The Quick Read: Yes, but only when the surviving spouse is receiving VA Dependency and Indemnity Compensation (DIC). Being a widow or widower does not waive the fee by itself. When the exemption applies, it covers a cash-out refinance like any other VA loan. VA has to show that status before closing, so confirm it early.
What Is the Cash-Out Funding Fee, and Who Normally Pays It?
The funding fee is a one-time charge on a VA loan. VA.gov says it applies when you buy, build, improve, repair, or refinance with a VA loan, unless you meet an exemption. It is a percentage of the loan amount, not of the price of the home.
On a cash-out refinance, the fee is 2.15% of the new loan for first use and 3.3% for subsequent use. Down payment and equity do not change it. That is a different structure from a purchase, where more money down lowers the fee.
Here is why it matters. The fee applies to the whole new loan, not just the cash you pull out. So it is one of the largest single costs on the file. An exemption removes it entirely.
The fee can generally be rolled into the loan or paid at closing, per VA News. Financing it grows your balance, and you pay interest on that growth. An exempt borrower skips both.
Is Every Surviving Spouse Exempt?
No. Widowhood is not the trigger. DIC is.
DIC is a tax-free monthly payment from VA to the surviving spouse of a Veteran who died in service or from a service-connected disability. VA Circular 26-23-19 states the exemption in those terms. It covers a surviving spouse of a Veteran who died in service or from a service-connected disability and who is in receipt of DIC.
The table below shows how common situations sort out. Treat it as a starting map. VA’s records decide, not a table.
| Situation | Fee exempt? | What proves it |
|---|---|---|
| Spouse receives DIC after a service-connected death | Yes | COE or VA benefits verification |
| Spouse of a Veteran who died in service, receiving DIC | Yes | COE or VA benefits verification |
| Spouse eligible for the loan but not receiving DIC | No, standard fee | COE shows non-exempt |
| Veteran died of unrelated causes | Generally no | VA records decide |
| DIC claim still pending at closing | Not yet | Status must be recorded first |
Notice the fourth and fifth rows. Many people assume a pending claim counts. It does not. VA needs to have the status on record before closing.
Entitlement is a separate question. The VA Lenders Handbook, Chapter 8, lists exempt surviving spouses whether or not they use their own entitlement. Fee exemption and loan eligibility are two separate decisions.
Does the Exemption Cover a Cash-Out Refinance?
Yes. Nothing in VA’s rules carves cash-out of the exemption. The fee applies to purchase, construction, and refinance loans unless an exemption applies, and the exemption is not limited to certain loan types.
Repeat use is the same story. A first-use cash-out carries 2.15% and a later one carries 3.3% for non-exempt borrowers. For an exempt spouse, both are waived.
The cash-out underwriting itself does not change. Across the wholesale programs Lendmire places VA files with, a cash-out is a fully underwritten loan. It has income review, an appraisal, a net tangible benefit test, and seasoning. The VA cash-out can reach 100% of the appraised value, including the financed fee. Residual income, which is the money left each month after major obligations and living costs, is the controlling test. The exemption changes your cost. It does not change whether you qualify.
Those programs generally start at a 580 decision score, subject to lender guidelines and full file review. VA itself sets no minimum score.
What If the Spouse Was Not on the Original Loan?
This is where a cash-out often comes up for survivors. The VA cash-out refinances any loan type into a VA loan. So a surviving spouse who inherited a home with a conventional or FHA mortgage, or a VA loan the Veteran held alone, can use it to refinance into a loan in their own name.
Picture a spouse who now lives in the home, receives DIC, and wants to pay off the existing mortgage and take some equity. The steps look like this:
1. Get a Certificate of Eligibility (COE).
2. Check the fee status shown on it.
3. Have the lender verify the exemption before closing.
4. Move forward with the appraisal and underwriting.
VA’s Circular also has a note about a surviving spouse who was a co-borrower on a VA-guaranteed loan. The rules for that case are specific. Ask your loan officer to check the current VA guidance before you assume anything.
A cash-out is also for the home you live in. VA loans are primary-residence loans.
How Do You Claim the Exemption?
Claiming it takes a few steps, and the order matters. The COE is where the lender first sees your fee status.
1. Request your COE. It shows your eligibility and usually the fee status.
2. Read the fee status. If it does not say exempt and you believe you are, say so right away.
3. Verify through VA Form 26-8937 if needed. The Lenders Handbook accepts a properly completed and signed Verification of VA Benefits as a way to confirm exempt status.
4. Keep your DIC award letter handy. It is the plain-language proof that VA pays you DIC.
5. Check your Loan Estimate and Closing Disclosure. The funding fee line should show zero if you are exempt.
The lender must verify exempt status. A non-exempt borrower’s fee is collected at closing and sent to VA. For eligible surviving spouses, the Handbook says the lender does not need to submit exemption paperwork to VA. That is a documentation shortcut, not a reason to skip the verification.
What About Pending Claims, Errors, and Refunds?
Get the status settled before closing. Circular 26-23-19 says exemption status should be established first. It also says lenders should not tell borrowers to close now and request a refund later, because VA cannot guarantee refund decisions.
So what if your DIC award is still pending? Ask whether closing can wait until VA records it. Closing first and chasing a refund is the risky path. A fee paid in error may or may not come back.
If the fee shows up on your Loan Estimate when you believe you are exempt, flag it before you sign. Do not wait for the Closing Disclosure.
What Does the Exemption Change in Your Numbers?
It removes one line, and that line can be the biggest one. Here is the comparison without dollar figures, using the program figures above.
| Item | Non-exempt, first use | Non-exempt, later use | Exempt spouse |
|---|---|---|---|
| Cash-out funding fee | 2.15% of the new loan | 3.3% of the new loan | — |
| Added to balance if financed | Yes | Yes | No |
| Maximum reach | 100% of appraised value, fee included | Same | 100% of appraised value |
For a non-exempt borrower, the fee is reviewable, but it uses up some of the 100% ceiling. An exempt borrower keeps that room for cash or for paying off the old loan. In practice, that often means a smaller balance and a smaller monthly obligation than the same loan with the fee attached.
Compare that with the prior fee table in VA’s Circular 26-23-06, Exhibit A. The structure was the same, a first-use and a subsequent-use tier, but the percentages were higher. The current figures are lower. An exemption still wipes out the entire line.
For help comparing a cash-out against keeping your current loan, see the VA cash-out refinance program page.
Common Myths and Mistakes
“All surviving spouses are exempt.” No. It depends on DIC and on how the Veteran died.
“Cash-out is excluded.” No source in VA’s rules says so.
“I can get a refund later.” VA tells lenders not to advise this.
“No funding fee means no closing costs.” Wrong. The exemption removes only the funding fee. Appraisal, title, and lender charges remain.
“More equity lowers the cash-out fee.” It does not. For cash-out, the tier depends on first versus subsequent use.
“A disability rating works the same way for me.” That is a different exemption path. Lendmire’s piece Does a Disability Rating Exempt You From the VA Cash-Out Fee? covers it.
Remarriage and Other Surviving-Spouse Benefits
Remarriage can affect DIC and, in turn, the exemption. The rules carry specific age and timing exceptions. Do not guess here. Confirm your status with VA before you plan around it.
Beyond the fee, a surviving spouse with eligibility has the same core VA features as anyone else: 100% financing on a purchase, no mortgage insurance of any kind, and no VA loan limit with full entitlement. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
If you are comparing the cost of a VA cash-out against a conventional one, Lendmire’s article on the VA funding fee versus conventional cash-out mortgage insurance lays out the difference.
Key Terms Defined
Dependency and Indemnity Compensation (DIC): A tax-free monthly VA payment to certain surviving spouses and family members of Veterans who died in service or from a service-connected cause.
Certificate of Eligibility (COE): The VA document that confirms you qualify for a VA loan and shows your funding fee status.
Funding fee: A one-time VA charge, based on the loan amount, that can be paid at closing or financed.
Residual income: The money left each month after major obligations and living costs. VA treats it as the controlling test.
Net tangible benefit: A requirement that a refinance clearly helps the borrower, such as improving their financial position.
Entitlement: The amount of guaranty VA provides on your loan. It is separate from the fee exemption.
Frequently Asked Questions
Is a surviving spouse automatically exempt from the VA funding fee?
No. The exemption depends on receiving DIC after a Veteran’s service-connected death or death in service. A spouse who can use the loan benefit but does not receive DIC pays the standard fee. Check the COE and confirm with your lender before closing.
Does the exemption apply to a second VA cash-out?
Yes. An exempt surviving spouse is not charged the funding fee on first or later use. VA’s rule is tied to your status, not to how many times you have used the benefit.
What if my DIC claim is approved after I close?
Refunds are not guaranteed. VA’s circular tells lenders not to suggest closing first and seeking a refund later. If your claim is pending, ask whether closing can wait until VA records the status.
Can I be exempt if my spouse was not on the original mortgage?
Yes, if you receive DIC. The VA cash-out refinances any loan type into VA, so a spouse who inherited a home can refinance into their own loan. The exemption depends on your DIC status, not on who signed the first mortgage.
Does being exempt mean I pay no closing costs?
No. Only the funding fee is removed. Appraisal, title, and lender charges still apply. Your Loan Estimate and Closing Disclosure show each line.
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, subject to lender guidelines and full file review. This is not a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA.gov: VA funding fee and loan closing costs
2. VA News: borrowers can deduct funding fees
4. VA Lenders Handbook (VA Pamphlet 26-7), Chapter 8
5. VA Circular 26-23-06, Exhibit A
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 Funding Fee Rules for First or Subsequent Use · VA Cash-Out Funding Fee Exemption Rules for a Pending Disability Rating · Can a VA Cash-Out Ever Skip the Appraisal?
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.