The Quick Read: A veteran with an FHA mortgage can stay in FHA and take cash out, or use VA benefits to pay off the FHA loan and move into a VA-backed one. The FHA route fits a veteran who needs modest cash and wants to keep things familiar. The VA route usually fits a veteran who wants more equity access or wants to leave FHA mortgage insurance behind. Both depend on lender guidelines and a full file review.
The honest split is this. FHA cash-out is for the veteran who has lived in the home for a year, has plenty of equity, and either lacks a usable VA entitlement or doesn’t want to use it. VA cash-out is for the veteran with a Certificate of Eligibility who wants the most flexibility. A veteran who is short on equity usually finds FHA’s ceiling the deciding factor. A veteran with a disability-related funding fee exemption often finds VA the easier call. Neither one is automatically better.
Does an Existing FHA Loan Block a VA Refinance?
No. An FHA loan does not block a VA refinance, but it changes which VA product applies. VA describes its cash-out refinance as a new loan with different terms. VA.gov says it can be used to take cash out of home equity or to refinance a non-VA loan into a VA-backed loan. An FHA loan is a non-VA loan, so the VA cash-out program is the door.
Two things surprise people here.
First, VA calls it a “cash-out” even when no cash comes back. A veteran can swap FHA for VA and take nothing out. The label describes the loan type, not the proceeds.
Second, the streamline is off the table. VA’s home loans page describes the IRRRL as “VA to VA” only, available when a VA-guaranteed loan is already on the property. An FHA borrower can’t use it. If you’re weighing the VA streamline against a VA cash-out for a different situation, Lendmire’s piece VA IRRRL vs. VA Cash-Out for a Veteran With an Existing VA Loan covers that case.
Side-by-Side
| Factor | FHA Cash-Out | VA Cash-Out (FHA payoff) |
|---|---|---|
| Who it’s for | Any qualifying owner-occupant | Veterans with a valid COE |
| Maximum leverage | 80% LTV | Can reach higher, set by lender |
| Occupancy | Primary residence, owned and occupied 12 months | Primary residence you will live in |
| Credit floor | Varies by scenario, and wholesale programs also consider a decision score | Set by VA standards and the lender |
| Mortgage insurance | Upfront 1.75% plus annual premium | No monthly insurance; one-time funding fee |
| Documentation | Full income, credit and payment history | Full income, credit, COE and appraisal |
| Ratios | Base 31/43; up to 40/50 with documented factors | Lender-reviewed, with VA residual income |
| Can you take no cash? | The FHA streamline is a separate no-cash option | Yes, a non-VA payoff counts as cash-out |
Keep the table’s limits in mind. FHA figures reflect the wholesale programs Lendmire works with, and VA specifics vary by lender overlay. Everything is subject to lender guidelines and review.
How FHA Cash-Out Works
Across the wholesale programs Lendmire places FHA files with, cash-out reaches 80% LTV on a home you have owned and occupied for 12 months before the case number is assigned. That means at least 20% equity stays in the home. This is the main limit on the FHA path. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Mortgage insurance is the second piece. A new FHA loan carries an upfront premium of 1.75% of the base loan, usually financed, plus an annual premium between 0.15% and 0.75% of the balance depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV the annual premium lasts for the term. At or below 90% LTV it ends after eleven years. A cash-out at 80% LTV lands at or below that line, which matters over the long run.
HUD revised annual premiums in Mortgagee Letter 2023-05, and that guidance now lives in the HUD Handbook. The premium schedule is a program fact, not something a lender sets.
Credit and income review is full. The automated finding governs most files, and the base ratio pair is 31/43 with documented factors stretching to 40/50 at the top tier.
How VA Cash-Out Works When Paying Off an FHA Loan
VA’s page lists three conditions. You qualify for a Certificate of Eligibility. You meet VA’s and the lender’s standards for credit and income. You will live in the home you’re refinancing.
Then the steps run in order. You get your COE through a lender, VA.gov or by mail. A VA appraisal sets the reasonable value. The lender confirms a net tangible benefit, meaning the loan has to help you in a documented way. Compliance disclosures go into the file, and then the loan closes.
VA’s seasoning and recoupment certifications apply to VA-to-VA refinances. Paying off an FHA loan is not VA-to-VA, so those certifications aren’t triggered in the usual case. Individual lenders may still add their own waiting periods, so a veteran should ask early.
On limits, VA says a no-down-payment loan can go up to the conforming limit in most areas, and higher in some high-cost counties. VA also notes that closing costs can add up to thousands of dollars. Allowable fees and costs may be paid from loan proceeds, per VA News, which can reduce or eliminate cash due at closing.
When FHA Cash-Out Is the Better Fit
FHA cash-out tends to win in a few specific situations.
The veteran wants to keep VA entitlement untouched. Some veterans want their benefit available for a future purchase. Staying in FHA leaves it alone. (Entitlement rules are involved. A veteran with reduced or previously used entitlement should have a lender walk through VA’s entitlement page before deciding.)
The veteran has no COE or isn’t sure of eligibility. FHA is open to any qualifying borrower. If the COE is delayed or in question, FHA avoids that step.
The cash need is modest and equity is solid. At 80% LTV, a homeowner with comfortable equity can reach what they need without VA’s extra steps. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
The veteran has a good reason to stay in the FHA structure. Some borrowers value the familiarity and the wholesale underwriting path. If the borrower has strong credit and the annual premium ends after eleven years at the lower LTV, the insurance drag is limited.
The flip point: if you plan to hold the home many years and want to drop monthly mortgage insurance, the VA route may pull ahead.
When VA Cash-Out Is the Better Fit
VA cash-out tends to win when equity and insurance drive the decision.
The veteran needs more equity than FHA allows. FHA stops at 80% LTV. VA’s regulation allows up to 100% of reasonable value, though lenders often set a lower cap, so the number a borrower sees can be lower. Pulling more cash also leaves less cushion if values fall. A thin cushion is a real risk.
The veteran wants to end monthly FHA mortgage insurance. VA charges no monthly mortgage insurance. It charges a one-time funding fee instead, which can be paid in cash or financed, raising the balance. Veterans receiving service-connected disability compensation are generally exempt from the fee, though that should be confirmed on VA.gov before relying on it.
The veteran hasn’t owned the home for 12 months. FHA’s 12-month occupancy rule applies to cash-out. VA doesn’t set the same rule for a non-VA payoff.
The veteran wants to convert without taking cash. A no-cash switch from FHA to VA is still a VA cash-out, and it’s the only VA route for an FHA holder.
The flip point: if the funding fee, financed into the balance, plus closing costs outweigh the insurance you’d save over your holding period, staying in FHA could cost less. Run that break-even with a lender before committing.
Entitlement, Equity and Other Edge Cases
A few details can change the answer.
- Second liens. Combined leverage generally counts subordinate liens, so a second mortgage reduces available cash on both programs.
- No existing lien. A home owned free and clear may not fit a VA cash-out, since the program refinances an existing loan.
- Inherited homes. FHA’s 12-month occupancy period can be waived for inheritance in some cases, which seldom matters for veterans.
- State rules. Some states limit cash-out refinancing. Ask your lender whether your state has restrictions.
- Entitlement. A veteran with previously used entitlement may find the amount available is reduced.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Certificate of Eligibility (COE): The VA document showing a veteran qualifies for the VA home loan benefit.
Net tangible benefit: A documented way the new VA loan improves the borrower’s position, which VA requires.
Annual mortgage insurance premium (MIP): The ongoing FHA charge based on term, loan amount and LTV.
Funding fee: The one-time VA charge, which can be paid in cash or financed, and from which some veterans are exempt.
Entitlement: The amount of VA guaranty a veteran has available.
A Balanced Verdict
Neither option wins across the board. FHA cash-out is the simpler, familiar path for a veteran who has owned and occupied the home for a year, has equity to spare above the 80% line, and prefers to keep entitlement available. VA cash-out is often the stronger path for a veteran who wants more equity access, wants to drop monthly FHA insurance, or hasn’t hit the 12-month mark.
The deciding variables are how much cash you actually need, how long you’ll keep the home, whether you’re exempt from the funding fee, and how much cushion you want left in the property. A veteran taking a small amount of cash on a home with deep equity may find the two close. A veteran pulling near the limit should weigh the lost cushion carefully.
Other Lendmire reading may help if your situation includes an existing VA loan elsewhere, such as the piece VA Cash-Out vs HELOC for a Veteran Keeping an Existing VA Loan.
If you’re comparing programs, start with the FHA cash-out refinance program details and then compare them against what a VA payoff would reach on your home. 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. Everything here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
Frequently Asked Questions
Can I refinance an FHA loan into a VA loan?
Yes, if you hold a valid Certificate of Eligibility and meet credit and income standards. VA treats the payoff of a non-VA loan as a cash-out refinance. You must also plan to live in the home.
Do I have to take cash out?
No. VA classes the FHA payoff as a cash-out even when no cash comes back. You can convert the loan and take nothing, or take cash if equity and lender guidelines allow.
Can I use the VA streamline on my FHA loan?
No. VA describes the IRRRL as VA-to-VA only. An FHA borrower who wants to stay in FHA with no cash out can look at the FHA Streamline, which needs no appraisal and a limited credit review but requires a net tangible benefit.
Does mortgage insurance go away with a VA loan?
Monthly FHA mortgage insurance does end when you move to VA. VA instead charges a one-time funding fee unless you’re exempt, and that fee can be financed. Compare the two over the years you expect to keep the home.
How much equity can I reach with each program?
FHA cash-out reaches 80% LTV on a home you’ve owned and occupied for 12 months. VA’s rules allow more, but lenders often set their own caps. Taking more cash leaves a thinner equity cushion.
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.gov — Cash-out refinance loan
3. HUD Mortgagee Letter 2023-05
4. VA News — You could be losing thousands on your home loan
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: FHA Cash-Out Requirements vs What an FHA Streamline Allows · Does an FHA Cash-Out Refund Upfront MIP on Your Existing FHA Loan? · Can an FHA Cash-Out Refinance Exceed the County Loan Limit?
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.