VA Cash-Out Refinance Closing Costs and Fees

A cash-out refinance allows eligible homeowners to convert a portion of their home equity into cash by replacing their existing mortgage with a new VA-backed loan. This can be an effective way to consolidate debt, finance home improvements, or cover other significant expenses. While these loans offer benefits like no monthly mortgage insurance, borrowers still encounter various closing costs. Understanding these va cash-out refinance closing costs is essential for informed financial planning.

What are Closing Costs for a VA Cash-Out Refinance?

Closing costs are the fees and expenses associated with finalizing a mortgage loan transaction. For a cash-out refinance, these costs cover the administrative and third-party services required to process and close your new loan. They are typically paid at closing, though some may be financed into the loan amount. A refinance has no seller, so seller concessions do not apply. The funding fee can be financed into the new loan, and other closing costs can sometimes be rolled into the loan balance or offset by lender credits, depending on your equity and the lender.

Common Closing Costs in a VA Cash-Out Refinance

When you consider a cash-out refinance, your Loan Estimate will detail a range of potential costs. These generally fall into categories including lender fees, third-party service fees, and government charges. A clear understanding of each component helps you anticipate the total financial outlay.

To explore whether a cash-out refinance is suitable for your situation, you can review information on accessing home equity through this loan type at Simply Approved Mortgages’ VA Cash Out Refinance Home Equity page.

The VA Funding Fee for Cash-Out Refinances

The funding fee is a one-time fee applied to most these loans, including cash-out refinances. This fee helps offset the costs of the loan program for U.S. taxpayers. For a cash-out refinance, the funding fee is a flat percentage of the loan amount, regardless of the amount of equity being pulled out. It is important to note that the down payment tiers applicable to purchase loans do not apply to refinance funding fees.

For a first-time use of your VA loan benefit for a cash-out refinance, the funding fee is 2.15% of the loan amount, regardless of your equity or loan-to-value. If you have used your loan benefit before, the funding fee for a subsequent cash-out refinance is 3.30%, also regardless of your equity or loan-to-value. This fee can be financed into your new loan, which will increase your overall loan amount. For an exact calculation based on your scenario, use our VA funding fee calculator. (Source: VA funding fee and closing costs.)

Who is Exempt from the VA Funding Fee?

Not all borrowers are required to pay the funding fee. You are exempt if you are a veteran receiving VA compensation for a service-connected disability. Other exempt individuals include those rated eligible from a pre-discharge exam or review, active-duty Purple Heart recipients, and qualifying surviving spouses. Your Certificate of Eligibility (COE) will confirm your exemption status. If a service-connected disability rating is granted after your loan closes, you may be eligible for a refund of the funding fee. More details can be found on the VA benefits website.

Lender Fees and Charges

Simply Approved Mortgages, as a brokerage, facilitates your loan with a private VA-approved lender. The VA places specific limits on the charges that lenders can pass on to borrowers for this type of loan. Lender origination charges are capped at 1% of the loan amount. This cap is designed to protect borrowers from excessive fees. (Source: VA funding fee and closing costs.) Furthermore, the VA defines a list of non-allowable fees that cannot be charged to the veteran borrower. These are costs that the lender or other parties involved in the transaction must absorb. This provision helps keep your overall closing costs manageable and transparent.

Third-Party Service Fees

In addition to lender fees, several third-party services are necessary for the successful closing of your refinance. These include services such as appraisals, title insurance, and recording fees.

An appraisal is required for a cash-out refinance to establish the home's current market value. The appraisal also ensures the property meets the VA's Minimum Property Requirements (MPRs) for safety, soundness, and sanitation. Title insurance protects both you and the lender from future claims against the property's title, such as undisclosed liens or ownership disputes. Recording fees are governmental charges levied by your local jurisdiction to officially register the new mortgage as part of the public record. Other potential third-party fees may include credit report fees, flood determination fees, and settlement service fees.