The Quick Read: Yes. A Veteran who receives VA compensation for a service-connected disability does not pay the VA funding fee, and that covers a cash-out refinance. The exemption removes the fee. It does not change the cash-out rules, the appraisal, or the underwriting. The test is whether you receive compensation, not how high your rating is.
What Does the Exemption Actually Cover?
The exemption covers the funding fee on purchase loans and refinances, cash-out included. VA’s loan fee page says the fee generally applies to every Veteran using the guaranty. It also says a Veteran receiving compensation for a service-connected disability does not have to pay it.
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.
The same page exempts a surviving spouse of a Veteran who died in service or from a service-connected disability. Active-duty Purple Heart recipients can also be exempt, but only with evidence in hand by closing, per VA’s Counseling Checklist for Military Homebuyers.
Here is what the fee looks like for a non-exempt borrower on a cash-out. VA News lists it at 2.15% of the loan for first use and 3.3% after first use. Those are the figures an exempt Veteran skips. A second VA News piece notes that a non-exempt borrower can finance the fee into the loan or pay it at closing. The fee is set by VA, not by the lender, so no lender can waive it for you or charge you extra for being exempt.
For an exempt Veteran, the exemption shows up as a zero on the fee line. Nothing else about the loan gets rewritten.
Does My Rating Percentage Matter?
No. VA’s test is whether you receive compensation for a service-connected disability, and the rating percentage is not the measure. In practice, any rating that results in compensation puts you in the exempt group.
That surprises people who assume a 10% rating is “too small to count.” A lender should treat a modest rating and a high rating the same way on the fee.
One distinction matters: receiving versus being eligible to receive. Receiving compensation is the usual test, but a Veteran who is eligible for compensation and instead takes retirement or active-duty pay may also be exempt. Ask your loan officer up front how that applies to you.
What the Exemption Changes on a Cash-Out (and What It Doesn’t)
| Item | With exemption | Unchanged |
|---|---|---|
| Funding fee | Does not apply | |
| Financed balance | Set by the loan amount and lender guidelines | |
| Appraisal | Still required | |
| Seasoning | Same requirement | |
| Net tangible benefit | Still required | |
| Credit and residual income | Still reviewed | |
| Closing costs | Still apply |
“Exempt” does not mean “free.” Lender closing costs, the appraisal, and underwriting all remain. Everything below is subject to lender guidelines and full file review.
Here is how the numbers move. The VA cash-out reaches up to 100% of the appraised value, including any financed fee. A non-exempt borrower often rolls the fee into the loan, and because the fee counts inside that 100% limit, it takes up room that would otherwise be available as cash. An exempt borrower avoids that. The same equity position leaves more room for the cash you actually want, or a smaller balance for the same cash.
Compare two Veterans on the same home, both on first use. One pays 2.15% and finances it, so the fee uses part of the 100% limit. The other is exempt and finances nothing. The exempt Veteran has a smaller balance, a smaller monthly obligation, and more of the equity left over. This comparison stays in percentages on purpose, and your Loan Estimate shows the real dollars.
Seasoning and net tangible benefit still apply to the VA cash-out. Seasoning is the later of 210 days from the first payment and the date of the 6th payment. The net tangible benefit must be one of VA’s eight listed benefits. The half-percent rate-reduction and fee-recoupment tests are rules of the streamline (IRRRL), and they never apply to the cash-out.
The streamline itself carries a 0.5% funding fee for non-exempt borrowers, and the exemption applies there too.
You can also refinance a non-VA loan into a VA loan through the cash-out. A conventional or FHA borrower who is a service-connected Veteran can use it to move into a VA loan. For the full picture of how the pieces fit, see Lendmire’s VA cash-out refinance program page.
How Do I Confirm and Document My Status?
Confirm it before you apply, not at the closing table. Here is a sequence that works for Veterans:
1. Pull your award letter. This is the VA letter showing you receive compensation.
2. Check your Certificate of Eligibility (COE). The COE is VA’s document confirming you qualify for the program. Per the VA Buyer’s Guide, this is where VA verifies exemption because of a VA rating.
3. Make sure the lender sees the exemption. The COE should show your fee status. If it does not, give your lender the award letter. Lenders may ask for additional VA paperwork to verify benefits, but that is lender practice, not a VA rule.
4. Read your Loan Estimate. The funding fee line should show zero once the exemption is documented.
5. Read your Closing Disclosure. Check the fee line again. If a fee shows up, raise it before you sign.
For exempt borrowers, the lender submits proof of the exemption with the closed loan package. If a fee was charged in error, start with your loan officer. If it is not resolved, contact VA.
What If My Claim Is Pending or Rated Later?
A pending claim does not make you exempt. VA’s Counseling Checklist says a pre-discharge claim does not guarantee exemption. Active-duty members need a proposed or memorandum rating in hand before closing. If they close without one, the exemption does not apply and there is no refund.
What about a rating that arrives after closing? Here is the careful version. Secondary sources say a Veteran who paid the fee and later receives compensation with an effective date before closing can request a refund. The effective date is the test, not the decision date. A proposed or memorandum rating received after closing does not qualify. The refund is not automatic, so you have to ask for it.
VA’s own fee page does not spell out the refund steps, so verify them with VA directly. And do not close counting on a refund. If your decision is close, waiting may be the cleaner move.
Edge Cases
| Situation | What it means |
|---|---|
| Claim pending at closing | Not exempt |
| Purple Heart, Veteran (not active duty) | Not exempt on that basis alone |
| Active-duty Purple Heart | Exempt with evidence by closing |
| Surviving spouse | Exempt per VA |
| Receiving retirement pay instead | Exempt if eligible for compensation |
| Later rating, effective date before closing | Possible refund request |
The Purple Heart point trips people up. The category is for active-duty members who give evidence on or before closing. A Veteran who received the award years ago is not covered by that category alone. If you are a Purple Heart Veteran who also draws compensation, you are exempt through the compensation.
Does Disability Income Help Me Qualify?
Often, yes. Lenders commonly count VA disability as qualifying income, and some gross it up because it is not taxed. That is lender practice, not a VA quote, so ask how your lender treats it. Underwriting for VA runs on residual income as the controlling test. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
The program has a few more fixed points. VA sets no minimum credit score, and the wholesale programs we place VA loans with start at a 580 decision score. There is no mortgage insurance, and no VA loan limit with full entitlement. Everything is subject to lender guidelines and full file review.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Myths Worth Dropping
- “I need a high rating.” No. Receiving compensation is the test.
- “Filing a claim exempts me.” It does not.
- “A Purple Heart exempts every Veteran.” It covers active-duty members with evidence by closing.
- “A later rating always means a refund.” Only if the effective date precedes closing.
- “Exempt means cash-out is free.” Closing costs and underwriting still apply.
Key Terms Defined
Funding fee: a one-time VA charge on guaranteed loans, which can be financed into the loan or paid at closing.
Certificate of Eligibility (COE): the VA document that confirms your eligibility and shows your fee status.
Cash-out refinance: a new loan that replaces your current one and lets you take part of your equity as cash.
Effective date: the date VA says your compensation starts, which can be earlier than the date of the decision.
Residual income: what is left of your monthly income after your major obligations, which VA treats as the controlling test.
Seasoning: the waiting period between your existing loan’s start and the refinance.
Frequently Asked Questions
Do I need a 100% rating to skip the cash-out funding fee?
No. VA’s test is whether you receive compensation for a service-connected disability. VA’s pages show no minimum percentage. Any rating that results in compensation should put you in the exempt group.
Does the exemption apply to refinancing a non-VA loan into a VA loan?
Yes, an exempt Veteran does not owe the fee when the VA cash-out refinances a loan of any type into VA. Confirm the status on your COE first. Your lender will confirm how it treats the loan.
What if my lender charges the fee anyway?
Raise it at the Loan Estimate stage, with your award letter and COE in hand. The fee line should read zero once the exemption is documented. If the error is not fixed, contact VA. Check the Closing Disclosure again before you sign.
Can I get a refund if my rating comes after I close?
Possibly. Secondary sources say a refund can be requested if your compensation has an effective date before closing. A rating that arrives after closing with a later effective date does not qualify. Verify the process with VA before you rely on it.
Does being exempt change how much cash I can take out?
Indirectly. The VA cash-out reaches up to 100% of the appraised value including any financed fee. The cash-out limits, seasoning, and net tangible benefit rules do not change.
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.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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
2. VA Form 26-0592, Counseling Checklist for Military Homebuyers
3. VA News – Funding fee: who pays and who is exempt
4. VA News – Borrowers can deduct funding fees
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: How Much a VA Cash-Out Lends a Lock-in Veteran on a Low Mortgage · VA Cash-Out Refinance Requirements for Surviving Spouses of Former Service Members · VA Cash-Out Refinance vs Conventional Cash-Out on a Fourplex
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.