The Quick Read: The type you get depends on one comparison: the new loan amount against the payoff of the loan you are replacing. If the new loan stays at or below the payoff, it is Type 1 and you take no cash. If it goes above the payoff, it is Type 2 and the difference comes to you. Both types need a Certificate of Eligibility, a VA appraisal, and a net tangible benefit. Both go through a private lender, because VA does not make the loan itself.
What You Need to Know First
- Type 1 means the new loan does not exceed the payoff. Type 2 means it does.
- The new loan, including a financed funding fee, can reach 100% of the appraised value.
- Every VA cash-out has to show a net tangible benefit, whichever type it is.
- You do not need an existing VA loan. A conventional, FHA, or USDA loan can be refinanced into VA.
- Residual income is the controlling underwriting test, not a single debt-to-income cap.
- If you are paying off a VA loan, a seasoning clock applies before the new loan can be guaranteed.
What a VA Cash-Out Refinance Does
A VA cash-out refinance replaces your current mortgage with a new VA-backed loan on new terms. Depending on the numbers, it can pull cash out of your equity or just move a non-VA loan into the VA program. VA says the cash can go toward debt, school, or repairs.
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.
Lendmire’s VA cash-out refinance program page covers the program overview. This article covers the mechanics: how the type gets decided, how the file is tested, and where the usual rules bend.
Three facts about the program shape everything else:
- No VA loan limit with full entitlement. The wholesale programs we place files with serve amounts up to $4,000,000 with full entitlement. With remaining entitlement, the rules differ, and a loan officer needs to look at your certificate.
- No mortgage insurance. VA loans carry no monthly mortgage insurance. There is a one-time funding fee instead.
- Credit floor. VA sets no minimum score. The wholesale programs we place files with start at a 580 decision score. Some lenders set a higher floor on their own.
Type 1 vs. Type 2: Which One Is Yours?
You do not pick a type from a menu. The numbers pick it. Start with the payoff of your current loan, then compare it with the new loan’s amount, including any funding fee you finance. VA’s lender training defines the split this way: Type 1 does not exceed the payoff, and Type 2 does.
Here is how to read your own situation.
1. Do you want cash in hand? If yes, you are looking at Type 2.
2. Do you only want to change the loan itself? Examples: moving from an adjustable rate to a fixed one, or moving from a non-VA loan into VA. That points to Type 1.
3. Will you finance the funding fee or closing costs? Check whether that pushes the new balance past the payoff. A loan built as Type 1 can tip into Type 2 on this alone.
A worked example, with no dollar figures. Say your payoff is about 70% of the appraised value. You ask for a new loan at 70% of value, with the funding fee paid out of pocket. That is Type 1. Now say you roll the fee into the loan, and the new balance lands at 72% of value. The new loan now exceeds the payoff. The file is Type 2, and the extra amount is cash to you, even if it is small.
| Current loan | New loan vs. payoff | Type | Seasoning clock |
|---|---|---|---|
| VA loan | At or below payoff | Type 1 | Applies |
| VA loan | Above payoff | Type 2 | Applies |
| Non-VA loan | At or below payoff | Type 1 | Not a VA clock |
| Non-VA loan | Above payoff | Type 2 | Not a VA clock |
Net tangible benefit applies to every row of that table. VA’s circular on cash-out loans says so directly.
Who Qualifies
Qualification comes down to five pieces. The lender tests each one.
- Certificate of Eligibility (COE). VA decides eligibility. Service requirements are VA’s rules, not the lender’s. Cash-out uses new or additional entitlement.
- Occupancy. A cash-out is for the home you live in as your primary residence.
- Credit. VA sets no floor. Lenders do. In the wholesale programs we use, the starting point is a 580 decision score, and the file is reviewed beyond the score.
- Residual income. This is the controlling test. It measures what is left each month after debts, taxes, and living costs. A 41% debt-to-income figure is a guideline, not a cap. A borrower above it needs residual income well above the table.
- Equity. The new loan, funding fee included, can reach 100% of the appraised value. Many lenders set a lower limit of their own, often 90%, as an overlay. Ask which one applies before you spend money on an appraisal.
A home with no mortgage can qualify. There is no payoff, so any new loan exceeds it and the file is Type 2.
Everything here is subject to lender guidelines and full file review. None of it is a commitment to lend.
The Net Tangible Benefit Test
The net tangible benefit is the part of the file that surprises people. The regulation requires the new loan to give the borrower a real benefit, and the lender has to run and satisfy that test. 38 CFR 36.4306 is where the rule sits. VA lists eight qualifying benefits, and the loan has to meet at least one.
Four of the common ones:
- Keeping the loan-to-value at or under 90%.
- Refinancing an interim construction loan.
- Increasing monthly residual income.
- Moving from an adjustable rate to a fixed rate.
Two points trip people up. First, Type 2 does not skip this test. Second, the half-percent rate-reduction and fee-recoupment tests belong to the IRRRL, VA’s streamline refinance. They do not apply to a VA cash-out, so a borrower should not expect to be measured against them. The IRRRL is a separate program with its own 0.5% funding fee and no VA appraisal.
One more detail on the residual income benefit. If you use it, the lender compares your residual income before and after the refinance. If an adjustable-rate payment changes on or before closing, the adjusted payment is used for the “before” figure.
The Application, Step by Step
The path is the same for both types until the numbers come back. The notes show where the types differ.
1. Get your COE. Request it from VA, or have the loan officer pull it. Check your entitlement. A prior VA loan that is still open can reduce what is available.
2. Identify what you are paying off. Is the current loan VA or non-VA? This decides whether the seasoning clock applies.
3. Set the goal and the numbers. Decide whether you want cash. Get a payoff figure from your servicer. The payoff against the new loan sets Type 1 or Type 2.
4. Pick the benefit. Your lender identifies which net tangible benefit the file meets. If it does not meet one, the loan does not work as built.
5. Submit the file. Expect the usual items: pay stubs or other income proof, bank statements, identification, your COE, and your current mortgage statement. Your lender may ask for more.
6. Order the VA appraisal. The appraiser sets the reasonable value. That value is the denominator for the 100% cap, and the financed funding fee counts toward the cap.
7. Review the disclosures. The lender provides an initial and a final cash-out disclosure. VA’s rulemaking calls for a comparison of the old and new loans and a statement about the effect on your home equity. As a consumer mortgage, the loan also carries a Loan Estimate and a Closing Disclosure.
8. Underwriting and guaranty. The lender uploads the cash-out documents to VA. Underwriting reviews credit and residual income and confirms the benefit.
Type 2 files get one extra look: where the cash goes. Type 1 files get one extra look at whether a financed fee changed the type.
Seasoning: When a VA Loan Cannot Be Refinanced Yet
Seasoning applies when the loan you are paying off is a VA loan. VA cannot guarantee the new loan until the later of two dates: 210 days after the first monthly payment on the old loan, or the date six monthly payments have been made. Both dates come from 38 CFR 36.4306.
The clock runs from the first payment on the old loan, not from the closing date. Extra payments early on do not shorten it. A recent VA purchase buyer cannot do a VA-to-VA cash-out right away.
VA’s cash-out user guide lists a seasoning certification for VA-to-VA cases and none for non-VA payoffs. A conventional, FHA, or USDA borrower moving into VA does not face the VA clock.
What It Costs You
The VA funding fee on a cash-out refinance is 2.15% for first use and 3.3% for subsequent use. The fee can be financed. It is waived for veterans receiving compensation for a service-connected disability and for the other exempt groups.
There is a trade-off. A financed fee raises the balance, and it counts against the 100% cap. A larger balance also raises the payment. Cash out reduces your equity, which is why the disclosure about home equity exists.
“No closing costs” is not how a VA loan works. The funding fee and ordinary closing costs still apply. Any offer that says otherwise is building those costs into the balance or the pricing. VA itself warns about misleading refinance offers, so read the Loan Estimate line by line.
Where the General Rule Breaks
Some files do not follow the usual path.
- Non-VA to VA. A conventional, FHA, or USDA borrower can move into VA through cash-out. The benefit test and disclosures still apply. The VA seasoning clock does not.
- Interim construction loan. This is a listed benefit. VA’s rulemaking gives an example where a veteran recoups personal funds put into construction, limited to the gap between the loan and the appraised value.
- Adjustable to fixed. This is a listed benefit and can help a borrower with little equity.
- Delinquent loans. The refinanced amount is limited to the balance of the loan being paid off, and that loan generally must not be delinquent. The regulation has exceptions, so ask your lender.
- Rolled-in costs that flip the type. Covered above. Check the final payoff and fee before you assume you are Type 1.
- Limited entitlement. If part of your entitlement is tied up in another VA loan, a down payment may be required. Speak with a loan officer about your certificate.
Not sure how a cash-out compares with staying in a conventional loan? Lendmire’s piece VA Cash-Out Refinance vs. Conventional Cash-Out Under VA Type 1 and Type 2 Refinance Rules walks through that choice.
Common Mistakes and Myths
“VA caps cash-out at 90%.” The federal ceiling is 100% of the reasonable value, funding fee included. The 90% figure is one benefit option, and many lenders add it as their own limit.
“Type 2 skips the benefit test.” It does not. Both types need one.
“You need an existing VA loan.” You do not.
“The 210 days start at closing.” They start at the first payment on the old loan.
“VA lends the money.” A private bank, mortgage company, or credit union does.
“A bigger cash-out is always better.” A bigger balance cuts your equity and raises your payment. Take what the goal needs.
Questions to Ask a Lender Before You Apply
- Is there a loan-to-value limit below 100% on my loan? How might the appraisal affect the amount I can borrow? The appraisal depends on comparable sales and underwriter review, and improvements may support a higher value but are not guaranteed to.
- What is your minimum credit score on VA cash-out files?
- Which net tangible benefit does my file meet?
- Does my payoff make this Type 1 or Type 2 once the funding fee is financed?
- Does seasoning apply to my current loan?
- When will the cash-out disclosures reach me?
Key Terms Defined
Certificate of Eligibility (COE): The VA document that confirms you qualify for a VA loan and shows your entitlement.
Entitlement: The amount VA guarantees on your behalf, which affects whether a down payment is needed.
Net tangible benefit: A concrete gain the new loan must give you, chosen from VA’s list of eight.
Reasonable value: The appraised value VA uses to set the loan-to-value cap.
Residual income: The money left each month after debts, taxes, and living costs, and the controlling underwriting test on VA loans.
Seasoning: The waiting period before a VA loan can be refinanced into a new VA cash-out.
Funding fee: The one-time VA fee, which can be financed and is waived for exempt borrowers.
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 and arranges VA loans through wholesale lenders. All figures here are subject to lender guidelines and full file review, and none is a commitment to lend.
Frequently Asked Questions
Can I do a VA cash-out refinance if I do not have a VA loan now?
Yes. VA allows a conventional, FHA, or USDA loan to be refinanced into a VA-backed loan. You still need a COE, a VA appraisal, and a net tangible benefit. The VA seasoning clock does not apply to a non-VA payoff.
How much equity can I reach?
The federal ceiling is 100% of the appraised value, with a financed funding fee counted toward it. Many lenders set a lower limit of their own, so the equity you can reach depends on the lender’s overlay and the appraisal.
Does Type 2 have easier rules than Type 1?
No. Both types need a net tangible benefit, an appraisal, and full underwriting. The difference is cash: Type 2 puts it in your hands, and Type 1 does not. The rate-reduction and recoupment tests are IRRRL rules, not cash-out rules.
What credit score do I need?
VA sets no minimum score. The wholesale programs we place files with start at a 580 decision score, and some lenders set a higher floor. Residual income and the full file matter along with the score.
How long do I have to wait after buying with a VA loan?
If you are paying off a VA loan, VA cannot guarantee the new loan until the later of 210 days after your first payment or your sixth payment. The clock runs from the first payment, not from closing.
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.gov: Cash-out refinance loan
2. VA’s lender training defines the split
5. Federal Register: Loan Guaranty, Revisions to VA-Guaranteed or Insured Cash-Out Home Refinance Loans
6. VA Cash-Out Refinance User 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 Requirements When Equity Is Tight · How to Qualify and Apply for a VA Cash-Out Refinance Under Type 1 and Type 2 Rules · Can You Remove a Co-Borrower With a VA Cash-Out Refinance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.