VA Funding Fee for Subsequent Cash-Out Refinance

Your lender is responsible for collecting the correct funding fee at the time of closing and must remit it to the VA within 15 calendar days. This process is handled through the electronic VA Funding Fee Payment System. If the lender fails to remit the payment within this 15-day window, the VA automatically assesses a four percent late fee. If the payment is delayed by more than 30 days, interest charges are also applied in addition to the late fee. Ensuring timely payment is critical for the lender to receive your final Loan Guaranty Certificate.

A VA cash-out refinance is highly flexible, allowing you to use the liquid proceeds for any purpose acceptable to your lender. While you cannot “roll in” standard itemized closing costs into a purchase loan, a cash-out refinance allows you to use the extracted equity to pay for these items at the closing table. This includes using the funds to satisfy your 3.6 percent subsequent use funding fee if you choose not to finance it on top of the loan balance. Effectively, you are using your home’s equity to cover all transaction-related costs.

The higher rate for subsequent use—3.6 percent compared to 2.3 percent for first-time use—is established by Congress to ensure the continued stability of the VA home loan program. Because VA loans do not require monthly mortgage insurance or a down payment, the one-time funding fee is the primary mechanism used to lower the cost of the loan for U.S. taxpayers. Reusing the benefit for a cash-out refinance involves specific administrative oversight. The increased fee for subsequent users helps maintain the program’s ability to offer competitive terms to all eligible Veterans.

If your exempt status cannot be verified before the loan closing, VA regulations require the lender to collect and remit the funding fee as if you were a non-exempt borrower. You should clearly indicate in your closing package that you believe you are exempt. Once your status is officially clarified—for example, if a pending disability claim is approved retroactively to a date prior to your loan closing—you can contact the VA Regional Loan Center to request a refund. If the fee was financed, the refund is applied as a principal reduction to your loan balance.

When you choose to finance the 3.6 percent funding fee into your subsequent cash-out refinance, the percentage is applied to the base loan amount before the fee is added. For example, if you are refinancing a mortgage and taking out cash for a total base amount of $200,000, the fee is calculated as 3.6 percent of that $200,000, resulting in a $7,200 charge. This fee is then added to your principal, making your total loan obligation $207,200. It is essential to ensure that this total amount remains within county conforming loan limits for no-down-payment transactions.

Unlike VA-backed purchase or construction loans, having equity or making a down payment does not reduce the funding fee rate for a subsequent cash-out refinance. While purchase transactions offer tiered fee reductions for down payments of 5 or 10 percent, these incentives do not apply to any type of refinance loan. Therefore, even if you have significant equity in your home and only refinance a small portion of its value, the subsequent use rate remains fixed at 3.6 percent. This distinction ensures the fee effectively defrays the specific administrative costs associated with equity-based refinancing.

Certain individuals are exempt from paying the funding fee, even for subsequent uses of the benefit. This includes Veterans receiving VA compensation for service-connected disabilities or those entitled to such compensation but receiving retirement pay instead. Surviving spouses of Veterans who died in service or from service-connected disabilities are also exempt. Additionally, active-duty members who have been officially rated as eligible for disability compensation based on a pre-discharge examination or review do not have to pay the fee. This exemption status is verified on the Veteran’s Certificate of Eligibility.

Yes, one of the most flexible features of this benefit is that the funding fee can always be financed directly into the loan proceeds. For a subsequent cash-out refinance, this means you do not have to pay the 3.6 percent fee in cash at the closing table. Notably, the VA allows the total loan amount to exceed the property’s appraised “Reasonable Value” to account for this fee. By financing the fee, Veterans can reduce their immediate out-of-pocket expenses while still accessing the liquid equity they need from their home for other financial goals.

“Subsequent use” is determined by reviewing the Veteran’s official Certificate of Eligibility (COE). If the document indicates an entitlement code of “5” or lists a previous VA loan number, the borrower is classified as a subsequent user. This designation signals that the Veteran has successfully utilized their earned home loan benefit in the past and is now reusing it for a new mortgage transaction. Lenders use this official verification to ensure the correct 3.6 percent fee is applied to the cash-out refinance rather than the lower 2.3 percent first-time user rate.

For Veterans and active-duty service members who have previously used their home loan entitlement, a subsequent cash-out refinance carries a funding fee of 3.6 percent. This rate applies regardless of whether the initial loan was used for a home purchase or a previous refinance, provided the benefit is being reused. The Department of Veterans Affairs charges this one-time fee to help sustain the program and offset costs to U.S. taxpayers, as these loans do not require monthly mortgage insurance premiums. The fee is calculated based on the total amount borrowed and must be remitted at the time of the loan closing.