan
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. Bring your current payoff and your goal for the cash, and the comparison starts there. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA – Funding fee and loan closing costs
2. eCFR – 38 CFR 36.4313 Charges and fees
4. Federal Register – Revisions to VA-Guaranteed or Insured Cash-Out Home Refinance Loans
5. CFPB – Loan Estimate explainer
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: VA Cash-Out Entitlement Rules for an Existing VA Loan Refinance · How to Fix a Low Appraisal on Your First VA Cash-Out · How Much More the Largest VA Cash-Out Releases Than Conventional
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.