The Quick Read: A waived funding fee changes the price of the loan, not the way it is underwritten. The lender still reviews your credit, your income, your residual income, the appraisal, and a net tangible benefit. Program figures here are subject to lender guidelines and full file review.
What the Waiver Changes and What It Doesn’t
The waiver changes one line on the closing paperwork. It does not loosen any test you have to pass.
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.
Think of the funding fee as a toll on the loan. The VA cash-out refinance carries a 2.15% fee on first use and 3.3% on later use. Veterans who receive compensation for a service-connected disability are exempt, along with a few other groups. Those groups include surviving spouses who receive Dependency and Indemnity Compensation, and active-duty service members with a Purple Heart. VA.gov’s funding fee page lists the exempt categories. That list is the authority, so check it for your situation.
Exemption comes from federal law. A lender cannot grant it as a favor or deny it on a whim. Your Certificate of Eligibility (COE), the VA document that confirms you can use the benefit, shows your fee status.
Three points are worth keeping in mind:
- Residual income, credit, the appraisal, and a net tangible benefit all still apply to a waived-fee file.
- A waived fee is not a “no-cost” refinance. Appraisal, title, lender, and recording charges remain.
- Fee status is settled by VA’s rules and your COE, not by the lender.
Lendmire’s VA cash-out refinance program page covers the basics of the product.
How the Underwriting Runs, Step by Step
Every VA cash-out gets the same pipeline, whether or not the fee is waived. Across the wholesale programs Lendmire places VA files with, the order is steady, even if the paperwork varies by lender.
1. Eligibility. You need a COE. It confirms your service qualifies and shows your funding fee status.
2. Occupancy. You certify that you live in the home you are refinancing. This is a primary-residence product.
3. Credit and income review. The lender runs an automated underwriting system or a manual analysis. It pulls credit, verifies income and employment, and checks your debts.
4. Residual income and debt-to-income. The lender compares both against VA’s guidelines.
5. Appraisal. A VA appraisal sets the reasonable value of the home. The value is stated on the Notice of Value (NOV).
6. Loan sizing. The lender sets the amount against the NOV, your payoff, other liens, and closing costs.
7. Net tangible benefit and comparison. The lender documents how the new loan benefits you. It also compares the old and new loans side by side.
VA’s own lender materials are direct about the underwriting piece. The VA Lenders Handbook’s chapter on refinancing loans says full credit underwriting is required for all cash-out refinancing loan types. Nothing in that language carves out an exempt borrower.
This is where a streamline differs. The IRRRL, VA’s rate-reduction refinance, generally needs no VA appraisal and no credit underwriting. A cash-out needs both. Many borrowers expect the lighter process, and they are surprised.
How Lenders Confirm You’re Exempt
The lender reads your COE first.
If the COE does not show your disability compensation, you can usually give the lender your VA award letter. The lender then asks VA to update the record. Have the letter ready before you apply, since it is the document that settles the question.
A few situations need more care:
- Pending rating. A claim that is still open does not count as exemption on its face. Lenders typically want a rating decision in hand before closing. Ask your loan officer what evidence the lender accepts.
- Retroactive rating. If a rating is granted after closing with an effective date before it, you may be able to ask VA for a refund of the fee. Confirm the rules with VA.
- Purple Heart and surviving spouses. The scope of these exemptions has details. Check VA.gov before you assume a category applies to you.
- Inconsistent documents. If your COE, award letter, and application disagree, the underwriter stops and asks. Fix the mismatch early.
Income and Residual Income With Disability Compensation
Residual income is the central test on a VA loan. It is the money left each month after your housing costs, debts, taxes, and a set allowance for living expenses. VA compares it against a table based on region and family size.
Debt-to-income (DTI) is the other number. It is your total monthly debts divided by gross monthly income. Across the programs we place VA files with, 41% is a guideline, not a cap. A ratio above 41% needs residual income well above the table. VA’s credit underwriting chapter says DTI is secondary to residual income as an underwriting factor.
Here is the wrinkle for exempt borrowers. Disability compensation is tax-free income. A lender can gross it up when it calculates DTI, which helps that ratio. But residual income counts only your actual income. There is no gross-up there.
So a veteran can look fine on DTI and still run thin on residual income. The waiver does nothing to fix that. If your monthly budget is tight, that is the number to learn about before you apply.
Lenders also want to see that compensation will continue. Expect to document the award, and expect questions if the rating could be reviewed.
On credit, VA sets no minimum score. The wholesale programs Lendmire places VA loans with start at a 580 decision score. Some lenders set a higher floor of their own, so the lenders that fit you depend on your credit profile.
Loan Sizing: The Ceiling and the Cash
The VA cash-out reaches 100% of the appraised value, including any financed funding fee. That sentence explains where the waiver helps.
The ceiling is a single number: the appraised value. Everything inside the loan has to fit under it. That includes your payoff, other liens you are paying off, closing costs, any financed fee, and your cash.
Here is a side-by-side with placeholder inputs, clearly illustrative. Say two borrowers own identical homes with the same appraised value and the same payoff.
| Checkpoint | Exempt borrower | Non-exempt borrower |
|---|---|---|
| Appraisal and NOV | Required | Required |
| Credit review | Full | Full |
| Residual income | Controls | Controls |
| DTI guideline | 41% guide | 41% guide |
| Net tangible benefit | Required | Required |
| Fee added to balance | None | Percent of loan |
| Room for cash under ceiling | More | Less |
For the non-exempt borrower, the fee is a percentage of the new loan amount, and it can be financed. Financing it raises the balance. That uses up ceiling room that could have been cash. The exempt borrower skips that step.
Notice what the waiver did not touch: every test above the fee line. And cash-out does reduce your remaining equity, whatever the fee. Some lenders also cap leverage below 100% as their own policy, so the full ceiling may not be on offer everywhere.
The Tests the Loan Has to Pass
Beyond income and credit, VA sets cash-out requirements. VA’s cash-out lender call materials list them: a loan-to-value limit, a net tangible benefit, a comparison disclosure, and seasoning.
Net tangible benefit. The loan must meet one of VA’s eight listed benefits. Examples include eliminating monthly mortgage insurance, shortening the term, or lowering the principal and interest payment. Moving from an adjustable rate to a fixed rate is another. The half-percent rate-reduction test and the fee-recoupment test are IRRRL rules. They do not apply to the VA cash-out.
Seasoning. The cash-out carries the same seasoning as the IRRRL: the later of 210 days from your first payment and your sixth payment. Check the handbook to confirm how that applies when you are refinancing a non-VA loan.
Comparison disclosure. For a Type I cash-out, the lender compares your old loan and the new one. Lendmire’s piece How Lenders Underwrite a VA Cash-Out Refinance When Weighing Type I Against Type II explains the split.
A VA cash-out can refinance any loan type into a VA loan. That includes conventional and FHA loans. It is also why this loan gets full underwriting. You are replacing a different loan, not trimming a VA loan.
Where the General Rule Breaks
A few edge cases change how the waiver plays out.
- Tax-free income. As noted, the gross-up helps DTI but not residual income. A strong DTI can hide a weak residual.
- Fixed-to-adjustable refinance. VA caps leverage when you move a fixed-rate VA loan into an adjustable one with more than one discount point. The rate drop on such a loan also has to meet VA’s thresholds, and the lower rate cannot come solely from points.
- Lender overlays. VA publishes no hard DTI cap. Many lenders set their own. VA and the lender are two separate sets of rules, and the stricter one wins.
- Manual underwriting. If the automated system refers your file for manual review, the lender looks harder at residual income, credit history, and compensating factors. Lendmire’s piece How Lenders Underwrite a VA Cash-Out Refinance When Credit Is Weighed Differently covers that.
- A rental or second home. Occupancy decides it. A VA cash-out is for the home you live in.
What Slows Waived-Fee Files Down
- A COE that does not show the exemption, with no award letter ready.
- A pending or recently changed rating.
- Income documents that do not match the application.
- Residual income that comes in under the table.
- An appraised value that lands below your target.
- A net tangible benefit the lender cannot document.
- Debts that show up late in the credit review.
A low appraisal deserves special attention. The notice of value (NOV) caps the loan, so the cash you hoped for may shrink. VA’s Buyer’s Guide says an appraisal is mandatory on cash-out refinances.
Your Document Checklist
Bring these early:
- Certificate of Eligibility
- VA award letter showing your compensation
- Recent pay stubs or income statements, plus any retirement or Social Security awards
- Recent bank statements
- Your current mortgage statement
- Homeowners insurance information
- Photo ID
- A list of your monthly debts
Whether the lender wants more depends on your file.
How to Decide
Start with the question the waiver does not answer: should you take cash out at all?
A cash-out raises your balance and usually your payment. It also uses equity. If the cash pays off higher-cost debt or funds a real need, it may earn its place. If you only want a lower payment and already hold a VA loan, the IRRRL may fit better, since it skips the appraisal and credit review.
Next, know your residual income number. That figure decides more files than anything else. Then compare programs. The best program for your situation depends on your credit profile, how much equity you want to reach, and your documentation. Lendmire is a mortgage broker, not a lender. It shops multiple wholesale lenders and matches your file to the program that fits. You will see your costs on the Loan Estimate and Closing Disclosure, so compare them line by line.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Certificate of Eligibility (COE): The VA document that confirms your service qualifies and shows your funding fee status.
Residual income: The money left each month after housing costs, debts, taxes, and a living-expense allowance. It is VA’s controlling underwriting test.
Debt-to-income ratio (DTI): Your total monthly debts divided by gross monthly income. VA treats 41% as a guideline.
Notice of Value (NOV): The VA appraisal result that states the home’s reasonable value and caps the loan amount.
Net tangible benefit: A documented gain from the refinance, such as a shorter term or lower payment, that VA requires on a cash-out.
Type I cash-out: A cash-out where the new loan, including the fee, does not exceed the payoff of the existing loan. Type II is the other category.
Automated underwriting system (AUS): Software that scores a file against guidelines and returns a recommendation. A “refer” result sends the file to manual review.
Frequently Asked Questions
Does a waived funding fee make it easier to qualify?
No. Credit, income, residual income, the appraisal, and a net tangible benefit all stay the same. The waiver only removes the fee from the loan balance. That can leave more room under the ceiling for cash, which helps your numbers, but not your approval odds.
Is the exemption only for veterans rated 100% disabled?
No. VA’s exemption turns on receiving compensation for a service-connected disability, not on one specific rating level. Surviving spouses who receive Dependency and Indemnity Compensation and certain Purple Heart recipients are also covered. Check VA.gov for the exact scope of each category.
Do I still pay closing costs if the fee is waived?
Yes. The waiver removes the funding fee only. You still pay for the appraisal, title work, recording, and lender charges. Your Loan Estimate itemizes every one of them, so read it with that in mind.
What if my disability rating is still pending?
A pending claim usually does not count as exempt at closing. If VA grants the rating later with an effective date before closing, you may be able to request a fee refund. Confirm the process with VA, and ask your loan officer how the lender treats pending ratings.
Can I take 100% of my home’s value in cash?
VA allows the new loan to reach 100% of the appraised value, including the financed fee. That ceiling includes your payoff and closing costs, so the cash is what remains. Some lenders cap leverage lower as their own policy, so the amount available depends on the program.
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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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
2. VA Lenders Handbook (VA Pamphlet 26-7), Ch. 6, Refinancing Loans
3. VA Lenders Handbook, Ch. 4, Credit Underwriting
5. VA Home Loan Guaranty Buyer’s Guide
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: VA Cash-Out Refinance vs Conventional Cash-Out on a Fourplex · Best VA Cash-Out Refinance Program to Go Fixed · VA Cash-Out Refinance vs Conventional Cash-Out for Military Borrowers
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.