The Quick Read: On a home with no mortgage or other lien on it, the fee adds nothing, because a VA cash-out generally isn’t available there. VA’s cash-out program refinances an existing recorded debt. With no debt to refinance, there is usually no VA loan to charge a fee on. When a cash-out is allowed, the fee is 2.15% of the new loan for first-time use and 3.3% for repeat use, and it comes out of your cash.
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: 7.40% as of October 15, 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.
What You Need to Know First
- A VA cash-out generally needs an existing mortgage or other recorded lien to pay off. A truly free-and-clear home usually doesn’t qualify.
- If the loan is allowed, the fee is a percentage of the whole new loan, not of the cash you take.
- The fee is 2.15% for first use and 3.3% for subsequent use. Veterans who are exempt pay 0%.
- You can finance the fee, but that raises your balance and shrinks your cash and your remaining equity.
- Owners with no mortgage usually look at a HELOC or a closed-end second mortgage instead.
Why a Paid-Off Home Usually Can’t Use This Loan
The VA cash-out is a refinance. It replaces an existing debt secured by the home with a new VA-guaranteed loan, and it can pay you the difference. That design matters for a home you own outright.
VA’s lender rules say loans on properties without an existing mortgage or lien of record are not eligible for a VA guarantee. This sits in Chapter 6 of VA’s lender handbook, which covers refinancing. A reproduction of VA Pamphlet 26-7, Chapter 6 includes the language. VA changed this chapter recently, so some older web pages and lender pages still describe a free-and-clear cash-out loosely. If a page promises one, ask the lender to show you where VA allows it.
Here is the practical result. Someone who owns a home outright generally cannot use the VA cash-out to tap equity. The fee question never comes up, because the loan doesn’t exist for that borrower.
Two cautions:
- Don’t create a lien to qualify. A real recorded lien, such as a second mortgage, can be refinanced. Setting one up just to fit the program is a different matter. Ask a VA-approved lender what VA will accept on your file.
- The lien needn’t be in your name. VA’s rules say it can be your spouse’s, as long as you own the home at closing.
For owners with no lien, the usual alternatives are a HELOC (a revolving credit line against your equity) or a closed-end second mortgage. Lendmire’s piece VA Cash-Out vs HELOC for a Veteran With a Paid-Off Home walks through that choice.
What the Funding Fee Is
VA describes the funding fee as a one-time payment on a VA-backed loan. It helps offset the program’s cost to taxpayers, because VA loans don’t require monthly mortgage insurance. That is the trade. You pay the fee once, and you carry no mortgage insurance for the life of the loan.
The fee is not an interest charge and not mortgage insurance. It is a single percentage, set by VA, applied once.
For a cash-out refinance, the wholesale programs Lendmire places VA loans with use these tiers:
| Situation | Funding fee |
|---|---|
| Cash-out, first use of the benefit | 2.15% |
| Cash-out, subsequent use | 3.3% |
| VA streamline refinance (no cash out) | 0.5% |
| Exempt veteran | 0% |
A refinance has no down payment, so a down payment can’t lower the cash-out fee. The tier turns on whether you have used your VA home loan benefit before. A prior VA loan counts even if you paid it off long ago.
Fee charts change over time, and older pages show different numbers. Confirm the current figures with your loan officer and on VA’s page.
What the Fee Is Calculated On
The percentage applies to the total new loan amount. It does not apply to the home’s value or to the cash you receive. VA’s own purchase example makes the same point: the fee applies to the loan amount, not the price.
That is why the fee can feel larger than the cash. Picture a new loan that equals 80% of the home’s value. At 2.15%, the fee is about 1.7% of the home’s value. At 3.3%, it is about 2.6% of the value. On a loan that reaches the 100% ceiling, the fee is 2.15% or 3.3% of the value itself.
No dollar figures are needed to see the pattern. A higher loan means a bigger fee, and the fee takes a bigger bite out of cash when the loan is larger.
How an Eligible Cash-Out Is Built, Step by Step
This is the order of operations on a cash-out that qualifies. It applies only when a lien exists.
1. Eligibility. You need a Certificate of Eligibility (COE), the VA document that confirms your entitlement. VA loans are for homes you or a spouse or dependent will live in. This is not an investor or second-home product.
2. A lien to refinance. The loan must pay off an existing mortgage or other recorded debt. A cash-out can refinance a loan of any type into VA, including FHA, conventional, or USDA.
3. Credit and income. VA sets no minimum credit score. The wholesale programs Lendmire places VA loans with start at a 580 decision score, and some lenders set a higher floor. VA’s lender handbook calls for satisfactory credit, stable income, and residual income. The 41% debt-to-income figure is a guideline, not a hard cap. A ratio above it needs residual income well above VA’s standard for your region and household size.
4. Appraisal and full underwriting. Unlike the streamline, a cash-out is fully underwritten and appraised.
5. The value ceiling. The cash-out can reach 100% of the appraised value, and that limit includes the financed fee.
6. The fee and other costs. The fee and allowed closing costs come out of the available amount. Cash lands in your hands last.
The net-cash logic is simple. Start with the new loan. Subtract the payoff of the old debt, the funding fee, and closing costs. What remains is your cash. The fee doesn’t stack on top of a 100%-of-value loan. It comes off the top of the cash.
Can You Finance the Fee?
Yes. VA’s lender handbook says the fee may be financed in the loan. On a refinance, VA also allows other fees to be included in the loan amount. Many borrowers choose to roll the fee in rather than pay it at closing.
Financing has costs:
- Your balance goes up. You borrow the fee, so you owe it, and you pay interest on it over time.
- Your cash goes down. On a loan at the ceiling, every point of fee is a point of equity you can’t take out.
- Your remaining equity is smaller. The fee reduces both the cash you receive and the equity you keep.
The monthly effect depends on your loan’s terms. Ask your loan officer to show it on your Loan Estimate. Lendmire’s piece How Much a VA Cash-Out Funding Fee Adds to Your Monthly Payment covers that side in more detail.
If you pay the fee in cash at closing instead, your balance stays lower. You trade cash now for a smaller loan later.
Where the General Rule Breaks
A few situations change the picture.
Exempt veterans pay 0%. You won’t owe the fee if, for example, you receive VA compensation for a service-connected disability. Some Purple Heart and surviving-spouse situations are also covered. VA’s page lists every exemption. Your COE shows whether you qualify, so check before closing. For an exempt veteran, the whole fee line disappears, and net cash rises by that amount.
Subsequent use costs more. A prior VA loan moves you into the higher cash-out tier. This applies even if the old VA loan is long paid off. On a loan at the ceiling, the higher tier means a meaningfully smaller check.
The IRRRL is a different loan. The interest rate reduction refinance loan (IRRRL), also called a streamline, refinances an existing VA loan only. It pays you no cash and needs no VA appraisal. The fee is 0.5% unless you’re exempt. It doesn’t help a paid-off home, since you must already have a VA loan.
VA-to-VA refinances have extra tests. Both the IRRRL and the cash-out carry a net tangible benefit test and seasoning. Seasoning means a waiting period: the later of 210 days from your first payment and your sixth payment. The CFPB’s summary of VA refinance protections also describes recouping fees within 36 months. These protections target refinances of an existing VA loan, not a paid-off home.
Type I versus Type II. VA draws a line between two cash-out types. In a Type I, the new loan, including the fee, doesn’t exceed the payoff of the old loan, so you get no cash. In a Type II, the loan exceeds the payoff, and the difference is cash. Only Type II puts money in your hands.
Misleading comparisons. The CFPB has ordered a lender to pay over misleading cash-out pitches. One example compared a new loan’s principal and interest against an old payment that included taxes and insurance. Treat any “no-cost” refinance claim with the same caution. Costs don’t vanish; they get built into the balance or the loan terms.
What a Borrower Should Check
Before you chase a VA cash-out, work through this list:
- Is there a recorded lien on the home? If not, ask what VA will accept.
- Have you used your VA benefit before? That sets the 2.15% or 3.3% tier.
- Are you exempt? Look at your COE.
- How much will you finance, and what share of the home’s value does it reach?
- What will the fee take from your cash if you roll it in?
- What does the Loan Estimate show for the new balance?
- What is the money for, and does the cost make sense for that use?
VA doesn’t limit how you use the cash. That makes the cost question more important, not less. 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 weighing the VA cash-out refinance program against other options, compare the net cash after the fee, not the loan size.
Key Terms Defined
Funding fee: A one-time VA fee, charged as a percentage of the loan, that replaces monthly mortgage insurance.
Lien of record: A legal claim recorded against a home, such as a mortgage or second mortgage, that a refinance can pay off.
Certificate of Eligibility (COE): The VA document confirming your entitlement and any fee exemption.
Subsequent use: Using your VA home loan benefit after having used it before, which moves you to the higher fee tier.
Net tangible benefit: A test showing a VA refinance gives the borrower a real, measurable gain.
Residual income: The money left each month after major bills, which is VA’s controlling underwriting test.
Frequently Asked Questions
Can I do a VA cash-out refinance if I own my home outright?
Generally no. VA’s lender rules say loans on properties without an existing mortgage or lien of record are not eligible for a guarantee. A HELOC or a closed-end second mortgage is the usual route for a free-and-clear owner. Ask a VA-approved lender what applies to your file.
How much is the funding fee on a VA cash-out?
It is 2.15% of the new loan for first use and 3.3% for subsequent use. The percentage applies to the whole loan, and an exempt veteran pays 0%. Confirm the current figures with your loan officer before you plan around them.
Does a bigger down payment lower the cash-out fee?
No. A refinance has no down payment, so the tier depends on whether you’ve used the VA benefit before. Down-payment tiers apply to purchases.
Does financing the fee change how much cash I get?
Yes. A financed fee raises your loan balance and comes off the top of your cash, because the loan can only reach 100% of the appraised value. Paying the fee at closing keeps the balance lower but takes cash from you up front.
Is the IRRRL a better choice than a cash-out?
They do different jobs. The IRRRL refinances an existing VA loan with a 0.5% fee, no appraisal, and no cash. The cash-out can pay you cash but costs more and needs a full appraisal and underwriting.
Next Step
If you are weighing a cash-out refinance on a home you own outright, Lendmire can help you compare the programs and the equity each one reaches.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA Pamphlet 26-7, Chapter 6, Refinancing Loans (reproduction)
2. VA.gov: Funding Fee and Closing Costs
3. VA Pamphlet 26-7, Chapter 3
4. CFPB: New protections for servicemembers and veterans
5. CFPB: Order on misleading VA cash-out refinance marketing
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: Is a VA Cash-Out Worth It on a Texas Homestead With the Funding Fee? · How to Get a VA Cash-Out on a Home Still in the Estate · VA Cash-Out vs Second Lien for a Veteran With a Paid-Off Home
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.