The Quick Read: Paying off an FHA loan with a new VA loan counts as a VA cash-out refinance, even if you take no cash. The funding fee is a percentage of the whole new loan. The percentage depends on whether this is your first or a later use of the VA benefit. Your old FHA premium does not come back to offset it.
Why Does an FHA-to-VA Switch Count as a Cash-Out?
The VA’s fast lane for refinancing, the streamline (called the IRRRL), only works when the home already has a VA-guaranteed loan. It is strictly VA to VA, as the VA home loans page explains. An FHA loan is not a VA loan, so that door is closed.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium 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.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
The only VA product left is the cash-out refinance. VA’s own materials say a cash-out loan can refinance a non-VA loan into a VA-guaranteed loan. The name misleads people. “Cash-out” here is the product category, not a promise that you walk away with money.
You don’t have to take cash. You can simply pay off the FHA balance and stop there. The fee rules, though, follow the product, not your intentions.
How Is the Funding Fee Calculated?
The fee is a percentage of the new loan amount, and the percentage depends on one thing: first use or subsequent use of your VA benefit. Per VA Circular 26-23-06, Exhibit B, the cash-out refinance fee looks like this:
| Your VA history | Cash-out funding fee |
|---|---|
| First use of the benefit | 2.15% of the new loan |
| Subsequent use | 3.3% of the new loan |
Two details trip people up.
“Subsequent use” includes old loans. If you used a VA loan before, even on a home you have since sold, the higher tier can apply.
A bigger down payment or more equity does not lower it. The reduced rates for 5% or 10% down apply to purchases, not refinances, and the same circular makes that distinction. Your equity and your FHA payoff size do not change the percentage either. Leverage and eligibility vary by lender and program; the final terms follow the full file review.
Check the current fee table on VA.gov before you budget. Agencies update these tables, and your loan officer should confirm the figure that applies to your file.
What Happens to Your FHA Payoff and Premium?
The FHA loan is paid off at closing, and its monthly mortgage insurance ends with it. That is the real trade. VA loans do not carry monthly mortgage insurance. You swap an ongoing premium for a one-time fee.
The upfront premium you paid at the start of the FHA loan is a sunk cost. HUD’s FHA homeowners fact sheet ties its refund credit to refinancing into a new FHA-insured loan. For loans endorsed on or after December 8, 2004, no refund is due after the third year of insurance in any case. A VA payoff is not an FHA-to-FHA refinance, so you should not count on a credit against the VA fee. HUD’s page does not address VA payoffs directly, so treat that as the working reading and ask your loan officer to confirm it against your payoff statement.
For context, across the wholesale programs we place FHA loans with, the upfront premium is 1.75% of the base loan. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV. On a thirty-year FHA loan above 90% LTV, that annual premium lasts the full term. At or below 90% LTV, it ends after eleven years. Those mechanics are why some FHA borrowers want out in the first place. Terms vary by lender guidelines and full file review.
What Are Type I and Type II Cash-Outs?
VA sorts cash-out loans into two types, and the sort decides which extra tests apply. Under VA Circular 26-19-05, the dividing line is the payoff of the loan you are replacing.
| Item | Type I | Type II |
|---|---|---|
| New loan, fee included | Does not exceed the payoff | Exceeds the payoff |
| Cash to you | None | Some |
| Typical FHA exit | Fee paid at closing | Fee financed, or cash taken |
Here is the catch. The test counts the funding fee. If you finance the fee, the new loan equals the payoff plus the fee. That is larger than the payoff. So a no-cash refinance can slide into Type II just because you rolled the fee into the balance.
Does it matter? Sometimes. Type I loans refinancing a non-VA loan need at least one net tangible benefit, per VA’s cash-out quick reference guide. The fee recoupment test applies to Type I VA-to-VA loans, not to an FHA payoff. Your lender’s guidelines decide the details.
Worked Example: Same Switch, Two Ways to Pay the Fee
Run the logic with percentages instead of dollars. Assume a first-time VA user, so the fee is 2.15% of the new loan. Assume the home appraises well above the FHA payoff.
| Step | Pay the fee at closing | Finance the fee |
|---|---|---|
| Fee on new loan | 2.15%, paid from your funds | 2.15%, added to the balance |
| New loan vs payoff | Equal to the payoff | Larger than the payoff |
| VA type | Type I | Type II |
| Cash to you | None | None, or whatever you take |
| Balance after closing | Same as the FHA payoff | Higher than the FHA payoff |
The fee is a percentage of the new loan, so financing it means the fee is also charged on itself. That is a small effect, but it is real. Financing means you bring less money to closing today. In exchange, it raises the balance, so you carry more debt and pay more interest over time.
Is the Switch Worth It? A Break-Even Way to Think
You are comparing two things: the FHA monthly insurance you stop paying and the one-time VA fee you start paying. Both are mechanics, not pricing.
The break-even question is simple. How many months of dropped FHA insurance does it take to cover the fee? A longer expected stay in the home favors the switch. A short stay favors keeping the FHA loan.
Three factors move the answer:
- Your FHA premium. Loans above 90% LTV keep paying the premium for the full term, so more of your future is on the table.
- Your VA history. The subsequent-use fee is higher, so break-even takes longer.
- Whether you finance the fee. Financing lowers what you bring to closing, but it raises the balance and the total interest paid, since the fee is charged on the financed amount.
Ask your loan officer to put real numbers on both sides using your actual FHA statement. A general article cannot do that for you.
Keep FHA, Streamline It, or Move to VA?
Which path fits depends on your plans. Keep the FHA loan if you expect to move soon, use the FHA Streamline if you want a lower payment without changing programs, and choose the VA cash-out if you qualify and want the FHA insurance gone.
| Option | What it does | Best when |
|---|---|---|
| Keep your FHA loan | No change, no new fee | You plan to move soon |
| FHA Streamline | Refinances FHA to FHA, no appraisal, limited credit review. Needs a net tangible benefit. The premium continues. | You want a lower payment but not a new program |
| VA cash-out | Replaces FHA with VA. Full underwriting, VA appraisal, funding fee. | You qualify for VA and want the FHA insurance gone |
The FHA streamline and the VA streamline are different products with a similar name. Don’t mix them up. The FHA version stays inside FHA, so the monthly premium keeps running. If you want to see how the FHA side works when you want equity instead, see Lendmire’s FHA cash-out refinance program page. Across the wholesale programs we place files with, the FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. VA, by contrast, says you may refinance up to 100 percent of appraised value, which is a big gap. The financed fee sits inside that limit, so the fee eats into the equity you can reach. Every figure here is subject to lender guidelines and full file review.
Who Doesn’t Pay the Fee?
Some borrowers are exempt. Veterans who receive VA disability compensation are generally exempt from the funding fee. Other groups can also qualify, and the full list belongs to VA, so confirm it on VA.gov.
Timing matters here. If your lender cannot confirm exemption before closing, the fee is collected. A pending disability claim is worth raising early.
Two edge cases come up:
- Rating awarded later, effective before closing. A refund may be due if VA compensation is awarded after closing but with an effective date before your closing date.
- Rating issued only after closing. That alone does not create a refund right.
Entitlement is a separate check. You need enough available entitlement, and a prior VA loan can affect it.
Where the General Rule Breaks
A few places where the simple version stops working:
- Seasoning. VA’s circular applies seasoning to cash-out refinances of VA-guaranteed loans, VA to VA. Many lenders still set their own timing rules for an FHA payoff. Ask yours what theirs are, and don’t assume a flat rule.
- Occupancy. The home must be your residence. A spouse or dependent can meet occupancy for an active-duty borrower. Investment properties and second homes are not eligible.
- The appraisal. A VA appraisal sets value and checks the Minimum Property Requirements. Only VA-to-VA refinances may skip it, so this one is not optional.
- Underwriting. This is not a streamline. Expect a full review of income, assets, credit, and employment.
Key Terms Defined
Funding fee: A one-time VA charge, set as a percentage of the new loan. It replaces the monthly mortgage insurance that other programs use.
Type I cash-out: A VA cash-out where the new loan, fee included, does not exceed the payoff of the loan you are replacing.
Type II cash-out: A VA cash-out where the new loan exceeds that payoff, because you take cash or finance the fee.
Net tangible benefit: A test showing the refinance actually helps you, such as removing mortgage insurance or moving to a more stable loan.
Certificate of Eligibility (COE): The document that proves your VA entitlement. A lender, VA.gov, or the mail can supply it.
Entitlement: The amount of VA guaranty you have available to use.
How the Process Runs, Step by Step
1. Confirm eligibility. Get your COE and confirm the home is your residence.
2. Gather documents. Expect income, asset, credit, and employment review.
3. Order the VA appraisal. It sets value and checks property standards.
4. Choose how to pay the fee. Pay at closing, or finance it and accept the larger balance.
5. Pay off the FHA loan. Its monthly insurance ends at closing.
Your Loan Estimate and Closing Disclosure show the costs. Compare them line by line against your current FHA statement.
Frequently Asked Questions
Do I pay the funding fee if I take no cash out?
Yes, unless you are exempt. The fee follows the product, not the cash. A VA loan that replaces an FHA loan is a cash-out refinance, so the first-use or subsequent-use percentage applies to the new loan amount.
Does my FHA upfront premium reduce the VA fee?
No. HUD’s refund credit is tied to refinancing into a new FHA-insured loan. A VA payoff is not that, so you should not count on a credit. Ask your loan officer to confirm against your payoff statement.
Can I use the VA streamline instead?
Not on an FHA loan. The IRRRL is VA to VA only. The FHA streamline stays inside FHA and keeps the monthly premium running.
Is the fee charged on the cash I take or on the whole loan?
On the whole new loan. If you finance the fee, the fee is also charged on that added amount. That is why a financed fee costs a little more than one paid at closing.
Does a larger down payment or more equity lower the fee?
No. The reduced rates for 5% or 10% down apply to purchase loans, not refinances. Only your VA history, or an exemption, changes the percentage.
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. 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 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
2. VA Toolkit housing fact sheet
3. VA Circular 26-23-06, Exhibit B
4. HUD FHA Homeowners Fact Sheet
6. VA Cash-Out Refinance Quick Reference
7. VA Purchase & Cash-Out page
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How an FHA Cash-Out Appraisal Works on an Existing FHA Loan · Best FHA Cash-Out Refinance Program on an Existing FHA Loan After the Waiting Period · FHA Cash-Out Refinance Requirements With No Mortgage
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.