The Quick Read: A lender sizes a VA cash-out refinance by setting a ceiling at 100% of the appraised value, adding the funding fee, and comparing the new loan to the payoff of what you owe. If the new loan is at or below the payoff, it is Type I and delivers no cash. If it is above the payoff, it is Type II and the difference comes to you. Income, entitlement, and the net tangible benefit test decide whether the file gets there.
The Sizing Sequence at a Glance
Lenders work through the same ordered steps on nearly every file. Here they are, in the order they bind.
VA cash-out estimate
Seeded with an example value, a typical balance, and a round cash request at the first-use fee; change any field.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a VA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the full-value VA cap with the first-use funding fee financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a VA cash-out refinance quote; a VA loan is priced by the lender at lock. The total loan, funding fee included, is capped at the program leverage on the reasonable value; the fee follows the tier chosen. The cash available is what the cap allows less the balances paid off and the fee, before closing costs, which are not included. The HELOC line is the line program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. The debt-to-income figure is a guideline; residual income decides a VA file. Licensed in sixteen states for consumer mortgages.
1. Confirm eligibility. The certificate of eligibility (COE) and your remaining entitlement must cover the new loan.
2. Confirm an existing lien. A VA cash-out replaces an existing loan. A home with no mortgage or lien of record is not eligible.
3. Order the VA appraisal. The appraised value, which VA calls reasonable value, sets the ceiling.
4. Build the payoff. Add up every lien being paid off.
5. Add the funding fee. Even when financed, it counts toward the loan amount.
6. Classify the loan. New loan at or below payoff is Type I. Above payoff is Type II.
7. Run the tests. Net tangible benefit on every file, plus extra tests on some Type I files.
8. Underwrite the income. Residual income and credit decide whether the amount you want is the amount you can carry.
The last step surprises people. The value ceiling gets the attention, but income is often what actually limits the size.
What Is the Ceiling on a VA Cash-Out?
The ceiling is 100% of the appraised value, and the financed funding fee counts inside it. Across the wholesale programs Lendmire places VA files with, the VA cash-out reaches 100% of appraised value including the financed fee, and it refinances any loan type into VA. Many people assume 90% is the VA cap. It is not. Some lenders set lower limits on their own, so one file can size differently from one lender to the next.
The no-mortgage-insurance feature carries over. A VA loan has no monthly mortgage insurance of any kind, which is why the funding fee is the only upfront charge tied to the guaranty.
If you want the program overview first, start with Lendmire’s VA cash-out refinance program page, then come back here for the mechanics.
Type I vs Type II: One Comparison Decides It
The type is set by a single comparison: the new loan amount, funding fee included, against the payoff of what is being refinanced. That is the definition in the VA Lenders Handbook, Chapter 6.
| Factor | Type I | Type II |
|---|---|---|
| New loan vs payoff | At or below | Above |
| Cash to you | None | The excess |
| Pays off | VA or non-VA loan | VA or non-VA loan |
| Net tangible benefit | Required | Required |
| Recoupment test | VA-to-VA only | Deemed met |
Two points trip people up. First, a Type I is still filed as a cash-out. It just puts no cash in your pocket. Second, a Type I can pay off a non-VA loan, such as a conventional or FHA mortgage. That separates it from a VA streamline refinance, the streamlined VA-to-VA refinance, which only works on an existing VA loan.
Step by Step: What Goes Into the Payoff
The payoff is more than the balance on your statement. A lender builds it from the full amount needed to clear every lien being paid.
- Unpaid principal on the first mortgage.
- Interest accrued through the payoff date.
- Any late charges owed.
- Second mortgages, HELOCs, or other recorded liens you choose to pay off.
A cash-out can pay off other recorded liens, such as second mortgages or mechanics liens. Adding one raises the payoff figure and changes the comparison. Lenders also quote payoffs good through a specific date, so the figure can shift before closing.
The funding fee then sits on top. Say your payoff and the new loan are nearly identical. Financing the fee can push the new loan just above the payoff and flip a Type I into a Type II. That is the borderline case worth watching. A small change in the payoff, or whether you finance or pay the fee, can change the type.
How the Funding Fee Changes the Math
The VA funding fee on a cash-out refinance is 2.15% for first use and 3.3% after first use. These figures are on VA News, and they match what Lendmire sees across its wholesale programs. Veterans receiving compensation for a service-connected disability, and the other exempt groups, do not pay it. For comparison, the IRRRL fee is 0.5%.
You can finance the fee, but it cannot push the loan past the ceiling. Any amount over the cap is paid in cash at closing. That is why a 100% loan on a full-value appraisal leaves little room: every dollar of fee counts against the same cap that limits your cash.
Here is a modeled example using percentages only. Suppose your payoff equals 70% of the home’s appraised value. A first-use fee of 2.15% is calculated on the new loan. If you borrow up to the 100% ceiling with the fee inside it, the cash to you is the new loan minus the payoff, the fee, and closing costs. That is arithmetic, not a VA formula. The fee shrinks your net cash by its size.
Net Tangible Benefit: The Test on Every Cash-Out
Every VA cash-out must give you a net tangible benefit (NTB), meaning the loan is in your financial interest. The lender must give you an NTB test and the test must be satisfied. The rule sits in 38 CFR 36.4306, and govinfo carries the same text.
A loan can meet the test in several ways. Common ones include:
- Eliminating monthly mortgage insurance.
- A shorter term than the loan being replaced.
- Lower principal and interest.
- A new loan-to-value (LTV) ratio at or below 90%. LTV is the loan amount divided by the home’s value.
- Higher residual income.
- Converting an adjustable-rate loan to a fixed rate.
The same rule sets an extra condition for a Type I loan that carries added upfront charges: the resulting LTV must be 90% or less. The lender also gives you a loan comparison, old loan against new, at application and again at settlement.
Extra Tests When a Type I Replaces a VA Loan
A Type I that refinances a VA loan runs additional tests. A Type II is deemed to have recouped costs if the NTB requirements are met.
Fee recoupment. The lender certifies that fees and costs are recovered within 36 months of the loan being issued. The recovery must come from lower regular monthly payments. Taxes, escrow amounts, and the funding fee are left out of that count. If the payment of principal and interest goes up on a Type I, the Handbook limits what the lender may charge to taxes, escrow amounts, and the funding fee.
Seasoning. Seasoning is the waiting period between your existing loan and the refinance. Across the wholesale programs Lendmire places with, the VA cash-out carries the same seasoning as the IRRRL: the later of 210 days from the first payment and the sixth payment. Type I and Type II count payments a little differently, so confirm the exact count with your loan officer.
Non-VA payoffs. Recoupment, rate-drop, and seasoning tests apply when the loan being refinanced is VA-guaranteed. A conventional or FHA payoff sits outside them, but the NTB test still applies.
What Limits the Amount Besides Value
Value is only one wall. Across the files Lendmire arranges, the real limit is often the income side. Four constraints can bind, and the lowest one wins.
| Constraint | What it limits |
|---|---|
| Appraised value | Hard ceiling at 100% |
| Lender overlay | A lender may cap leverage lower |
| Residual income and DTI | What you can carry monthly |
| Type I tests | Recoupment and seasoning |
Residual income is what is left of your monthly income after taxes, housing costs, and debts, measured against VA tables by family size and region. It is the controlling test on VA loans. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table. A file with solid equity and thin residual income can size smaller than the ceiling suggests.
Credit. VA sets no minimum score. The wholesale programs Lendmire places VA loans with start at a 580 decision score. Some lenders set a higher floor. All of it is subject to lender guidelines and full file review.
A low appraisal. If the value comes back below what you expected, the ceiling drops with it. The lender re-sizes the loan against the lower number. The payoff does not shrink, so a Type II may become a Type I with less or no cash, or the file may no longer work.
State law. State rules can add limits of their own on cash-out loans.
Net Cash, Step by Step
Net cash is a subtraction, not a promise. Here it is in order.
1. Start with the value ceiling, then apply any lender overlay.
2. Check the income side to confirm you can carry that amount.
3. Subtract the payoff of every lien being cleared.
4. Subtract the funding fee, unless you are exempt.
5. Subtract closing costs.
Closing costs, including the funding fee, can be paid from loan proceeds up to the maximum loan amount. A Type I that raises your principal and interest is the exception noted above. The VA does not restrict how you spend the cash.
Where the Rules Break: Edge Cases
- Cash-out vs IRRRL. An IRRRL cannot take equity out or pay off other debts. A cash-out runs a full appraisal and full underwriting.
- Repairs. The VA can guarantee a cash-out on a home you own and occupy to finance alterations or repairs, according to the VA Home Loan Guaranty Buyer’s Guide.
- Occupancy. VA loans are for your occupancy, or a spouse’s or dependent’s if you are on active duty.
- Entitlement. The new loan needs entitlement to cover the guaranty. With full entitlement, there is no VA loan limit. With remaining entitlement, a down payment may apply, so speak with a loan officer.
Common Reasons the Amount Gets Reduced
- The appraisal came in below the expected value.
- A lender overlay caps leverage under 100%.
- Residual income runs thin for the family size.
- Financing the fee would push the loan past the ceiling.
- The file fails the NTB test as structured.
- Seasoning is not yet met on a VA-to-VA refinance.
Practitioner view: the most common surprise is not the cap. It is a borrower expecting cash from a file that sizes as a Type I because the payoff, including a second lien, ate most of the equity.
Key Terms Defined
Reasonable value: The VA appraisal value that sets the loan ceiling.
Net tangible benefit (NTB): The test showing a refinance is in your financial interest.
Recoupment: Recovering refinance costs through lower monthly payments within 36 months.
Seasoning: The waiting period between the existing loan and the refinance.
Residual income: The money left each month after taxes, housing, and debts.
Entitlement: The amount of VA guaranty available to you.
Weighing Your Options
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. If a second mortgage is in the mix, Lendmire’s piece Is a VA Cash-Out Type II When It Pays Off an Existing HELOC? covers how the payoff changes the type.
Frequently Asked Questions
What is the difference between a Type I and Type II VA cash-out?
Type I is a loan that does not exceed the payoff of what you are refinancing, so no cash comes to you. Type II exceeds the payoff, and the excess is your cash. The funding fee counts toward the new loan in that comparison.
Can the funding fee be financed on a VA cash-out?
Yes, within limits. The fee can be rolled into the loan, but the total cannot exceed 100% of the appraised value. Any amount above that is paid in cash at closing. Veterans who are exempt do not pay the fee at all.
Why might a lender approve less than the 100% ceiling?
The ceiling is the VA’s limit, not a promise. A lender may set a lower leverage cap, residual income may run short, or the appraisal may come in low. Whichever limit is lowest sets the amount, subject to lender guidelines and full file review.
What happens if the appraisal comes in low?
The ceiling falls with the value. The lender re-sizes the loan against the new number while the payoff stays the same. That can shrink or erase the cash, or move a Type II into Type I territory.
Does a VA cash-out always put cash in my hands?
No. A Type I is filed as a cash-out but delivers no cash. It can still be useful when it pays off a non-VA loan or clears a second lien and meets the net tangible benefit test.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. VA Lenders Handbook (VAP26-7), Chapter 6, Refinancing Loans
2. VA News: Funding fee, who pays and who is exempt
3. 38 CFR 36.4306, Cornell LII
5. VA Home Loan Guaranty Buyer’s Guide
This article is part of Lendmire’s VA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Refinance a VA Loan Soon After Buying With an IRRRL · 15-Year Refinance vs Extra Payments on an Existing VA Loan · How to Buy With a VA Loan During the Transition Out of Service
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.