Do You Pay the VA Funding Fee on a VA Cash Out Refinance Loan? A Guide by NewDay USA

Are you planning to apply for a VA cash out refinance loan? One question that may arise is whether you'll need to pay the VA funding fee. 

It’s important to understand that you must pay a VA funding fee for all VA loans unless you are exempt. 

Understanding how the VA funding fee affects the total cost of your loan helps you understand your financial obligations and prevents surprises. In this guide, we will explain everything you need to know about the VA funding fee for VA cash out refinance loans.

Here's a glimpse into what we'll be covering: 

What Is a VA Cash Out Refinance Loan?  

A VA cash out refinance loan is a specific type of loan available to eligible Veterans, active-duty Service members, National Guardsmen/Reservists, and surviving spouses of eligible Veterans. This loan allows borrowers to replace their current loan with a new one and access a portion of the equity in their home as cash out through a refinance.  

A significant advantage of a VA cash out refinance loan is the ability to borrow up to 100% of your home’s value. This provides more flexibility regarding how you can use the cash out you can receive. You can pay off high-interest debt and lower monthly payments through debt consolidation, cover education costs, make home improvements, or even go on a vacation with family.  

Do note, however, that consolidating debts may increase total repayment time and finance costs over the life of the loan. That said, 39% of NewDay USA customers save over $500 a month – a significant amount for many Veteran families that can go a long way toward relieving budget stress and improving quality of life.  

Many Veteran families also put the money in the bank to build a cash reserve for emergencies or retirement.  

Here at NewDay USA, our primary focus is VA loans. The NewDay USA 100 VA Cash Out Loan enables qualified borrowers to access up to 100% of the value in their home through a refinance. Our customers receive an average of $70,000 in cash out using this loan benefit, enough to make a real difference to any family's finances.   

You can discover how much cash out you may be able to access by using our cash out refinance calculator. It will estimate your monthly principal and interest payments, along with your available cash out. All you need to do is provide your home’s value, outstanding mortgage balance, loan terms, and interest rates. Remember that monthly payment estimates only include principal and interest and are not an offer to lend. Tax, insurance, and other fees will apply. For an actual quote, call NewDay USA at 888-985-1489 or inquire via our website and we will contact you. 

What Is the VA Funding Fee?  

The VA funding fee, a one-time payment associated with VA-backed or VA-direct home loans, is something Veterans, active-duty Service members, National Guardsmen/Reservists, and surviving spouses of eligible Veterans need to be aware of. This fee plays a significant role in maintaining the sustainability of the loan program by reducing the burden on all U.S. taxpayers.

Unlike some other types of loans, VA loans do not require down payments or the payment of mortgage insurance premiums such as private mortgage insurance (PMI) and monthly insurance premiums (MIP) – measures taken to reduce risks for the lender and, in the case of PMI and MIP, to act as insurance in the event a borrower defaults on their loan. 

The protection for a lender of a VA-backed loan comes in the form of the VA guarantee. If a borrower defaults on their loan, the VA would step in and cover some of the lender’s losses. This allows lenders to present Veterans with favorable loan terms compared to some other types of loans, even in the absence of mortgage insurance.  

Not having to pay mortgage insurance can help make VA loans more accessible and affordable for those who've served our country.  

However, as mentioned, to minimize the cost of the VA loan program for U.S. taxpayers, the VA charges a funding fee (unless the Veteran is exempt). We cover exempt groups in detail later in this post.  

Distinguishing PMI, MIP, and the VA Funding Fee 

When exploring different home loan options, you'll often come across the terms VA funding fee, private mortgage insurance (PMI), and mortgage insurance premium (MIP). While the VA funding fee is typically understood to apply to VA loans – many may be confused as to whether they need to pay PMI or MIP on their VA loan as well. 

What are PMI and MIP? 

Whether a borrower pays PMI, MIP, or the VA funding fee depends on the type of loan they’re using.  

PMI is an insurance policy that protects lenders from the risk of borrowers defaulting on a loan. It applies to conventional home purchase loans when the borrower puts less than 20% down (and to cash out refinance loans when the loan-to-value ratio is greater than 80%). If the borrowers put 20% or more down on a home purchase loan or borrow less than 80% of their home’s value in a cash out refinance, they don’t need to pay PMI.  

Borrowers pay Mortgage Insurance Premiums (MIP) for FHA-backed home purchase and cash out refinance loans. This insurance policy enables the Federal Housing Authority (FHA) to back lenders so that they can protect themselves in case higher-risk borrowers default on their loans.  

FHA-backed loans have lower down payment and credit score requirements than other loans, which can help people who might have trouble qualifying for a conventional loan.  

MIP has two parts – an upfront MIP and an annual MIP. Upfront MIP is paid only once, while annual MIP is paid on an ongoing basis. Borrowers need to pay both, regardless of how much down payment they provide or how much of their home’s value they borrow.  

However, if the loan-to-value ratio (determined by your down payment amount for a home purchase loan or the proportion of your home’s value that you’re borrowing in a cash out refinance) is less than 90%, you will only pay MIP for 11 years – if it is greater than 90%, you will pay it for the life of the loan.   

On the other hand, the VA funding fee applies to all VA purchase and refinance loans unless the borrower is exempt.  

Let’s take a look at how PMI and MIP differ from the VA funding fee:  

PMI	MIP	VA Funding Fee
Ongoing monthly expense paid until the borrower reaches 20% equity in their home.	Has two parts: an upfront premium and an annual premium. The annual premium is split into 12 monthly payments.	One-time upfront cost.
Protects the lender from the risk of the borrower defaulting on the loan.	Enables the Federal Housing Authority (FHA) to back lenders so that they can protect themselves in case higher-risk borrowers default on their loans.	Helps ensure the continuation of the VA loan program by reducing the burden of the initiative on the American taxpayer.
Required on conventional loans when the down payment is less than 20% or when, in the case of a refinance, more than 80% of the home’s value is borrowed.	Required on FHA loans regardless of the down payment amount or how much equity the borrower is withdrawing. If the loan-to-value ratio is over 90% it is paid for the life of the loan. If less than 90% it is paid for 11 years.	Required on all VA loans unless the borrower is exempt.

Do You Need to Pay the VA Funding Fee for Cash Out Refinance Loans?  

The short answer is yes. Unless exempt, you will need to pay the funding fee when taking out a cash out refinance loan, or any VA loan, for that matter. However, the way it is calculated for a VA cash out refinance loan is slightly different from that of a VA home purchase loan. While the funding fee rate may vary depending on how much down payment is made when purchasing a home, it remains constant for a VA cash out refinance loan regardless of the loan-to-value ratio.  

For the VA cash out refinance loan, the funding fee amount you will pay will depend solely on whether you are refinancing for the first time or not.  

What Are the VA Funding Fee Rates for Cash Out Refinance Loans In 2023? 

For Veterans utilizing their VA loan benefit through a VA cash out refinance loan, the VA funding fee depends on how many times they have utilized their benefit in the past. Those who are utilizing their benefit for the first time (or who have a fully reinstated entitlement) will pay slightly less than those who are utilizing it for a second or subsequent time.  

First use	After first use
2.15%	3.3%

Funding fee for a VA cash out refinance loan example: 

When buying a home, the seller can pay part of your closing costs – which is called a seller concession – if you negotiate this with them. This seller concession can include the funding fee. However, since there is no concept of a seller concession when it comes to a VA cash out refinance loan, you will need to pay the funding fee yourself.  

The funding fee on a VA cash out refinance loan depends on whether it’s the first time you’re using the VA loan benefit or a subsequent use of it, as well as if you are exempt.  

• A non-exempt, first-time benefit use for a borrower requesting a $250,000 loan through the VA cash out refinance program will pay a funding fee of 2.15% ($5,375).  
  
  
• A non-exempt, subsequent benefit use on a VA refinance loan for a borrower requesting a $250,000 loan will result in a funding fee of 3.3% ($8,250). 

One advantage for Veterans regarding this fee is that they can either roll the VA funding fee into the total loan amount and finance it over the life of the loan or pay it at closing. So, paying it all upfront is unnecessary if you do not wish to. Note that if you prefer to have the VA funding fee rolled into the total loan amount, it may increase the loan’s total finance cost. 

Who Is Exempt from Paying the VA Funding Fee?  

You might not need to pay the VA funding fee in certain situations. If you find yourself fitting into any of the categories below, you may be exempt from paying: 

• You Are Receiving VA Compensation for a Service-Connected Disability (Or Are Eligible But Receiving Retirement or Active-Duty Pay Instead): If you are a Service member or a Veteran who is currently receiving compensation from the VA for a disability connected to your military service (or are eligible to receive it), you won't need to pay the VA funding fee.

• You Are Receiving Dependency and Indemnity Compensation (DIC): If you're a surviving spouse of a Veteran and receiving Dependency and Indemnity Compensation (DIC), the VA funding fee will not apply to you. DIC is a monthly benefit paid to eligible surviving spouses of Service members who died in the line of duty or whose death resulted from a service-related injury or disease.

• You Have Received a Proposed or Memorandum Rating Before the Loan Closing Date: By showing that you're eligible to receive compensation because of a pre-discharge claim, you will not be subject to the VA funding fee. This exemption supports those in the process of transitioning from active duty to civilian life.

• You Are an Active Duty Service Member with a Purple Heart: If you provide evidence of having received this honor before or on the loan closing date, you won't be required to pay the VA funding fee. This exemption honors the bravery and sacrifice of Service members injured in the line of duty.

Who Is Eligible for a Funding Fee Refund?  

It's also worth noting the possibility of VA funding fee refunds. You may be eligible for a refund if you've already paid the VA funding fee but are subsequently awarded VA compensation for a service-connected disability. The key factor here is the effective date of your VA compensation – it must be before your loan's closing date. 

However, the circumstances differ slightly if you receive a proposed or memorandum rating after your loan's closing date. You'll still need to pay the VA funding fee, and you won't be eligible for a refund based on this late rating. While this may initially seem disheartening, it's important to remember that the ultimate goal of the VA funding fee is to ensure the longevity and sustainability of the VA home loan program by reducing the burden for all American taxpayers. 


Three Steps to Securing a VA Cash Out Refinance Loan 

If you would like to utilize your VA loan benefit through a VA cash out refinance loan, getting started with NewDay USA is as easy as 1 – 2 – 3. Once you’ve called a Veteran loan specialist at 888-985-1489 who will guide you through applying, all you need to do is:  

Step 1: Submit Documentation 

Gather and submit the necessary documentation. These documents include recent home records, retirement statements, income-related documentation, and eligibility documents. This information will give the loan specialist a clear picture of your situation and help them guide you through the application process more effectively. Your dedicated VA loan specialist will guide you, making this process as simple as possible. You can submit documentation conveniently via text, email, or a secure online portal.  

Step 2: Processing and Underwriting 

After receiving and verifying your documents, the loan processing and underwriting team at NewDay USA will get to work. Rather than being external third-party underwriters, they’re in-house here at NewDay USA and have a deep understanding of your application and financial situation. They will thoroughly review your application, approve your loan (if you’re qualified), and set a date for closing. 

Step 3: Get Cleared to Close 

Once your loan is approved, the final step is the closing process. NewDay USA guides you every step of the way to help finalize your loan. After the closing process, you're all set, and the funds from the cash out refinance loan will be made available to you. 

The NewDay USA team supports you throughout the process, making the experience as easy and smooth as possible. 


Wrapping Up On the Funding Fee for VA Cash Out Refi Loans  

VA cash out refinance loans provide a unique opportunity for Veterans, active-duty Service members, National Guardsmen/Reservists, and surviving spouses of eligible Veterans to access the value in their home as cash out through a refinance. Whether you're looking to lower your monthly payments, consolidate debt (keep in mind that this can increase the loan’s total finance cost and repayment time of the loan), fund home improvements, or anything else you can dream of, these loans can offer a path to accomplishing your financial goals. 

Ready to explore more about the benefits of a VA cash out refinance loan? NewDay USA has a team of dedicated professionals who understand the intricacies of VA loans and can help you get the most out of the VA loan benefit you have earned and deserve. Call us at 888-985-1489 or inquire online today and we will contact you.  

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