The Quick Read: No, not every cost, and not in every case. A VA cash-out refinance lets you roll allowable closing costs and the funding fee into the new loan, but the whole loan has to fit under 100% of the appraised value. Whatever doesn’t fit gets paid in cash, and whatever isn’t an allowable charge never gets financed at all.
That is the short version. The rest of this page shows where the line sits, which costs run into it, and what a borrower can do when the numbers get tight.
What Is “the Cap” on a VA Cash-Out Refinance?
The cap is 100% of the home’s reasonable value as VA determines it. That is the ceiling on the new loan, and everything financed counts against it: the payoff of your old liens, allowable closing costs, the funding fee, and any cash you take out.
Federal regulation puts the ceiling plainly: under 38 CFR 36.4306, the new loan may not exceed 100 percent of reasonable value. VA Circular 26-19-05 adds the measuring rule. Loan-to-value is the total loan amount, funding fee included, divided by the reasonable value the appraiser sets.
Two points trip people up.
First, the value comes from the VA appraisal, not from a lender estimate or a neighbor’s sale price. A low appraisal shrinks the box.
Second, the funding fee sits inside the cap. It is not an add-on above it.
Across the wholesale programs Lendmire places VA files with, the VA cash-out reaches 100% of the appraised value including the financed fee. It refinances any loan type into VA. It carries seasoning and a net tangible benefit test. Individual lenders can set tighter limits than VA does. That is lender policy, not a VA rule, and it is subject to lender guidelines and full file review.
Which Closing Costs Can Be Financed?
Costs that appear on VA’s allowable-charges list can be financed, up to the cap. Charges outside that list cannot be charged to the veteran in the first place. The cap is the second filter, not the first.
Here is how each cost category generally behaves on a cash-out refinance. Treat the table as a map, then confirm line by line on your Loan Estimate.
| Cost item | Who sets it | Can it be financed? | How it’s treated |
|---|---|---|---|
| VA funding fee | VA | Yes, within the cap | Added to loan; excess paid in cash |
| Appraisal | Appraiser | Generally yes | Financed or paid at closing |
| Title and recording | Third parties | Generally yes | Financed if allowable |
| Credit report | Third party | Generally yes | Financed if allowable |
| Lender origination | Lender, VA-limited | Within VA’s limit | One percent flat charge limit |
| Prepaids and escrows | Varies | Depends on file | Counts against the same ceiling |
The table says “generally” for a reason. VA’s Lenders Handbook Chapter 3 says closing costs payable by the veteran are limited to a specific list of items plus a one percent flat charge by the lender. It also says costs cannot be financed except on certain refinancing loans. A cash-out is one of those loans.
Why Do Some Pages Say “Only the Funding Fee” and Others Say “Everything”?
Both claims circulate because the sources blend purchase rules with refinance rules, and they blur two different mechanics.
On a VA purchase, closing costs generally cannot be added to the loan. VA’s own guidance says closing costs and the origination charge may not be included in the loan, except in refinancing loans. A writer covering purchases says “only the funding fee.” A writer covering refinances says “most costs.”
The second blur is between financing a cost and paying it out of your cash proceeds. If a cost is financed, it raises the loan balance. If it is paid from proceeds, the loan amount stays the same and your check gets smaller. Either way the cap is the same. The difference is where the dollars show up on your Closing Disclosure.
Most borrowers never see the distinction until the closing paperwork lands in front of them.
What Happens When Costs Push the Loan Past 100%?
You pay the excess in cash at closing. That is the rule for the funding fee in the regulation, and the same logic applies to the loan as a whole.
38 CFR 36.4306 states that any portion of the funding fee that would push the loan over 100 percent of reasonable value must be paid in cash at closing. An earlier VA circular, 26-18-30, says the same thing about any loan closed above 100 percent: the veteran pays the excess at closing.
Picture a veteran with a modest equity cushion who wants cash out. The payoff, costs, funding fee and the cash request all stack up. If the stack crosses 100% of the appraised value, something has to give. The options are:
- Take less cash out, which frees room under the cap.
- Bring cash to closing to cover the overage.
- Pay a few third-party costs outside closing where the lender allows it.
- Check whether you qualify for a funding fee exemption, which removes the largest single item from the stack.
A low appraisal does the same damage without any change in what you want. The box shrinks, and the cash you planned on shrinks with it.
How Does the Funding Fee Change the Math?
The funding fee is the biggest reviewable cost, and it is the one that most often decides whether you hit the cap. On a cash-out refinance, the fee is 2.15% for first use and 3.3% after first use, per VA’s funding fee page. A bigger down payment does not lower those refinance tiers. VA says the refinance rates do not change with down payment.
Veterans who receive VA compensation for a service-connected disability do not pay the fee, and other exempt groups exist. For an exempt borrower, the same property leaves more room under the cap. That can mean more cash out, or more costs financed, with no change to the appraisal.
Financing the fee is allowed, but it has a price in plain terms: a bigger balance, and interest on that balance for as long as you hold the loan. The fee does not vanish. It gets spread across the life of the loan.
Financed or Paid From Proceeds: A Side-by-Side
Run the numbers on a borrower with solid equity, using percentages only. Say the home appraises at a level where the payoff, costs and fee together use well under 100% of value.
Option one, costs financed. The new loan includes the payoff, the costs and the funding fee. The balance is higher. The cash check equals what you asked for.
Option two, costs paid from proceeds. The loan amount covers the payoff and the cash request. The costs come out of the check. The balance is lower. The check is smaller.
The borrower ends up in nearly the same place on cash in hand. The difference is the loan balance and the interest that follows it. Now push the same borrower toward the cap. Option one runs out of room first, because financed costs count against the ceiling. Then the borrower has to pay some items in cash, or take less cash out.
An exempt borrower in the same spot has a lighter stack and more flexibility.
Does Every Refinance Work This Way?
No. VA has several refinance paths, and the cost rules differ among them.
- Cash-out refinance: Can include allowable costs and the funding fee, inside the cap. Must show a net tangible benefit.
- IRRRL (interest rate reduction refinance): A streamline for an existing VA loan. It cannot return cash. Across the wholesale programs Lendmire works with, it has no VA appraisal, a 0.5% fee unless exempt, a net tangible benefit, and seasoning of the later of 210 days from the first payment and the sixth payment.
- Type I vs. Type II cash-out: VA Circular 26-19-05 splits these by whether the new loan, fee included, exceeds the payoff of the old one. The extra cash in a Type II is what triggers more scrutiny.
The occupancy rule matters too. The cash-out must be on a home you own and occupy. A military-spouse occupancy exception exists in the regulation. This is not a product for a property you do not live in.
Two Tests That Limit How Much You Can Finance
Two requirements sit on top of the cap. Both apply because financing costs raises the balance.
Net tangible benefit. The regulation requires the new loan to give the borrower a real benefit, and the lender must run the test. Qualifying benefits include a lower payment, higher monthly residual income, a loan at or below 90% of reasonable value, or converting an adjustable loan to a fixed one. The 90% item is a benefit option, not a VA cap. Some lenders use 90% as their own limit, which is a lender overlay.
Recoupment. The regulation calls for a lender certification that fees and costs are recovered within a set window, 36 months, and the loan being refinanced must be at least six months old. Think of it as VA asking whether the refinance pays for itself.
Underwriting follows the normal VA purchase-loan structure. Across the wholesale programs Lendmire places VA loans with, residual income is the controlling test. The 41% debt-to-income figure is a guideline, not a cap, and a ratio above it needs residual income well above the table. The wholesale programs start at a 580 decision score. Everything here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
Where Borrowers Go Wrong
- Assuming every cost rolls in. Only allowable charges do, and only up to the cap.
- Treating 90% as VA’s cap. The VA ceiling is 100%. The 90% figure is a benefit option and a common lender overlay.
- Forgetting the funding fee sits inside the cap. It counts against the same ceiling as everything else.
- Expecting a bigger down payment to cut the cash-out fee. It doesn’t.
- Ignoring a low appraisal. The cash plan breaks when the value comes in light.
- Mixing up the IRRRL and the cash-out. Different products, different cost rules.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
How to Check Your Own File
Your Loan Estimate and Closing Disclosure show what is financed and what you pay in cash. Use this order:
1. Find the loan amount and compare it with the appraised value on the Notice of Value. 2. Locate the funding fee line and confirm whether it is financed or exempt. 3. Mark each third-party cost and ask which are in the loan and which come from proceeds. 4. Check the cash-to-borrower line against your original request. 5. Ask the loan officer whether any lender overlay is tighter than VA’s 100%.
If a number doesn’t match what you were told, ask before closing, not after.
Key Terms Defined
Reasonable value: The value VA’s appraisal sets for the home, which the cap is measured against.
Funding fee: A one-time VA charge on the loan that can be financed and is waived for exempt veterans.
Net tangible benefit: A test showing the new loan gives the borrower a real, measurable improvement.
Recoupment: The period over which the fees and costs of the refinance are earned back.
Lender overlay: A rule a lender adds on top of VA’s, such as a lower loan-to-value limit.
Frequently Asked Questions
Can the VA funding fee be financed on a cash-out refinance?
Yes, as long as the total loan stays at or under 100% of reasonable value. If the fee would push the loan over, the excess must be paid in cash at closing. Exempt veterans, including those receiving compensation for a service-connected disability, do not pay the fee.
Is the VA cash-out limit 90% or 100%?
VA’s cap is 100% of reasonable value. The 90% figure shows up as one way to satisfy the net tangible benefit test and as a limit many lenders set for themselves. If a lender quotes 90%, that is the lender’s policy.
Can closing costs tied to the interest charge be financed?
Only under narrow conditions. The regulation allows a limited amount of certain upfront loan charges to be added to the loan only if the loan still stays at or under 100% LTV, with a second condition on top. Check the official eCFR text and ask your loan officer how it applies to your file. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Can I finance closing costs on a VA loan that isn’t a refinance?
Generally no. On a purchase, closing costs and the origination charge usually cannot be rolled into the loan. Refinancing loans are the exception, which is why a cash-out behaves differently.
Does a bigger down payment lower the cash-out funding fee?
No. VA states that refinance fee rates do not change with down payment. The cash-out tiers stay at 2.15% for first use and 3.3% after.
What if my lender’s limit is tighter than VA’s?
Then the lender’s limit controls on that file. Lenders may set a lower loan-to-value cap or stricter credit standards than VA requires. Comparing programs can show which one leaves you the most room.
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. Start with Lendmire’s VA cash-out refinance program page, or read Lendmire’s piece Can Every Closing Cost Be Financed Into a Cash-Out Refinance? and the one on refinancing a VA cash-out later in a high-cost closing state.
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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References
3. VA Lenders Handbook, Chapter 3
5. VA funding fee and closing costs
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: Can a Retired Veteran on a Pension Get a VA Cash-Out? · VA Cash-Out Cap Requirements for a Jumbo Loan Above the Conforming Limit · How to Get a VA Cash-Out on a Home Still in the Estate
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.