The Quick Read: On a VA cash-out, the funding fee is charged on the whole new loan and counted inside the 100% ceiling. It is not added on top. That means the fee takes a slice of the equity you could otherwise walk away with, so the cash in your hand is smaller than the headline number. Veterans who are exempt from the fee keep that slice.
Key Takeaways
- The new loan, fee included, cannot go past 100% of the appraised value.
- The fee is a percentage of the entire loan, not just the cash you take out.
- First use is 2.15%. Subsequent use is 3.3%. Exempt borrowers pay none.
- You can finance the fee or pay it in cash. Financing it raises your balance.
- If you want a loan that would pass 100%, the overage is paid in cash at closing.
What Is the Funding Fee on a VA Cash-Out?
The funding fee is a one-time charge paid to VA on most VA loans. It stands in for the monthly mortgage insurance you do not pay on this program. On a cash-out refinance, it is 2.15% of the loan for first-time use and 3.3% for subsequent use. Both figures 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: 7.32% as of October 22, 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.
A cash-out refinance replaces your current mortgage with a new VA loan. The new loan pays off the old one, covers any other liens and costs being rolled in, and may leave cash for you. Across the wholesale programs Lendmire places VA files with, the VA cash-out refinance program can reach 100% of the appraised value. It can also refinance any loan type into VA. There is no mortgage insurance, and there is no VA loan limit for borrowers with full entitlement.
Don’t confuse this with the IRRRL, VA’s streamlined refinance. That product carries a 0.5% fee. The cash-out fee is much higher, and the two have different rules.
Where Does the Fee Sit Inside the 100% Ceiling?
The fee sits inside the ceiling. The VA regulation caps the new loan at 100% of the VA-determined reasonable value. It allows the funding fee to be included in the loan, but any part that would push the total above 100% must be paid in cash. You can read that in 38 CFR 36.4306.
The VA Lenders Handbook, Chapter 6 says the same thing. The maximum loan may not exceed 100% of reasonable value, and the fee, in part or whole, must not push the loan past it. VA’s own loan-to-value formula counts the total loan, fee included, divided by the appraiser’s value, per a VA program notice 26-19-05.
Here is the practical read. “100% financing” describes the ceiling on the total note. The fee does not get its own room above it. A common belief is that you can borrow 100% of value plus the fee. That is not how the rule works.
How Is the Loan Underwritten, Step by Step?
The appraisal is the denominator for every calculation, so the process starts there. Here is how a full-value VA cash-out file moves, in order.
1. Eligibility. Your certificate of eligibility (COE) is the document VA issues to show your entitlement. It decides your fee tier. It usually shows exempt status too.
2. Appraisal. A VA appraiser sets the reasonable value. The 100% ceiling is measured against it.
3. Cash-out type. VA sorts the loan into Type I or Type II (more on that below).
4. Loan sizing. The new loan must cover the payoff, any other liens, and any financed costs. The fee sits inside that total.
5. Credit and income review. Residual income is the controlling test. That is the money left each month after taxes, housing costs, debts and a family-size living allowance. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table. Across the wholesale programs Lendmire works with, the decision-score floor starts at 580.
6. Net tangible benefit. The new loan has to leave you better off in a way VA recognizes. The lender gives you a loan comparison.
7. Seasoning. The cash-out carries the same seasoning as the IRRRL: the later of 210 days from the first payment and the 6th payment on the loan being refinanced.
8. Disclosures and closing. You get a Loan Estimate and a Closing Disclosure. The fee shows up in the closing-cost section. The Consumer Financial Protection Bureau notes that government program fees like this are usually set by the program, not the lender.
How the Fee Shrinks Your Cash: A Worked Example
The fee reduces your net cash dollar for dollar. Run it in percentages of value. Assume a home that appraises at 100%, with a payoff of 60% of value. These are modeled assumptions, and other costs are left out for simplicity.
First-use borrower. The fee is 2.15% of the base loan. The largest base loan that still fits is 100% divided by 1.0215, which is about 97.9% of value. The fee takes the remaining 2.1% or so. Cash to you: about 37.9% of value.
Subsequent-use borrower. The fee is 3.3%. The largest base loan is 100% divided by 1.033, about 96.8% of value. The fee is about 3.2% of value. Cash to you: about 36.8%.
Exempt borrower. The base loan can reach 100%. Cash to you: 40% of value.
| Borrower | Fee | Max base loan | Fee share of value | Cash out (60% payoff) |
|---|---|---|---|---|
| First use | 2.15% | ~97.9% | ~2.1% | ~37.9% |
| Subsequent use | 3.3% | ~96.8% | ~3.2% | ~36.8% |
| Exempt | — | 100% | 0% | 40.0% |
That table is a model, not a quote. Your payoff, other liens and financed costs change the picture. The method does not change.
The Formula for the Largest Loan That Fits
Lenders work this backward. You know the value and what the loan must cover. The question is the biggest base loan that leaves room for the fee.
The fee is a percentage of the base loan, and the base loan plus the fee cannot pass 100% of value. So:
Maximum base loan = appraised value ÷ (1 + fee percentage)
Then:
Cash to you = maximum base loan − payoff − other liens − other financed costs
Work it in four steps, using percentages of value:
1. Pick your fee percentage: 2.15% for first use, 3.3% for subsequent use, or 0% if exempt. 2. Divide 100% of value by one plus that fee. For first use, that is 100 ÷ 1.0215, about 97.9%. 3. Subtract the payoff, any other liens, and any other financed costs, all as a share of value. 4. What is left is your cash. If the result is negative, you have a shortfall.
To check the fee itself, multiply the maximum base loan by the fee percentage. The base loan and the fee together land at 100%, no higher.
If your payoff and needed costs already add up to more than the maximum base loan, you have a shortfall. The next section covers it.
What Happens When the Fee Pushes You Over?
Say you ask for a base loan at 100% of value. A first-use fee of 2.15% would take the total to 102.15%. The part over the cap is about 2.15% of value. The regulation says that overage must be paid in cash at closing. VA Circular 26-18-30 says the same: if you choose to close above 100%, you pay the excess.
You have three practical options:
- Take less cash out. Shrink the base loan until the total fits.
- Pay part of the fee in cash. The fee is due at closing. You may finance it or pay it, so paying some in cash lowers the balance.
- Trim what you roll in. Cut financed costs or other items that count against the cap.
Honestly, taking a little less cash is the cleanest fix. Paying the overage out of pocket defeats the purpose of a cash-out.
Financing the Fee or Paying It in Cash
You can roll the fee into the loan or pay it at closing. Financing keeps cash in your pocket today. The cost is a higher balance, a higher payment and more total interest over time. Paying in cash keeps the balance lower.
The fee is a one-time charge. It is not a monthly premium. Some veterans compare that with conventional loans that charge mortgage insurance every month. The comparison is fair, but the fee is not free. It is the program’s version of that cost, collected up front.
To see the payment impact, ask your loan officer for the loan with the fee financed and the loan with it paid in cash. Compare the two payments side by side. Keep the interest-rate effect separate from the fee effect, so you know which one moved the number.
Type I or Type II: Where the Fee Can Tip You
A Type I cash-out is a loan that, fee included, does not exceed the payoff of the loan being refinanced. No cash comes to you. A Type II is a loan that, fee included, does exceed the payoff. That excess is your cash. VA spells out both in Circular 26-19-05.
The fee counts toward that test. A loan that looks like a Type I on the base amount can become a Type II once the fee is added. That matters because Type I VA-to-VA loans have extra tests. The rate must drop, and the drop cannot come only from the cost of buying down the rate. If you move from a fixed rate to an adjustable rate and finance more than a certain amount of that cost, the loan is limited to 90% of value.
When you refinance from a non-VA loan, such as an FHA or conventional loan, the Type I rate-reduction test does not apply. The net tangible benefit test and loan comparison still do.
The Net Tangible Benefit Test at Full Value
A full-value loan has fewer ways to pass the benefit test. The regulation lists the options. They include eliminating monthly mortgage insurance, a shorter term, a lower rate, a lower payment, higher monthly residual income, and converting an adjustable rate to a fixed one. It also includes refinancing an interim construction loan.
One option is a loan of 90% or less of reasonable value. A full-value loan cannot use that one. It has to pass on another listed benefit.
Because the fee is financed, it raises your balance. That makes the payment-based benefits harder to hit. Your lender must give you a comparison showing your present loan against the new one, including present combined loan-to-value versus the new figure.
Here’s the catch. Someone who just wants cash and has a payment and rate similar to the old loan may not clear this test. The comparison is not a formality.
Who Is Exempt From the Fee?
Veterans receiving VA compensation for a service-connected disability are generally exempt. Other groups can be too. Per VA, these include:
- Veterans who are eligible for compensation but receive retirement or active-duty pay instead.
- Surviving spouses receiving Dependency and Indemnity Compensation.
- Borrowers with a proposed or memorandum pre-discharge rating before closing.
- Active-duty members with a Purple Heart.
Confirm your own status on VA.gov or with your lender, because categories and details can change. The VA Lenders Handbook, Chapter 8 is the place to check. It says each veteran pays at closing unless exempt, and the lender collects and remits it.
Exempt status should show on your COE and in the loan file. If it looks wrong, raise it before closing. A pending claim or a retroactive award is the tricky case. Describe the timing to your loan officer early, because it can change the fee on your Loan Estimate.
When a Cash-Out Stops Making Sense
The fee is charged on the whole loan. It is not charged only on the cash you take. If you need a small amount, the fee can be nearly as big as the cash you receive. Fee as a share of cash received is the number to watch.
For a small cash need, a home-equity line or loan may fit better, since it leaves your first mortgage alone. For larger needs, or when you want to refinance out of another loan type into VA, the cash-out can still be the stronger structure. Whether you keep the loan you have or move to a new one depends on the full comparison, not on the fee alone. Lendmire’s piece Is a VA Cash-Out Refinance Worth the Funding Fee on a Primary Home? walks through that trade-off.
What Can Change
Fee schedules change. Some third-party pages still show older, higher percentages. The current schedule is in VA Circular 26-23-06, Exhibit B, and your lender will confirm it for your loan.
Lenders can also set tighter limits than VA does, so the 100% maximum is not guaranteed at every lender. State law can cap cash-out too. Ask early what ceiling applies to your file.
Key Terms Defined
Funding fee: A one-time charge paid to VA on most VA loans, replacing monthly mortgage insurance.
Reasonable value: The value VA’s appraiser assigns to the home.
Net tangible benefit: A requirement that the new loan improve your position in a way VA lists, such as a lower payment or shorter term.
Residual income: The money left each month after taxes, housing costs, debts and living expenses. It is the controlling underwriting test on VA loans.
Entitlement: The benefit VA backs for your loan, shown on your COE.
Seasoning: The waiting period before you can refinance, measured from your first payment.
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.
Frequently Asked Questions
Does the funding fee count toward the 100% limit?
Yes. The total loan, fee included, cannot exceed 100% of the VA-determined reasonable value. Any part of the fee that would push past that line must be paid in cash at closing. The program rules are subject to lender guidelines and full file review.
Can I finance the funding fee on a cash-out refinance?
You can finance it or pay it in cash. Financing raises your balance, payment and total interest, but the fee still has to fit inside the 100% ceiling. Paying in cash keeps the balance lower and leaves more room under the cap.
Does a down payment lower the cash-out fee?
No. The cash-out fee is 2.15% for first use and 3.3% for subsequent use, and it does not step down with a down payment. The lower tiers for larger down payments belong to the purchase table. Don’t carry purchase-fee logic over to a cash-out.
Who is exempt from the funding fee?
Veterans receiving VA compensation for a service-connected disability are generally exempt, along with a few other groups, such as certain surviving spouses and Purple Heart recipients on active duty. Your COE should show it. Confirm your status with VA before closing.
How is this different from a streamlined refinance?
The streamlined refinance, the IRRRL, carries a 0.5% fee unless you are exempt. It requires an existing VA loan, has no VA appraisal, and does not pay out cash. The cash-out can reach 100% of value and refinance any loan type into VA, but the fee is higher and it needs an appraisal.
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
2. VA Lenders Handbook, Chapter 6: Refinancing Loans
4. CFPB Loan Estimate explainer
6. VA Lenders Handbook, Chapter 8: Fees and the Funding Fee
7. VA Circular 26-23-06, Exhibit B
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: Is a VA Cash-Out Refinance Type II Worth It Over Type I? · Can You Qualify for a VA Cash-Out Refinance at Full Value? · Can You Take Full Home Value Through a VA Cash-Out Refinance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.