The Quick Read: The rating does not change how much equity you can pull out. It removes the funding fee, which leaves more of the loan ceiling as cash, and it can count as income. Your cash is the maximum new loan minus your payoff, other liens and closing costs. An exempt veteran subtracts zero for the funding fee. The cash is borrowed, so your new balance and payment grow by the same amount.
What “Keeps” Actually Means
“Keeps” has two halves. One is the cash that lands in your account at closing. The other is the bigger loan you owe afterward.
A VA cash-out refinance replaces your current mortgage with a new VA loan. If the new loan is larger than the old payoff, the difference comes to you. Across the wholesale programs Lendmire places VA files with, that new loan can reach 100% of the appraised value, financed funding fee included. Full entitlement and no VA loan limit are the usual starting point. Programs we place with serve amounts up to $4,000,000.
Your disability rating touches three parts of that picture:
- The funding fee. An exempt veteran owes none.
- Qualifying income. VA disability pay can count toward income.
- Residual income. This is the leftover-cash test, and disability dollars count at their real value.
It does not touch the ceiling. A veteran rated 10% and a veteran rated 100% face the same cap on the same house.
How Net Cash Is Calculated
Net cash comes from one subtraction. Start with the new loan amount, then take out:
1. The payoff on your current mortgage.
2. Any other liens that must be cleared, such as a second mortgage.
3. Closing costs paid out of the loan.
4. The funding fee, if you owe one and finance it.
What remains is the cash you receive. The new loan amount is capped at 100% of the appraised value, so the ceiling and the subtraction work together. The higher your payoff, the less cash is left under that ceiling.
Here is the part most explainers skip. At the full ceiling you keep cash, but you keep little equity. Equity is the house’s value minus what you owe. Take the loan to the cap and that number drops to nearly nothing. Taking less than the maximum leaves a cushion.
Some lenders set their own leverage caps below what VA allows.
What the Rating Changes and What It Doesn’t
The rating changes less than most people assume. Here is the side-by-side:
| Item | Does the rating change it? |
|---|---|
| Maximum loan vs. appraised value | No |
| Cash-out formula | No |
| Funding fee | Yes, waived if you receive compensation |
| Qualifying income | Yes, disability pay can count |
| Residual income test | Counts only real dollars |
| Size of the exemption | No, it is all or nothing |
That last row corrects a common belief. A higher rating does not buy a bigger exemption. The exemption does not step up with the percentage. You either receive compensation for a service-connected disability or you don’t.
The Funding Fee: Where the Exemption Saves Money
The VA funding fee is a one-time charge on a VA-backed loan, according to VA’s funding fee page. It is a percentage of the total loan. VA also says a veteran does not pay it when receiving VA compensation for a service-connected disability.
On a cash-out, the fee runs 2.15% of the loan for first use and 3.3% for later use. Those are the figures on the programs we place. Most people finance it, so the fee sits inside the new balance.
Because it is a percentage of the whole loan, the savings grow with the loan size. That makes the fee one of the largest single costs on a VA cash-out. For a rated veteran, it disappears.
Worked Example: Same Home, With and Without the Exemption
Picture two borrowers with the same home, the same payoff and the same ceiling. One is exempt. One is not. No dollar amounts are needed to see the difference:
| Line | Exempt veteran | Non-exempt veteran |
|---|---|---|
| Ceiling | 100% of appraised value | 100% of appraised value |
| Funding fee | None | 2.15% first use, 3.3% after |
| Fee inside the loan? | No | Yes, if financed |
| Room left for cash | Full amount | Reduced by the fee |
| New loan balance | Smaller | Larger |
Run it two ways. If both borrowers want the same cash, the exempt veteran borrows less. If both borrow to the ceiling, the exempt veteran walks away with more. Either way, the exempt veteran avoids adding a financed fee on top of the balance.
Run it the other way and the point sharpens. At the ceiling, every point of fee comes straight out of your cash.
Who Counts as Exempt
The test is receiving compensation, not holding a particular percentage. VA’s materials list these exempt groups:
- Veterans receiving VA compensation for a service-connected disability.
- Veterans who would receive compensation but get retirement or active-duty pay instead.
- Other exempt groups VA names on its fee page.
VA does not tie the exemption to a minimum rating. If you are unsure which group you fall in, the certificate of eligibility (COE) decides. The COE is the document VA issues to show you are eligible for the VA loan program. It also shows your funding fee status.
The exemption applies to every VA loan type, including the interest rate reduction refinance loan (IRRRL). The IRRRL is VA’s streamline refinance. It is a different product from a cash-out. It carries a 0.5% fee unless you are exempt, and it does not pay you cash.
Proving It: The Documents
Lenders check your fee status in the paperwork. Gather these:
1. Your COE. It shows the fee status as exempt, non-exempt, or a note to contact a VA loan center.
2. Your VA award letter. It confirms the compensation.
3. Your Loan Estimate and Closing Disclosure. Check that the funding fee line reads zero.
If the COE doesn’t show compensation yet, the lender can work from the award letter and request an update from VA. Don’t wait until the closing table to catch a fee that shouldn’t be there. Read the Loan Estimate the day it arrives.
When the Rating Is Still Pending
A pending claim does not exempt you at closing. VA is clear that the exemption depends on receiving compensation. If your claim is still in process, the lender treats you as non-exempt.
Timing can still matter. VA’s refund page says a refund may be available when a claim was pending at closing and the award is retroactive to a date before closing. A rating that comes through after closing, with a later effective date, does not by itself qualify.
The refund is not automatic. VA directs you to contact your mortgage holder or the VA Regional Loan Center. The contact details are on VA’s refund page.
Some veterans decide to wait on a cash-out until the award arrives. Others go ahead and plan to claim a refund.
Disability Income in Qualifying
Disability pay can count as income. This is where the rating helps you qualify as well as save.
The lender documents the income with your VA award letter and bank deposits. Two tests follow:
- Debt-to-income (DTI). DTI compares your monthly debts to your monthly income. The 41% figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
- Residual income. This is what you have left each month after debts, taxes and living costs. Across the programs we place files with, it is the controlling test.
Disability pay is usually tax-free. Lenders may gross it up to make the DTI ratio look fair. Gross-up applies to the ratio only. VA’s lender handbook says only your actual income goes into residual income. A big gross-up cannot rescue a thin monthly budget.
Household size also matters. The residual income table scales with the number of people in your household. That count includes non-purchasing spouses and dependent parents.
Not all income is the same. The handbook says lenders should not count temporary items. Examples are education allowances, including the Post-9/11 GI Bill benefit, and unemployment compensation.
Finally, the lender must be satisfied that your income is likely to continue. If your rating is up for reevaluation, expect questions. Ask your loan officer early how a pending review would be viewed.
Where the General Rule Breaks
A few edge cases change the answer.
Occupancy. VA loans are for homes you occupy. Investment properties are not eligible for a VA cash-out. A second home doesn’t qualify either. Occupancy decides the leverage.
Refinancing a non-VA loan. A VA cash-out can refinance any loan type into VA. That is also done as a cash-out refinance, even if you take no cash.
Cash-out types. VA splits cash-out into two types. A Type I does not raise the balance above the payoff. A Type II does, so you can take equity out. Lenders can treat the two differently.
Seasoning. The loan you are refinancing must have aged. The programs we place require the later of 210 days from the first payment and the sixth payment.
Net tangible benefit. The new loan has to help you. VA’s regulation requires the lender to give you a net tangible benefit test and a comparison of the old and new loans. That comparison is your best defense against a refinance that only looks good.
State rules. State law can add limits. Texas homestead rules are one example. A VA cash-out in your state may carry requirements beyond VA’s.
Credit. VA sets no minimum credit score. The wholesale programs we use start at a 580 decision score. Some lenders set a higher floor.
Watch Out for Too-Good Pitches
Rated veterans are targets for cash-out offers. The pitches use phrases like “no out-of-pocket cost” and “skip payments.” A “no-cost” refinance still has costs. They are built into the loan balance or the rate.
The Consumer Financial Protection Bureau (CFPB) has acted on this. It ordered a lender to pay a $2.25 million civil penalty over misleading and incomplete cost comparisons on veteran cash-outs. Ask for the old-versus-new loan comparison and read it line by line.
A cash-out does not always lower your cost. That is why the net tangible benefit test exists.
Is It Worth It? A Short Checklist
Before you move forward, answer these:
- What is the cash for? Debt payoff, improvements and school are common. Weigh whether the use justifies a larger balance.
- How much equity will remain? At the ceiling you keep almost none.
- Does the new payment fit residual income? The test uses your real dollars.
- Is your fee status confirmed? Check the COE and the Loan Estimate.
- Is a rating decision pending? Timing can change your fee and your income picture.
- Does the comparison favor the new loan? If not, keep the one you have.
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 shows you qualify for a VA loan and states your funding fee status.
Funding fee: A one-time VA charge, set as a percentage of the loan, that is waived for veterans receiving disability compensation.
Residual income: The money left each month after your debts, taxes and household costs, measured against a VA table.
Net tangible benefit: The test showing a refinance actually helps you, such as through a better loan structure.
Type II cash-out: A refinance where the new loan exceeds the payoff, so you receive cash from your equity.
Gross-up: An adjustment that raises tax-free income for the debt-to-income ratio only.
Frequently Asked Questions
Does a higher disability rating let me take out more cash?
No. The ceiling is set by the appraised value and the lender’s program, not by your rating. A higher rating does not enlarge the exemption either. Any compensable rating gives the same fee waiver.
Can I get a refund if my rating is approved after closing?
Possibly. VA says a refund may be available if a claim was pending at closing and the award is retroactive to a date before closing. It is not automatic. Contact your mortgage holder or the VA Regional Loan Center, using the contact details on VA’s refund page.
Does my disability pay count as income for the loan?
Yes, it can. The lender documents it with your award letter and deposits, and it must be likely to continue. For the DTI ratio it may be grossed up. For residual income, only the actual dollars count.
Does the funding fee exemption apply to a streamline refinance?
Yes. The exemption covers all VA loan types, including the IRRRL. An IRRRL is not a cash-out and pays you no cash.
Will a cash-out give me all my equity?
Not automatically. VA’s ceiling is 100% of reasonable value, but your lender’s cap and your residual income decide the real number. Subject to lender guidelines and full file review, and not a commitment to lend.
For the program’s current guidelines, see the VA cash-out refinance program.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For your own numbers, request a scenario review with Lendmire.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
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 — Funding fee and closing costs
3. VA Pamphlet 26-7, Chapter 4: Credit Underwriting
5. CFPB — Order against a lender for misleading veteran cash-out refinance offers
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 VA Cash-Out Better Than Conventional With a Disability Rating? · VA Cash-Out vs Conventional for a Veteran Wanting the Most Cash · VA IRRRL vs VA Cash-Out for a Veteran With an Existing VA Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.