The Quick Read: A veteran exempt from the funding fee often does better on a VA cash-out when the goal is to borrow a lot against the home, because the VA loan carries no monthly mortgage insurance and reaches up to 100% of appraised value. A conventional cash-out can win when the veteran has plenty of equity, strong credit, and wants a simpler path with no VA appraisal or net tangible benefit test. The exemption removes VA’s biggest upfront cost, so the choice comes down to leverage, credit, mortgage insurance, and documentation.
The honest answer is split by equity. A veteran who needs to pull out a large share of the home’s value, or whose credit is middling, is usually better served by the VA loan. A veteran with deep equity and a high credit score may find a conventional loan is just as workable, and sometimes easier to close out. Neither one is better for everyone.
This article refers to the funding fee as it applies to a cash-out refinance on a home the borrower lives in. Lendmire’s VA cash-out refinance program page covers the program in more detail.
Who Is Exempt From the Funding Fee?
Exemption is set by VA, not by the lender. VA says the funding fee applies to purchase, construction, improvement, repair, and refinance loans unless an exemption applies. The first exemption listed is receiving VA compensation for a service-connected disability.
Other exempt groups exist too. Surviving spouses receiving DIC, active-duty Purple Heart recipients, and service members with a pre-discharge rating are commonly listed. Check the full list on VA’s page, because the details of each category matter.
Here is where files get tripped up. The certificate of eligibility (COE) shows funding fee status. If a rating is still pending, a filed claim generally is not an exemption. If the lender cannot verify exempt status before closing, the fee may be charged as if the veteran were not exempt, and a refund may be possible later. Confirm the refund wording on VA’s page.
Side-by-Side
| Factor | VA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | Up to 100% of appraised value, including any financed fee | Lower; set by the conventional guidelines |
| Mortgage insurance | None | Usually applies at higher leverage |
| Funding fee | Waived for exempt veterans | None |
| Credit floor | 580 decision score on the wholesale programs Lendmire uses | Generally higher |
| Underwriting test | Residual income controls | Debt-to-income and credit drive it |
| Occupancy | Borrower or spouse/dependent lives in the home | Varies by occupancy type |
| Documentation | COE, VA appraisal, net tangible benefit | Standard lender appraisal and income file |
| Existing loan | Any loan type can be refinanced into VA | Any loan type can be refinanced |
Every figure in the VA column is subject to lender guidelines and full file review. Many lenders also set their own limits tighter than what VA allows, so the published maximum is not what every lender offers.
When VA Cash-Out Is the Better Fit
VA cash-out fits best when leverage or mortgage insurance is the pressure point. Three situations come up most.
Heavy cash need against modest equity. The VA loan reaches 100% of appraised value including the financed fee. A conventional cash-out generally stops well short of that. A veteran who needs to consolidate debt or fund a large repair with limited equity may only clear the leverage test on VA.
Credit that is not top tier. Across the wholesale programs Lendmire places VA files with, the decision-score floor is 580. VA sets no minimum score of its own. Conventional cash-out generally asks for more. A veteran rebuilding credit after a rough stretch often finds only the VA door open.
Avoiding monthly mortgage insurance. VA carries none. A conventional loan at higher leverage generally does. CFPB explains that a borrower can request PMI cancellation at 80% of original value, and servicers must terminate it at 78% if conditions such as good payment history are met. That is a real path off the cost, but it requires equity to build first.
Underwriting also leans the veteran’s way. Residual income is the controlling test on VA files. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table. For a veteran with a high debt load but strong monthly cushion, that can be the difference.
The tradeoffs are real. VA cash-out requires a VA appraisal and a net tangible benefit. VA’s lender slides list the options: eliminate monthly mortgage insurance, shorten the term, or lower the monthly principal-and-interest payment. The loan also carries seasoning. On VA’s own refinance programs, that means the later of 210 days from the first payment and the 6th payment. A cash-out that does not meet the benefit test does not go forward.
When Conventional Is the Better Fit
Conventional wins when the veteran has equity to spare and wants fewer VA-specific steps.
Deep equity, modest cash need. A veteran who needs only a slice of the home’s value stays well inside conventional leverage limits. At low leverage, mortgage insurance may not apply at all. The VA advantage of no monthly insurance shrinks to nothing.
Strong credit. A high score makes conventional pricing and approval smoother. The VA 580 floor matters less when credit is not the obstacle.
Preserving VA entitlement. A veteran who wants to keep full entitlement available for a future purchase may prefer not to use it on a refinance. Entitlement rules are detailed, so a loan officer should walk through the specifics on any individual file.
Avoiding the VA process. The VA path adds the appraisal under VA rules, the net tangible benefit, and comparison disclosures before closing. A conventional loan runs on the lender’s appraisal and standard rules. Some borrowers simply prefer that. Fannie Mae’s Selling Guide also treats cash-out refinance and limited cash-out refinance as different products, so make sure the right one is on the table.
A conventional cash-out can also come with its own seasoning and ownership rules. Those vary by lender and loan scenario.
Two Scenarios, No Dollar Figures
Scenario one. A veteran with a compensation rating owns a home with moderate equity. The goal is to pay off high-balance debts. The conventional leverage limit would leave the veteran short of what is needed, and mortgage insurance would apply at the leverage required. The VA loan reaches higher and has no monthly insurance. VA is the stronger fit, subject to credit and residual income review.
Scenario two. A veteran with a compensation rating has owned a home a long time and holds substantial equity. The cash need is a small share of the home’s value. Credit is strong. Conventional leverage works, mortgage insurance likely does not apply, and the veteran skips the VA appraisal and net tangible benefit steps. Conventional is a reasonable choice, and so is VA. The exemption means VA is not at a cost disadvantage.
What Often Goes Wrong
The fee gets charged anyway. On refinances, a lender may default to charging the fee. Verify exempt status on the COE before the Closing Disclosure arrives. As a consumer mortgage, the loan carries a Loan Estimate and Closing Disclosure, and reading both against the exemption is worth the time.
“Exempt” gets read as “no closing costs.” Only the funding fee is waived. Appraisal, title, and other charges can still apply. VA also warns that refinance closing costs can add up to thousands of dollars.
An IRRRL is mistaken for a cash-out. The IRRRL only refinances an existing VA loan and cannot return cash. It is a different tool.
Debt payoff is assumed to save money. CFPB research found paying off other bills was the most common reason for cash-out, and it noted that replacing non-mortgage debt with mortgage debt can raise foreclosure risk. A larger loan also replaces the old rate and term, so the payment and payoff timeline can change. Higher leverage leaves less cushion if values fall.
Key Terms Defined
Certificate of Eligibility (COE): The VA document that confirms eligibility and shows funding fee status.
Funding fee: A one-time VA charge that replaces monthly mortgage insurance. It is waived for exempt veterans.
Net tangible benefit: A VA requirement that the refinance must help the borrower, such as by ending mortgage insurance, shortening the term, or lowering the monthly principal and interest.
Residual income: The money left each month after major obligations. It is the controlling test on VA files.
Seasoning: The waiting period after the first payment before a refinance can proceed.
A Balanced Verdict
For an exempt veteran, VA cash-out and conventional cash-out are close on upfront cost. The decision rests on three things: how much cash is needed relative to equity, where the credit score sits, and whether monthly mortgage insurance would apply on the conventional side. High leverage or thinner credit points to VA. Deep equity and strong credit open up conventional, and it may be the simpler file.
Both options deserve a side-by-side look on the same property. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
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.
Frequently Asked Questions
Does the funding fee exemption apply to a cash-out refinance?
Yes. VA says the fee applies to refinance loans unless an exemption applies, so an exempt veteran does not pay it on a cash-out. Confirm exempt status on the COE before closing, because lenders sometimes default to charging it on refinances.
What if my disability rating is still pending?
A filed claim that has not been rated is generally not an exemption. If status cannot be verified before closing, the fee may be charged. A refund may be possible if the compensation effective date falls before closing. Confirm the wording on VA’s funding fee page.
Can I get more cash out on VA than on a conventional loan?
Often, yes. VA cash-out reaches 100% of the appraised value including the financed fee, though some lenders set a lower cap. Conventional cash-out generally stops lower. Your file decides what is actually available.
Does VA cash-out have monthly mortgage insurance?
No. VA loans carry no mortgage insurance. A conventional loan at higher leverage generally does, though it may come off as equity builds under the PMI cancellation rules.
Is a VA cash-out easier to qualify for?
It can be more flexible. Residual income is the controlling test, and 41% debt-to-income is a guideline rather than a cap. It also asks for a VA appraisal, a net tangible benefit, and seasoning, though a conventional cash-out can carry its own seasoning rules.
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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References
1. VA.gov – VA funding fee and closing costs
2. CFPB – When can I remove PMI
4. Fannie Mae Selling Guide – Cash-Out Refinance
5. Fannie Mae Selling Guide – Limited Cash-Out
6. VA.gov – Cash-out refinance loan
7. CFPB – Cash-out refinance research release
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: Should a Veteran Take the Maximum on a VA Cash-Out? · Can a Veteran Get a VA Cash-Out While a Divorce Is Pending? · Does a Disability Rating Exempt You From the VA Cash-Out Fee?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.