The Quick Read: A pending disability claim does not waive the fee. The lender collects it at the non-exempt rate: 2.15% of the new loan on first use of the VA benefit, or 3.3% after first use. Because the fee carries no down-payment tiers on a cash-out, the rating status decides only whether you are charged at all. If VA later awards compensation back-dated to before your closing, you can ask for a refund.
Key Takeaways
- A filed claim is not an exemption. Receiving compensation at closing is the test, and a claim that is still pending does not meet it.
- The fee is a percentage of the whole new loan. It is 2.15% on first use and 3.3% on later use.
- You can finance the fee into the loan, subject to the 100% ceiling on the appraised value.
- A refund depends on the effective date of your award, not the decision date. It must fall before closing.
- You have to request the refund. It is not automatic.
What the Fee Is and Why a Pending Claim Doesn’t Cancel It
The funding fee is a one-time charge that VA collects on a VA-backed loan. VA’s funding fee page lists the cash-out refinance fee at 2.15% for first use and 3.3% after first use. Across the wholesale programs Lendmire places VA files with, those are the figures that apply. They are subject to lender guidelines and full file review.
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: 7.18% as of November 5, 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.
Why doesn’t a pending claim help? Federal law bars the fee only for a veteran who is receiving compensation, or who would receive it but for retirement or active-duty pay. That is 38 U.S.C. § 3729(c), which you can read in the U.S. Code on GovInfo. A claim that has been filed is a request, not a payment. VA’s Lender’s Handbook, Chapter 8 says that when a compensation claim is pending at closing, the fee is remitted as if the borrower were not exempt.
Your lender cannot waive it. The fee is set by federal law and VA. A loan officer only documents your status.
How the Loan Works, Step by Step
Here is the path a VA cash-out takes when your rating is still pending.
1. Eligibility check. The lender works from your Certificate of Eligibility (COE), the VA document that confirms you can use the benefit. VA decides eligibility, and its service rules govern.
2. Status can’t be documented. With no rating or award from VA, the lender has nothing to show an exemption. The non-exempt fee applies.
3. The fee is financed or paid in cash. The statute allows the fee to be rolled into the loan. A VA cash-out reaches up to 100% of the appraised value, and the financed fee counts inside that ceiling. Rolling it in means less cash reaches you.
4. Underwriting. Residual income is the controlling test. That is the money left each month after your major obligations and living costs. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
5. Appraisal and loan amount. The fee is a percentage of the loan amount, not the appraisal. The appraisal matters only because it sets how large the loan can be.
6. Remittance. The lender must pay the fee to VA through its Funding Fee Payment System within 15 calendar days of closing, per the Handbook chapter above.
7. Seasoning and benefit. The cash-out carries a seasoning requirement of the later of 210 days from the first payment and the sixth payment. It also needs a net tangible benefit, which is one of VA’s eight listed benefits. The half-percent rate-reduction and fee-recoupment tests belong to the IRRRL, not to this loan.
The loan can also refinance any loan type into VA.
Pending, Rated, or Retroactive: What the Fee Looks Like
| Situation at closing | Fee at closing | Refund possible? |
|---|---|---|
| Claim filed, no award yet | Charged, non-exempt rate | Yes, if the award is back-dated before closing |
| Compensation already awarded | Waived | Not needed |
| Award decided after closing, effective date after closing | Charged | No |
| Claim denied | Charged | No |
Lendmire’s VA cash-out refinance program page lays out the program basics if you want the full picture of the loan itself.
The Refund Route
VA says you may be entitled to a refund if a disability claim was pending at closing and you were later awarded service-connected compensation. The conditions are on VA’s loan fee page. The effective date of the compensation has to be retroactive to a date before your loan closed.
That detail trips people up. The decision date is when VA tells you the outcome. The effective date is the date your compensation is treated as starting. Only the effective date counts. A favorable decision that lands after closing helps you only if the effective date reaches back before closing.
Three practical points follow:
- Ask for it. The refund is not automatic. You contact your mortgage holder or the VA Regional Loan Center, and VA’s page lists the number. Check that number against the current VA funding fee page on va.gov before you call.
- It goes to you. For refunds issued on or after July 1, 2019, VA pays the refund directly to the veteran, regardless of loan balance. It does not automatically reduce a financed balance. If you financed the fee, you pay interest on it until you choose what to do with the lump sum.
- Gather your paperwork. Expect to need your award letter showing the effective date and your Closing Disclosure showing the fee. Ask VA exactly what it wants, since requirements can change.
Where the General Rule Breaks
A few situations change the answer.
Pre-discharge ratings. A service member can be rated eligible for compensation through a pre-discharge exam, or through a memorandum rating after a pre-discharge records review. Either counts, but the rating must exist at closing. It is mostly a service-member scenario, not a homeowner with a long-held house.
Purple Heart. Active-duty members who show evidence of the award on or before closing are exempt, regardless of rating. VA Circular 26-19-30 ties the waiver to active-duty status, so it does not apply once you have been discharged or released.
Surviving spouses. The statute exempts surviving spouses of veterans who died of a service-connected disability.
Retirement-pay offset. A veteran who would receive compensation but for retirement pay is exempt.
Prior manufactured-home use. If you used a VA loan only to buy a manufactured home in the past, VA still charges the first-use fee.
A low rating. The statute sets no minimum percentage. The test is receiving compensation. A 0% rating pays no compensation, so it may not trigger the exemption. Ask VA how it treats your specific rating.
Primary residence only. The VA cash-out is built for the home you live in. Occupancy decides the leverage, so a second home or rental follows different rules and is outside this article.
Close Now or Wait? How the Decision Looks
This is a genuine trade-off, and the answer is yours.
Closing now means you pay the non-exempt fee, possibly financed, and wait for a refund that is not certain. You get your cash now. Waiting for the decision could mean no fee if compensation is in place at closing. The cost is that your cash needs, and anything else that moves while you wait, are on hold.
Questions to put to yourself:
- How firm is the effective date likely to be? A claim filed long before your closing date has a better shot at a back-dated award than a fresh one. Nobody can promise the outcome.
- How large is the difference? On first use, the fee is 2.15% of the loan. On later use it is 3.3%, so a refund matters more to a repeat user.
- Can you carry the fee until a refund arrives, if one does?
Plan around the lender’s disclosures. One thing is worth knowing: the Handbook language reported by secondary sources suggests lenders should not tell a veteran who believes they are exempt to close and request a refund later. That is not confirmed on a primary VA page here, so ask your loan officer how the file would be handled.
Key Terms Defined
Funding fee: A one-time charge paid to VA on a VA-backed loan, calculated as a percentage of the loan amount.
Effective date: The date VA treats your compensation as beginning. It controls refund eligibility.
Memorandum rating: A pre-discharge rating issued after a records review that shows eligibility for compensation.
Certificate of Eligibility (COE): The VA document that confirms you can use the home loan benefit.
Residual income: What remains of your monthly income after major obligations and living costs, the controlling test in VA underwriting.
Frequently Asked Questions
Does a pending disability claim waive the VA cash-out funding fee?
No. VA’s Handbook says the fee is collected as if you were not exempt when a claim is pending at closing. You can ask for a refund afterward if VA awards compensation with an effective date before closing.
How much is the fee while my rating is pending?
It is 2.15% of the loan for first use and 3.3% after first use, per VA’s chart. Cash-out has no down-payment tiers, so only your prior use matters.
Will the refund reduce my loan balance if I financed the fee?
No. For refunds issued on or after July 1, 2019, VA pays the refund directly to you. Plan on receiving a lump sum and deciding how to use it.
Does the decision date or the effective date decide my refund?
The effective date. It must fall before your closing date. A decision that arrives after closing counts only if the award reaches back that far.
Does the rating percentage matter?
The statute sets no minimum percentage. What matters is that you receive compensation, or hold a qualifying pre-discharge rating, at closing.
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. 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 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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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
3. VA Lender’s Handbook (Pamphlet 26-7), Chapter 8
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: How to Meet VA Jumbo Cash-Out Reserves and Cover the Funding Fee · How to Use VA Cash-Out on a Triplex With No Prior Cash-Out · VA Cash-Out vs Jumbo Cash-Out to Buy Out an Ex Who Is on Title
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.