The Quick Read: The funding fee makes the new loan bigger, shrinks your cash, and uses up room under the 100% ceiling. It is a one-time charge set by VA, not by the lender. On a cash-out refinance it runs 2.15% on first use and 3.3% after that, and a bigger down payment or more equity does not lower it. Exempt veterans skip it entirely.
Most borrowers meet this fee late, as a line on the closing paperwork. It helps to meet it earlier. Here is the full picture, step by step, with the places where the usual rule bends.
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.
What the Funding Fee Actually Is
The funding fee is a one-time charge on a VA loan. It replaces the monthly mortgage insurance you would pay on many other loan types. VA loans carry no mortgage insurance, so the fee is the trade-off.
Two facts matter most.
- VA sets it. Your lender collects it at closing and sends it to VA. No lender can raise it, lower it, or discount it.
- It applies to the whole new loan. It is not charged only on the cash you take out. Borrow a small cash amount, and you still pay the percentage on the entire balance.
That second point surprises people. A cash-out refinance replaces your whole mortgage. So the fee follows the whole mortgage.
VA’s funding fee page lists the cash-out refinance fee at 2.15% on first use and 3.3% after first use. Those match the figures across the wholesale programs Lendmire places VA files with.
Key Terms Defined
Funding fee: A one-time VA charge, shown as a percentage of the loan, that is waived for exempt borrowers.
Cash-out refinance: A new loan that pays off your current mortgage and gives you the leftover equity as cash.
Reasonable value: The value VA’s appraisal assigns to the home. The 100% ceiling is measured against it.
Certificate of eligibility (COE): The VA document that confirms you qualify and shows your prior use.
First use and subsequent use: Whether you have used your VA home loan benefit before. The answer sets your percentage.
Residual income: What is left of your monthly income after your major obligations and living costs. It is the controlling VA underwriting test.
How the Fee Changes the Loan, Step by Step
Here is how a VA cash-out file moves, and where the fee enters.
1. Eligibility check. The lender reads your COE. It shows whether this is your first use or a later one. That count sets the percentage.
2. Exemption check. If you receive VA compensation for a service-connected disability, you are likely exempt. Status must be verified before closing, or the fee gets charged.
3. VA appraisal. VA determines the reasonable value of the home. Everything else is measured against that number.
4. Building the new loan. The new loan covers the payoff of your existing liens, allowable costs, and the funding fee if you finance it.
5. The 100% test. The new loan may not exceed 100% of reasonable value. Under 38 CFR 36.4306, the fee may be rolled into the loan, but any portion that pushes the loan past that ceiling must be paid in cash at closing.
6. Collection and remittance. The lender collects the fee and sends it to VA. The VA Lenders Handbook, Chapter 8 puts those duties on the lender.
The fee counts inside the ceiling. That is the core mechanical change. Every dollar of fee you finance is a dollar of equity you cannot take as cash.
What Changes: A Side-by-Side
Think of a home appraised at a round number, with a mortgage balance equal to about half of that value. You want cash. Here is how financing the fee versus paying it shifts the picture, in plain terms.
| Factor | Fee financed | Fee paid in cash |
|---|---|---|
| New loan balance | Larger | Smaller |
| Cash needed at closing | Less | More |
| Net cash to you | Reduced | Higher |
| Room under the 100% ceiling | Used up | Kept |
| Total interest over time | Higher | Lower |
Neither column is wrong. Financing keeps cash in your pocket on closing day. Paying in cash keeps the balance lower for the life of the loan.
The monthly effect is simple. A bigger balance at the same term means a higher payment. The difference is modest on one refinance, but it compounds over decades.
The Fee Doesn’t Move With Your Equity
Here is a myth worth killing. On a purchase, putting more down lowers the fee. VA lists 1.5% for 5% down or more and 1.25% for 10% down or more. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
A cash-out refinance does not work that way. VA states that refinance funding fee rates don’t change based on the down payment amount. The Lenders Handbook adds that there are no reduced funding fees for regular refinances based on equity.
So a veteran with 60% equity pays the same percentage as one with 10%. Equity affects how much cash you can reach. It does not touch the fee.
Where the General Rule Breaks
The 2.15% and 3.3% figures cover the typical file. Several situations bend them.
Exempt veterans. Veterans receiving compensation for a service-connected disability, and certain surviving spouses, are exempt. That includes some veterans who are eligible for compensation but receive retirement or active-duty pay instead. VA’s page holds the official list. If your rating decision is still pending, tell your loan officer early, because status must be confirmed before closing. Lendmire’s piece VA Cash-Out vs Conventional for a Veteran Exempt From the Funding Fee walks through that comparison.
Prior use on a manufactured home only. VA says that if your earlier VA loan was only for a manufactured home, you still pay the first-use fee, not the higher one.
Type I versus Type II cash-out. A Type I refinance keeps the new loan at or below the payoff of the old one. A Type II exceeds the payoff and puts cash in your hand. VA-to-VA refinances at or below the payoff carry extra tests, including a 36-month recoupment and a seasoning requirement, per VA’s regulations.
Net tangible benefit. Across the wholesale programs Lendmire places VA files with, a cash-out must show a real benefit to you, and it carries the same seasoning as other VA refinances. Examples include moving from an adjustable to a fixed loan or lowering the payment.
Lender ceilings. VA allows up to 100% of value. The program Lendmire places files with reaches 100% of the appraised value, including the financed fee. Some lenders set a lower cap. The fee counts toward any cap, so a financed fee can push a loan over a lender’s limit even when VA’s own limit would allow it.
Other VA products. The streamline refinance (IRRRL) carries a 0.5% fee, and the Native American Direct Loan refinance carries 0.5% too. Neither is a cash-out. An IRRRL cannot put cash in your hand.
Large loans. If your balance is high, our piece on the funding fee for a VA jumbo loan above the conforming limit covers how the numbers behave at that size.
A Worked Walkthrough Without Dollar Signs
Picture a first-time VA user refinancing a primary residence. The home appraises at some value. The existing mortgage is roughly half of that.
Step one: Add up what the new loan must cover. That is the payoff, the closing costs, and the cash you want.
Step two: Apply 2.15% to the whole new loan. That is the fee. A repeat user would apply 3.3% to the same base.
Step three: Choose how to handle it. Finance it, and the loan grows by the fee, and your cash shrinks by the same amount. Pay it in cash, and the loan stays leaner, but you bring money to closing or take less out.
Step four: Check the ceiling. If the loan with the fee tops 100% of reasonable value, the overage must be paid in cash.
Now the sting. Say you wanted only a modest cash amount. The fee is calculated on the entire balance, so it can eat a large share of that cash. A smaller cash need makes the fee loom larger relative to what you receive. At some point, the cash-out stops making sense, and a different tool fits better.
Financing It or Paying It: How to Decide
A practical decision rule helps.
Finance the fee when:
- You need your cash for the purpose you are borrowing for.
- You expect to keep the loan a long time and accept the higher balance.
- You have room under the 100% ceiling.
Pay the fee in cash when:
- You have spare cash and want the lowest balance.
- You are close to the ceiling, where the excess must be paid in cash anyway.
- You plan to sell or refinance again soon, so extra interest has less time to build.
One practitioner point: a financed fee also reduces net cash out. Borrowers often budget the cash first and discover the shortfall at the table. Ask for the numbers both ways before you commit.
How to Prove an Exemption
Exemption is not automatic. Here is how it generally runs.
- The lender checks your COE and VA records for exempt status.
- If you receive disability compensation, your award letter supports it.
- If a claim is pending, status may not be confirmed in time. The fee can be charged, so flag it at the start.
- The lender must verify exemption before closing and compute the fee only for non-exempt borrowers.
If you are exempt, the fee drops out and the 100% ceiling gives you more room for cash.
Where the Fee Sits Among Your Closing Costs
The funding fee is usually among the largest items on the closing statement. A consumer-law comment letter from the National Consumer Law Center described it as one of the most expensive closing costs in a refinance. That letter is advocacy, not a rule, but the point holds on most files.
Because this is a consumer mortgage, you receive a Loan Estimate and later a Closing Disclosure. Read both. Look for the funding fee line, whether it is financed, and the total loan amount. Compare the two documents line by line.
The lender must also give you a comparison of your old and new loan. It shows the payoff, loan type, term, total paid, and loan-to-value. It also estimates the home equity you are removing, with a note that this may affect your ability to sell later. Read that page. It is the plainest statement of what you are trading.
Cash-Out Versus Other Ways to Get Cash
Not every cash need calls for a cash-out refinance. The comparison below shows how the options differ in structure.
| Option | Touches your current loan? | Fee structure |
|---|---|---|
| VA cash-out refinance | Replaces it | Funding fee on whole loan |
| VA streamline (IRRRL) | Replaces it | 0.5% fee, no cash |
| Home equity loan or line | Leaves it alone | Separate second loan |
If you have a good existing loan and need only a small amount, a second loan can keep the old one intact and avoid a fee on the full balance. If you want to reach large equity, or switch from a non-VA loan into VA, the cash-out earns its cost.
For homeowners considering the VA cash-out refinance program, the key is matching the tool to the size of the need.
Who This Fits and Who It Doesn’t
It tends to fit if:
- You need substantial cash and have meaningful equity.
- You want to move from a non-VA loan into a VA loan with no mortgage insurance.
- You are exempt, so the fee is not a factor.
- You will hold the home long enough for the structure to pay off.
It tends not to fit if:
- You need a small amount of cash against a large balance.
- You are a repeat user facing the 3.3% tier with only modest equity to tap.
- You plan to sell soon and want to preserve equity.
Questions to Ask Your Loan Officer
- Is this my first use or a later one, and which percentage applies?
- Am I exempt, and how is that being verified?
- What does the file look like with the fee financed and paid in cash?
- Does the loan with the fee fit under 100% of the appraised value?
- Is the cash-out a Type I or Type II?
- Would a different product serve my cash need better?
Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Does a bigger down payment or more equity lower the cash-out funding fee?
No. VA states that refinance funding fee rates don’t change with the down payment amount, and the handbook confirms no reduced refinance fees based on equity. Only purchase loans have lower tiers for 5% or 10% down. More equity gives you more cash to reach, not a cheaper fee. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Can I roll the funding fee into the new loan?
Yes, within a limit. The fee may be included in the new loan amount, but any portion that pushes the loan over 100% of reasonable value must be paid in cash at closing. Financing it lowers your cash due at closing, but it raises the balance and the interest you pay over time.
Is the fee charged on the cash I take out or on the whole loan?
On the whole new loan. A cash-out refinance replaces your entire mortgage, so the percentage applies to the full balance. That is why a small cash request can feel expensive once the fee is counted.
Who pays the lower or zero fee?
Exempt borrowers pay nothing, including veterans receiving compensation for a service-connected disability and certain surviving spouses. First-time users pay 2.15% on cash-out, while repeat users pay 3.3%. A prior loan used only for a manufactured home still counts as first use.
Can I use a cash-out refinance on a second home or rental?
No. A VA cash-out refinance is for the home you live in, so occupancy decides the loan.
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.gov: Funding fee and closing costs
3. VA Lenders Handbook, Chapter 8
4. eCFR: 38 CFR Part 36, Subpart B
5. National Consumer Law Center comments on VA refinance loans
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: Refinance vs Assumption on a VA Loan to Remove a Co-Borrower · How to Get the VA Loan Funding Fee Waived With a Disability Rating · How to Refinance an Existing VA Loan Into a 15-Year Term
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.