The Quick Read: A VA cash-out suits eligible veterans who want the most equity access, because it can reach 100% of the appraised value with no mortgage insurance. Conventional cash-out suits borrowers without entitlement, or those who want to keep a larger equity cushion, and it needs no military service. VA splits its cash-out loans into Type 1 and Type 2 based on one comparison: the new loan against the payoff of the old one.
The Honest Answer: Who Each Option Is Really For
A VA cash-out is built for the veteran, service member, or eligible surviving spouse who wants to tap equity in the home they live in, or who wants to move out of a conventional loan and into VA. A conventional cash-out is built for the borrower who has no entitlement, who is already comfortable with a lower loan-to-value, or whose entitlement is tied up in a way that makes VA awkward.
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: 7.18% as of November 5, 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.
Neither is cheaper or better in the abstract. The deciding variables are entitlement, how much equity you leave in the house, whether you are paying mortgage insurance today, and what the cash is for.
Lendmire’s VA cash-out refinance program page lays out how the program works from the broker’s side. Lendmire is a mortgage broker, not a lender. It compares options across wholesale programs, and every figure here is subject to lender guidelines and a full file review.
Side-by-Side
| Factor | VA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | Up to 100% of appraised value, fee included | Lower; leaves an equity cushion |
| Mortgage insurance | None | Depends on leverage and program |
| Credit floor | 580 decision score on wholesale programs | Typically higher; varies by lender |
| Who qualifies | Eligible veterans via COE | Anyone meeting financial criteria |
| Occupancy | Veteran’s home | Primary, second home, or investment, with different limits |
| Existing loan | Any loan type can be refinanced into VA | Any eligible mortgage |
| Underwriting test | Residual income controls; 41% DTI is a guideline | DTI-driven |
| Upfront fee | Funding fee unless exempt | Pricing adjustments by LTV and credit |
| Appraisal | VA appraisal sets reasonable value | Standard appraisal |
Two cautions on the table. VA sets no minimum credit score of its own, so the 580 reflects what the wholesale programs Lendmire places files with require. Some lenders set a higher floor. And conventional limits move with occupancy and unit count, so confirm the live guideline before you rely on any single number.
What Type 1 and Type 2 Actually Mean
VA defines the two types with one test. Compare the new loan amount, including any financed funding fee, to the payoff of the loan being refinanced. Under VBA Circular 26-19-05, a Type 1 loan does not exceed the payoff. A Type 2 loan does.
That is the whole split. Type 1 can mean little or no cash at closing. It can still do real work: swap a conventional loan for a VA loan, drop monthly mortgage insurance, or change the term. Type 2 puts extra principal on the loan by design, which is the cash-out most borrowers picture.
VA’s system decides the type automatically once the loan amounts are entered. You do not choose a type. You choose a goal, and the numbers land in one category or the other.
Conventional cash-out has no Type 1 or Type 2. It is a single category, though a lender may price different cash-out sizes differently.
The rules that apply to both
Every VA cash-out, either type, must clear a few common tests under 38 CFR 36.4306:
- The new loan cannot exceed 100% of the reasonable value VA assigns the home. A financed funding fee counts toward that cap.
- The loan must show a net tangible benefit, meeting at least one of eight VA-listed benefits.
- The home must be occupied by the veteran as a home, with a spouse able to satisfy this for a servicemember away on active duty.
- The borrower receives a loan comparison within three business days of application and again at closing.
The net tangible benefit list includes eliminating monthly mortgage insurance, a shorter term, a lower payment, higher monthly residual income, moving from adjustable to fixed, and a new loan at or under 90% of reasonable value. That 90% figure is one way to pass the benefit test. It is not a VA cap on cash-out, whatever you may have read.
Where the types diverge
The extra tests depend on the type and on what is being paid off. Per the VA Lenders Handbook, Chapter 6, seasoning applies when the loan being refinanced is itself a VA loan. A conventional, FHA, or USDA loan moving into VA does not face it.
A Type 1 loan paying off an existing VA loan carries an added fee-recoupment test. The lender must certify that costs are recovered through a lower principal-and-interest payment within 36 months, and VA does not round that period. A non-VA payoff into Type 1 needs the net tangible benefit but no recoupment.
One point to keep straight: the half-percent rate-reduction and recoupment tests belong to the IRRRL, VA’s streamline. They do not govern a VA cash-out the way they do a streamline. The IRRRL takes no cash out and skips the VA appraisal. A cash-out is a full refinance with a VA appraisal and full underwriting.
When a VA Cash-Out Is the Better Fit
Consider VA when these conditions line up:
- You have entitlement and a COE. Without one, the comparison is moot.
- You are paying mortgage insurance now. Eliminating monthly mortgage insurance is a listed VA benefit, and a VA loan carries none at any leverage.
- You need to reach a lot of equity. At 100% of value, a VA loan reaches further than most conventional options, a difference that matters for a major repair or a payoff that a smaller cash-out would not cover.
- Your credit is in the 580 range. Across the wholesale programs Lendmire places with, a 580 decision score is the starting point, which is generally lower than what a conventional cash-out lender will want.
- You carry a non-VA loan and want out of it. A Type 1 swap can move you into VA without taking much cash.
- Your debt-to-income ratio runs high. Residual income controls VA underwriting. The 41% figure is a guideline, and a ratio above it needs residual income well above the table, so a borrower with a strong budget but a heavy ratio may fit VA better.
What the funding fee does
The funding fee is the cost to watch. On a cash-out it is 2.15% for first use and 3.3% for subsequent use. Veterans receiving compensation for a service-connected disability, and other exempt groups, owe nothing. The fee can be financed, but only inside the 100% cap. Anything that would push the loan over is paid at closing.
That matters in practice. A borrower aiming for the full 100% may find the financed fee uses part of the cash they hoped to receive.
When a Conventional Cash-Out Is the Better Fit
Conventional can be the stronger choice in these situations:
- You have no entitlement, or limited remaining entitlement. A refinancing portion is treated as using the entitlement from the loan being paid off, so a veteran who wants to preserve entitlement for a later purchase should factor that in before refinancing.
- You want an equity cushion. The CFPB’s guide on using home equity notes lenders typically require you to keep some equity in the home. Borrowing less also means a smaller balance, a lower payment burden, and more room if values dip. VA lets you go to the cap. That is a tool, not an obligation.
- You are well below the leverage limit anyway. If you need modest cash against substantial equity, the VA advantage in leverage matters less, and the funding fee may outweigh it for a non-exempt borrower.
- The property doesn’t fit VA’s occupancy rule. A VA loan is for the home you live in, so a second home or rental sits outside VA and points you toward conventional.
- Your credit and ratios are strong. A borrower with excellent credit, low debts, and no mortgage insurance concern loses little by going conventional.
The tradeoff runs both directions. Conventional cash-out can carry pricing adjustments tied to leverage and credit, according to the Fannie Mae Selling Guide, and reserves may apply at higher ratios. Those adjustments change with the guide, so check the current version.
Three Scenarios, Described in Plain Terms
The swap. A veteran holds a conventional loan with monthly mortgage insurance and owes close to what the home is worth in loan terms. A Type 1 refinance into VA, with no meaningful cash taken, can remove the insurance. The benefit is the eliminated insurance, not cash.
The payoff. A veteran wants to clear high-balance credit cards using home equity. A Type 2 reaches the cash. Using a cash-out to pay down short-term debt deserves caution, since it turns unsecured balances into debt secured by your home. It works when the underlying spending has stopped. It backfires when the cards refill and the balances return on top of the larger mortgage.
The repair. A veteran needs a large renovation and holds significant equity. VA at a high leverage reaches further, while conventional at lower leverage may reach enough with a safer cushion. The deciding factor is the project’s real cost against the equity left behind.
Common Misconceptions
- “VA cash-out only works on existing VA loans.” This is false, because any loan type can be refinanced into VA.
- “VA caps cash-out at 90%.” The cap is 100% of reasonable value. Some lenders set a lower cap as their own overlay, which is a lender choice rather than a VA rule.
- “VA cash-out is a streamline.” Only the IRRRL is a streamline. Cash-out needs an appraisal and full underwriting.
- “Every cash-out must recoup costs in 36 months.” Recoupment applies to Type 1 VA-to-VA loans only.
- “No waiting period applies.” Seasoning applies when you refinance an existing VA loan. In the programs Lendmire places, seasoning is the later of 210 days from the first payment and the sixth payment.
Key Terms Defined
Certificate of Eligibility (COE): VA’s document confirming you qualify and how much entitlement you hold.
Entitlement: The amount VA guarantees on your behalf, which is tied up in a loan until it is paid off or restored.
Net tangible benefit: A concrete improvement to your finances that the new loan must deliver, from VA’s list of eight.
Reasonable value: The appraised value VA assigns, which sets the 100% cap.
Residual income: The money left each month after major obligations, which is the controlling VA underwriting test.
Seasoning: The waiting period after your first payment on a VA loan before it can be refinanced.
A Balanced Verdict
Neither option wins on every file. VA fits the eligible veteran who needs high leverage, pays mortgage insurance today, has credit near the lower end, or carries a heavy debt-to-income ratio but solid residual income. Conventional fits the borrower without entitlement, the one who wants to protect equity, or the one whose cash needs are modest relative to what the house is worth.
Run it both ways before deciding. Compare the funding fee against any conventional pricing adjustments, the equity left after closing, and the mortgage insurance you would pay or drop.
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. Reach the team at 828-256-2183.
Frequently Asked Questions
Does a Type 1 VA cash-out give me any cash?
Usually little or none. Type 1 means the new loan, funding fee included, does not exceed the payoff of the old one, so the purpose is typically a loan-type swap, removing mortgage insurance, or changing the term. If you want meaningful cash, you are looking at Type 2.
Can I refinance a conventional loan into a VA cash-out?
Yes. A VA cash-out can pay off any loan type, including conventional, FHA, and USDA. The loan must still show a net tangible benefit, and the seasoning rule applies only when the loan being paid off is itself VA-guaranteed.
Can I borrow 100% of my home’s value?
On a VA cash-out, up to 100% of the appraised value, including any financed funding fee. If the fee would push you over, the excess is paid at closing. Some lenders cap lower, and every figure is subject to lender guidelines and file review.
Do I pay the funding fee if I have a service-connected disability?
Generally not. Veterans receiving compensation for a service-connected disability, and certain other exempt groups, are exempt. Otherwise the cash-out fee is 2.15% on first use and 3.3% after.
Is a VA cash-out cheaper than a conventional one?
Not automatically. VA removes mortgage insurance but charges a funding fee unless you are exempt, while conventional leans on leverage and credit pricing. Compare the Loan Estimates side by side to see which costs more for your situation.
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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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
3. VA Lenders Handbook, Chapter 6
4. CFPB, Using Home Equity 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: VA Cash-Out Refinance Rules on an Inherited House · Can You Get Approved for a VA Cash-Out Refinance as a Veteran? · VA Cash-Out Refinance Requirements on a Home You Own
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.