The Quick Read: The rating percentage does not scale your cash. What decides the funding fee is whether you receive VA compensation, and the fee is waived for exempt veterans. A 10% rating and a 100% rating get the same fee treatment. The percentage matters mostly as qualifying income. Cash is capped by appraised value, not by rating. All of this is subject to lender guidelines and full file review.
What Does a Rating Change in a VA Cash-Out?
A rating changes one fee line and one income line. It does not change the loan ceiling.
Here is the short list:
- Funding fee: waived if you receive VA compensation for a service-connected disability. The rating level does not scale the waiver.
- Loan ceiling: set by the appraised value, not by the rating.
- Qualifying income: monthly compensation counts as income, so the rating can matter there.
- Residual income: the controlling test on VA files, and it works from actual deposits.
The misconception that a higher rating means a bigger cash-out comes up on nearly every disability file. It does not hold. The VA’s own guidance on the funding fee says the fee is one-time, can be rolled into the loan or paid at closing, and is waived for exempt borrowers.
Key Terms Defined
Net cash: the new loan amount minus the payoff, closing costs and any financed funding fee.
Funding fee: a one-time VA charge, a percentage of the loan, that is reviewable and waived for exempt groups.
Reasonable value: the appraised value on the VA appraisal, which sets the maximum loan.
Residual income: the money left each month after debts, taxes and living costs, measured against VA’s table for your region and household size.
Entitlement: the amount of VA guaranty you have available. Full entitlement means no VA loan limit.
COE: the certificate of eligibility from VA, which shows entitlement and fee-exempt status.
How Is Net Cash Calculated, and Where Does the Fee Sit?
Net cash is the new loan minus everything that has to be paid out of it. The funding fee is one line in that subtraction.
Across the wholesale programs Lendmire places VA files with, the VA cash-out reaches 100% of the appraised value, including any financed fee. It refinances any loan type into VA. It carries seasoning and a net tangible benefit requirement. Those are program mechanics, and each lender’s file review applies them.
The funding fee on a cash-out refinance is 2.15% on first use and 3.3% on later use. An exempt veteran owes none of it. That produces one of two results:
1. Smaller balance. For the same cash out, the new loan is lower by the amount the fee would have added.
2. More cash. Inside the same 100% ceiling, the room the fee would have used goes to the borrower.
Picture two veterans with the same home, the same appraised value and the same payoff. One is exempt and one is not. The non-exempt borrower rolls 2.15% of the loan into the balance, which uses part of the 100% ceiling. The exempt borrower keeps that room. Same home, same ceiling, different net cash. The rating level plays no part in that gap. Only exempt status does.
How Do the Ratings Compare?
The fee treatment is binary. The income effect is where ratings differ.
| Rating status | Funding fee | Income effect |
|---|---|---|
| 0% | Confirm on the COE | Generally no monthly compensation |
| 10% to 90% | Waived with compensation | Compensation counts as income |
| 100% | Waived with compensation | Larger monthly compensation |
| Pending claim | Fee may be owed at closing | Not counted until awarded |
The 0% row is the one to check. The exemption ties to receiving or being entitled to compensation. Do not assume it. Read your COE.
Plenty of veterans assume they need 10% or more to be exempt. VA’s wording is about compensation, not a percentage. The COE settles it.
How Does Your Rating Work as Income?
Compensation counts as income. Lenders generally ask for the VA award letter or benefit summary letter as the standard document. On many files the letter alone documents the income, but each lender sets its own documentation list.
Two tests use that income differently, and mixing them up trips up borrowers.
Debt-to-income. Tax-free income like VA compensation can be grossed up for the debt-to-income ratio. Lenders may apply less under their own overlays. The VA’s benchmark ratio is a guideline, not a cap. A ratio above it needs residual income well above the table. The OCC’s fact sheet on the VA program describes the same idea: higher ratios draw more scrutiny rather than an automatic denial. It also notes that residual income tables vary by region, family size and loan amount.
Residual income. This is the controlling test on a VA file. Grossing up does not help here. Disability compensation enters at its real deposit amount. Because no tax comes out of it, it still helps relative to taxable wages.
Plan the budget on real dollars. A file that only works with the grossed-up number is a file that gets questioned.
When Does the Rating Timing Matter?
Timing is where files go sideways. Four situations come up.
| Situation | What usually happens |
|---|---|
| Rating in place at closing | Fee waived, verified on the COE |
| Claim pending at closing | Fee may be owed at closing |
| Awarded later, effective before closing | Refund can be requested |
| Awarded later, effective after closing | No refund |
For a pending claim, VA says a refund may be available if compensation is awarded with an effective date before closing. The VA’s funding fee refund page says to request it from your mortgage holder or the VA Regional Loan Center. The request is yours to make. It is not automatic.
Lenders follow verified status at the time of the file. A proposed rating before discharge can sometimes make a service member exempt, so raise it with the loan officer early. Details depend on the lender’s file review.
What About a Rating That Goes Up or Down?
A higher rating after closing does not reopen the loan. It raises monthly income going forward. It does not change the cash you already received.
A reduction is a planning risk. If compensation is part of how the file qualified, a later cut lowers income against a fixed payment. Lenders generally want income that is stable and reliable, so a rating with a scheduled re-exam gets a closer look. Ask the loan officer how your award letter reads on that point.
Does the Exemption Cover Other Costs?
No. It removes the funding fee only. Appraisal, title, and lender charges remain. Those appear on the Loan Estimate and Closing Disclosure, as on any consumer mortgage. The net cash line shrinks by whatever they total.
Type I and Type II cash-outs also matter here. A Type I loan, where the new loan including fee does not exceed the payoff, carries a 36-month fee recoupment rule on VA-to-VA files. A Type II loan exceeds the payoff and delivers cash. The lender also gives you a loan comparison and an equity statement. Those documents show what the refinance does to your equity.
Use the VA cash-out refinance program page for the program overview.
What Should You Gather Before Applying?
- Certificate of eligibility showing entitlement and fee status.
- VA award letter or benefit summary letter.
- Payoff statement on the current loan.
- Records of any other liens.
- Notice of any pending claim and its filing record.
Cash-out files also face limits that vary by lender. Some lenders set a higher credit floor or a lower LTV cap than VA does. The wholesale programs Lendmire works with start at a 580 decision score, and eligibility depends on the full file.
Skip the “skip payments and get cash back” offers. The CFPB and VA warned veterans about solicitations like this.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
When Does a Cash-Out Fit?
It fits when the equity use is worth a new loan on the whole balance. It does not fit when you only need a small amount and the current loan is working. An IRRRL is a different tool. It refinances an existing VA loan with no appraisal and no cash out. If you are still waiting on a rating, ask whether the timing of the award changes the fee on your file.
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.
Frequently Asked Questions
Is there a minimum rating percentage to skip the funding fee?
No. VA ties the waiver to receiving compensation, not to a set percentage. Someone at 10% and someone at 100% get the same fee treatment. Check your COE for your status.
Does a 0% rating count?
Confirm it on the COE. A 0% rating generally carries no monthly compensation, and the waiver follows compensation. Because your COE shows your actual status, check it before assuming the waiver applies to you.
Will a higher rating raise how much cash I get?
No. Cash is set by appraised value, the allowed loan-to-value, the payoff and costs. A higher rating can raise qualifying income, which may help the file, but it does not lift the ceiling.
What if my claim is pending at closing?
The fee may be owed at closing. If compensation is later awarded with an effective date before closing, VA says a refund may be available, and you request it. A rating effective after closing does not qualify.
Does the exemption cover other closing costs?
No. Only the funding fee is waived. Appraisal, title and lender charges still apply and come out of net cash.
For your own numbers, request a scenario review with Lendmire.
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 News: Funding fee, who pays and who is exempt
2. OCC fact sheet on the VA Home Loan Guaranty program
3. VA Loan Fees
4. CFPB and VA warning on refinancing offers
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: How Much the Fee Exemption Changes Cash and Payment on a VA Cash-Out · VA Cash-Out Funding Fee Exemption Rules for a Pending Disability Rating · Does a VA Cash-Out With a Higher Payment Pass the Benefit Test?
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.