The Quick Read: Usually yes, when you are eligible, live in the home, and the savings clearly beat the new costs. A VA cash-out refinance is the only VA product that can pay off an FHA loan, and you do not have to take any cash. The draw is dropping FHA monthly mortgage insurance. The cost is the VA funding fee plus full underwriting.
Why Is “Cash-Out” the Only VA Route?
VA runs two refinance products. The first is the Interest Rate Reduction Refinance Loan (IRRRL), often called the streamline. It only replaces an existing VA loan. If your current loan is FHA, the streamline is off the table.
That leaves the VA cash-out refinance. The name is misleading. It is the label for any VA refinance that pays off a non-VA loan, and the payoff can come with no cash back at all.
VA’s cash-out quick-reference guide has a separate path for “non-VA to VA” refinances. That path needs at least one net tangible benefit and two cash-out disclosures. It does not need the seasoning or recoupment certifications that apply to VA-to-VA loans.
Think of it as a loan swap. The old FHA loan gets paid off, a new VA-guaranteed loan replaces it, and any leftover proceeds go to you.
Do You Have to Take Cash Out?
No. VA sorts cash-out refinances into two types, per VA Circular 26-19-05. The type depends on how the new loan compares with the payoff of the old one.
| Factor | Type I (no cash back) | Type II (cash back) |
|---|---|---|
| New loan vs. payoff | Not larger | Larger |
| Typical purpose | Swap FHA for VA | Swap plus equity |
| Effect on balance | Roughly flat | Higher |
| Effect on equity | Little change | Cushion shrinks |
The funding fee counts toward the new loan amount. If you finance it, the loan can land in Type II even when you take no cash. A Type I loan is the cleanest way to say “I only want out of FHA insurance.”
If you need no cash, take none. If you need a little, borrow a little. Equity you leave in the house is a cushion, and every dollar you pull out thins it.
Who Qualifies?
You need a VA Certificate of Eligibility. A lender can usually pull it for you, though some ask for your discharge papers too. You also need credit and income that pass full underwriting.
The home must be your primary residence. This is a loan for the home you live in. If the property is a second home or a rental, the occupancy rule ends the conversation, and leverage on those properties is a different program.
The home must also meet VA’s minimum property requirements, and a VA appraisal sets its reasonable value. Some states restrict cash-out lending, and some lenders do not offer VA cash-out in those states. Ask before you plan around it.
Across the wholesale programs Lendmire works with, lender overlays are where files get tripped up. VA sets a floor, and individual lenders often set a higher one on credit score or loan-to-value. Two veterans with the same VA eligibility can get different answers depending on which lender reviews the file.
What Is the Net Tangible Benefit Test?
The net tangible benefit (NTB) is VA’s proof that the refinance helps you. Every VA cash-out needs at least one. The same guide that sets the non-VA path lists the recognized benefits.
For an FHA payoff, the most common one is simple. You eliminate monthly mortgage insurance.
| Your FHA situation | Benefit that may apply |
|---|---|
| Paying FHA annual insurance | Mortgage insurance eliminated |
| Loan has a costlier structure | Lower payment or better terms |
| Second lien alongside FHA | Combined into one loan |
| New loan at or under 90% LTV | Equity position improved |
Those are examples of what a lender documents, not promises. The lender decides whether your numbers show a real benefit. If the new loan does not clear the test, the file does not move forward.
What Does the Switch Cost?
Start with what you are escaping. An FHA loan carries an upfront premium of 1.75% of the base loan, usually financed. It also carries an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV.
How long the annual premium lasts matters most. On a thirty-year FHA loan above 90% LTV, it lasts for the term. At or below 90%, it ends after eleven years. HUD last reset the annual schedule in Mortgagee Letter 2023-05, so check how your loan was set up when it was endorsed. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Now the other side. The VA funding fee on a cash-out refinance is 2.15% for first use and 3.3% after first use, per VA News. Most veterans finance it, which raises the loan balance. Veterans receiving service-connected disability compensation are generally exempt from the fee.
The funding fee is not mortgage insurance. It is a one-time charge, and VA loans carry no monthly mortgage insurance.
Add third-party costs: appraisal, title, and lender charges. You see all of them on your Loan Estimate, and the Closing Disclosure shows the final figures. Compare those documents line by line.
There is a quirk with the old loan, too. Ask whether any part of your FHA upfront premium comes back on a VA payoff, since those refund rules belong to FHA and depend on how the loan is paid off. Your old servicer returns any leftover escrow balance to you after the payoff. Treat that as your money, not as savings from the new loan.
Is It Worth It? A Break-Even Check
Skip the “it depends” and run a break-even. You need three things from the lender.
1. Monthly savings. Compare today’s payment with the new one. Removing FHA annual insurance helps, but a higher balance and a different rate or term can push the other way.
2. One-time costs. Add the funding fee (or zero if you are exempt), appraisal, title, and lender charges. Count the financed portion as a cost.
3. Your holding period. How long will you keep this home and this loan?
Divide one-time costs by monthly savings. The result is how many months you need to stay in the loan before the swap pays for itself. Sell or refinance again before that point and you lose money.
Here is how the three common paths compare.
| Factor | Keep the FHA loan | FHA Streamline | VA cash-out |
|---|---|---|---|
| Appraisal | None | None | Yes |
| Underwriting | None | Limited credit review | Full |
| FHA insurance | Continues | Continues | Eliminated |
| Funding fee | None | None | Yes, unless exempt |
| Cash back | None | None | Optional |
The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. The premium continues. It is the low-effort option, but it does not remove the insurance.
If you want equity access and you stay FHA, the FHA cash-out refinance program reaches 80% LTV on a home you have owned and occupied for 12 months before the case number. VA can reach higher. That extra reach is a tool, and it is also a risk. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Here is a scenario with no dollar figures. Picture a veteran with an FHA loan above 90% LTV, so the annual premium runs for the full term. The funding fee is financed, and the veteran plans to stay in the home for many years. The break-even lands well inside the holding period, and the swap probably makes sense. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Now flip it. A veteran is a few years from selling and the FHA premium ends soon. The one-time costs may never pay back. Keep the loan.
For a disability-exempt veteran, the funding fee drops out of the math. That moves the break-even earlier and makes the swap more attractive.
How Do Waiting Periods Work?
This is where the web contradicts itself, so here is the clean version. VA’s seasoning certification applies to VA-to-VA refinances. For an FHA payoff, the VA guide lists no seasoning requirement.
Some lenders add their own waiting periods anyway, often tied to payment history on the loan being replaced. Those are lender overlays, not VA rules. A veteran told “wait” by one lender can sometimes get a different answer elsewhere.
The guide is several years old. Confirm the current rule against the VA Lenders Handbook (M26-7, Chapter 6) before relying on any waiting-period claim, whether it comes from a lender or from this page.
What About Entitlement and Edge Cases?
Entitlement. If you have used VA entitlement before, check your Certificate of Eligibility. Prior use affects which funding fee tier applies and how much guaranty is available. It also matters for your next VA purchase.
Co-borrowers. A non-veteran spouse can be on the loan, but the guaranty then covers only the veteran’s share. That can change how the loan is structured. Raise it early.
Leverage ceilings. VA stopped guaranteeing refinances above 100% of reasonable value, funding fee included. Many lenders cap lower, commonly at 90%. The 90% figure is also a recognized NTB threshold, so do not mix the two up.
No longer your home. If you moved out, VA cash-out is no longer the right product. Occupancy decides the leverage you can reach.
Credit score. A refinance triggers a credit inquiry and replaces an account. Expect a short-term dip. Credit and residual income also decide whether you pass full underwriting.
When Should You Not Do It?
Pause when any of these apply.
- You plan to sell or move before the break-even point.
- Your FHA insurance is about to end on its own.
- The new loan would have a longer term, so total interest could rise even if the monthly payment falls.
- You would borrow far more cash than you need, shrinking equity.
- Your credit or income would struggle in full underwriting.
- You are tempted by “no cash out” as marketing. The costs are built into the balance or the terms, not erased.
Rolling the funding fee into the loan feels painless, since no check is due. It is still debt. You pay interest on it for as long as you hold the loan.
What Is the Process Step by Step?
1. Get your Certificate of Eligibility (the lender can usually pull it).
2. Apply and receive the first cash-out disclosure. VA’s guide requires an initial and a final disclosure with the guaranty request.
3. Order the VA appraisal. It sets reasonable value, and LTV counts the whole loan including any financed fee.
4. Go through full underwriting. Expect to document income, credit, assets, and the property.
5. Get classified. The file is sorted as Type I or II, and the NTB is documented.
6. Close. The FHA loan is paid off, the VA loan is guaranteed, and any extra proceeds come to you.
Bring pay stubs, traditional personal-income documentation or other income proof as the lender requests, bank statements, your current FHA mortgage statement, and homeowner’s insurance information. Your Loan Estimate and Closing Disclosure follow the standard consumer timeline.
Key Terms Defined
Net tangible benefit (NTB): VA’s test that a refinance leaves you better off in a documented way, such as eliminating monthly mortgage insurance.
Funding fee: A one-time VA charge on the loan, usually financed, that replaces monthly mortgage insurance. Some veterans are exempt.
Type I and Type II: VA’s two cash-out categories. Type I does not exceed the old payoff, and Type II does.
IRRRL: VA’s streamline refinance, which can only replace an existing VA loan.
Seasoning: A waiting period before you can refinance. VA’s version applies to VA-to-VA loans.
Certificate of Eligibility (COE): The VA document that confirms your entitlement.
Frequently Asked Questions
Can a VA streamline pay off my FHA loan?
No. The IRRRL only refinances an existing VA loan. To replace an FHA loan with a VA loan, you use the cash-out product, which can be a no-cash-back swap.
Does the 210-day VA-to-VA wait apply to an FHA payoff?
VA’s guide lists no seasoning requirement when the loan being paid off is not a VA loan. Individual lenders may still set their own waiting periods, so ask each one before you plan.
Will I owe the funding fee?
Usually, unless you are exempt. The cash-out fee is 2.15% for first use and 3.3% after first use, and veterans receiving service-connected disability compensation are generally exempt. Most borrowers finance the fee into the loan.
Can I roll a second lien into the new loan?
Often yes, since combining an FHA first mortgage and a second lien into one loan can itself count as a benefit. The lender must still document the net tangible benefit, and the total loan, funding fee included, must stay within VA and lender limits.
Will this hurt my credit?
Expect a small, temporary dip from the credit inquiry and the new account. Long-term, what matters is on-time payments on the new loan. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
The Next Step
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. Lendmire is a mortgage broker, so the lenders it works with review eligibility and approve the loan. Program details are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
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.
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References
1. VA Loan Guaranty Quick Reference for Cash-Out Refinances
3. HUD Mortgagee Letter 2023-05
4. VA News: Funding Fee, Who Pays, Who Is Exempt
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How to Time a VA Cash-Out When Leaving a Conventional or FHA Loan · Can a Homeowner With an Existing FHA Loan Get an FHA Cash-Out? · How to Close a Texas FHA Cash-Out on an Existing FHA Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.