The Quick Read: The cash from either loan is borrowed money, generally not taxable income, so taxes do not separate the two. What separates them is how much equity each can reach, whether mortgage insurance applies, and whether you hold VA eligibility. A VA cash-out fits eligible borrowers who want to use the most equity. A conventional cash-out fits borrowers without VA eligibility, or those who want to keep a cushion of equity in the home. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
The Honest Answer First
Both loans replace your current mortgage with a larger one and hand you the difference. Neither one turns that difference into income. You owe it back with interest, which is why it is generally not taxed when it lands in your account. Whether the interest is deductible is a separate question that depends on how you spend the money, and that is a tax-professional question, not a loan-program question.
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.
So pick on mechanics. A VA cash-out is for owner-occupants with a certificate of eligibility (COE) who want to reach high leverage with no mortgage insurance. A conventional cash-out is for borrowers who lack VA eligibility, who have plenty of equity to spare, or whose credit and documentation fit the conventional box better.
One more thing. “Cash-out” does not always mean cash. A VA cash-out can refinance a non-VA loan into a VA loan with little or no cash back. Lendmire’s VA cash-out refinance program page covers that structure.
Side-by-Side
| Factor | VA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Leverage | Up to 100% of appraised value, financed fee included | Capped well below that; equity must remain |
| Credit floor | 580 decision score on the wholesale programs Lendmire places | Set by the lender and agency guidelines |
| Mortgage insurance | None | Rules vary by loan-to-value |
| Occupancy | Home you live in | Primary, second home or investment, at different caps |
| Documentation | Full file; residual income controls | Income, assets and debt-to-income review |
| Funding fee | 2.15% first use, 3.3% after, unless exempt | None; loan-level price adjustments apply instead |
| Loan limit | None with full entitlement | Agency limits |
Program figures are subject to lender guidelines and full file review. They are not a commitment to lend.
What the Cash Is, and Isn’t, for Tax Purposes
What matters for the comparison is this: nothing in the loan structure changes the answer. The VA program and the conventional program both deliver loan proceeds. IRS Publication 936 says deductibility of mortgage interest depends on the date of the mortgage, its amount and how you use the proceeds. That is true of either loan. Neither one gets a tax edge from being VA or conventional.
How a VA Cash-Out Works
Start with the COE. You can get it through a lender, VA.gov or by mail, per VA Home Loans. You must live in the home you are refinancing. You go through a private lender, which orders an appraisal, per the VA cash-out loan page.
Here is what happens inside the file on the wholesale programs Lendmire places VA loans with:
- The new loan can reach 100% of the appraised value, including the financed funding fee.
- It can refinance any loan type into VA, not only an existing VA loan.
- Residual income is the controlling underwriting test. The 41% debt-to-income figure is a guideline, not a cap.
- Seasoning applies to VA-to-VA refinances: the later of 210 days from the first payment and the sixth payment.
- A net tangible benefit is required. The loan must meet one of VA’s eight listed benefits under 38 CFR 36.4306(a)(3)(i).
The half-percent rate-reduction and fee-recoupment tests belong to the IRRRL. They do not apply to the VA cash-out, so do not let anyone apply them to your file.
The funding fee is financeable and is waived for veterans receiving compensation for a service-connected disability and the other exempt groups. It is described here as a mechanic, not a price.
When a VA Cash-Out Is the Better Fit
Choose VA when these things line up:
- You hold a COE and live in the home. Without both, the program is off the table.
- You need the most equity. Reaching 100% of appraised value leaves room that conventional caps do not.
- Mortgage insurance would hurt the file. The VA program carries none. On a conventional loan at higher leverage, mortgage insurance rules can change the carry.
- You are moving a non-VA loan into VA. A refinance of any loan type into VA is allowed, with or without cash back.
- Your debt-to-income runs above 41%. The ratio is a guideline. Strong residual income can carry a higher one, subject to lender review.
- Your loan is large. There is no VA loan limit with full entitlement, and the wholesale programs serve amounts to $4,000,000.
Picture a veteran with a conventional loan, a COE and plenty of equity who wants to pay off credit cards. The VA path can reach more of that equity without mortgage insurance. The cost is the funding fee, unless she is exempt. The fee is financeable, but financing it raises the balance, and the balance carries interest over time.
That last point is a real cost. VA’s own guidance notes that rolling cash-out amounts into the loan increases interest paid over time. A bigger loan at a longer term can cost more even when the payment feels manageable.
When a Conventional Cash-Out Is the Better Fit
Conventional wins when VA eligibility is missing, or when taking less equity is the smarter move.
- No COE. If you never served, or your service doesn’t meet VA’s rules, conventional is the path.
- You want a cushion. Conventional caps leave equity in the home. For some borrowers that is a feature, not a limit.
- The home is not your residence. VA requires you to live there. Conventional guidelines allow cash-out on second homes and investment property at lower leverage caps, so occupancy decides the leverage.
- A small cash need and strong equity. If you take little and keep a large equity cushion, mortgage insurance and loan-level pricing may matter less.
- Credit and documentation fit conventional. A borrower with strong credit and clean income documentation may do fine there.
Conventional cash-out carries pricing adjustments tied to loan-to-value and credit score. The Fannie Mae Selling Guide explains that loan-level price adjustments apply to certain cash-out transactions. The leverage caps themselves sit in the agency’s eligibility matrix, and they differ by occupancy and property type.
Where Files Get Stuck
Several friction points come up on cash-out files, and each one is worth checking before you apply.
Appraisal value. Both loans live and die on the appraisal. A VA loan sizes to reasonable value. A low number shrinks the cash. On VA files, ask early whether comparable sales support the value you expect.
Seasoning mix-ups. VA seasoning applies to VA-to-VA only. Refinancing a non-VA loan into VA does not trigger it. Some lenders add waiting periods beyond VA’s rules, so check the specific program.
Net tangible benefit paperwork. The lender must show the veteran how the loan benefits them. Expect disclosures. Missing or sloppy benefit documentation can delay a VA file.
Residual income. Borrowers focus on the 41% figure and miss that residual income controls. A ratio above that guideline needs residual income well above the table, so a thin residual number can stall a high-ratio file.
Occupancy proof. VA files need the home to be your residence. Documentation of occupancy matters.
Compare Like With Like
The easiest mistake in a cash-out is comparing a new payment to the old one when they do not contain the same pieces. If one number includes taxes and insurance and the other does not, the new loan looks cheaper than it is.
This is not a theoretical risk. The CFPB ordered NewDay USA to pay $2.25 million over misleading cost comparisons on VA cash-out refinances. The lesson for any borrower is to line the Loan Estimate and Closing Disclosure up against your current statement item by item.
The CFPB’s research on cash-out borrowers found borrowers often use the money to pay down credit card and auto debt, with credit scores rising at first and then gradually slipping, though staying above pre-refinance levels. Paying down cards works only if the balances stay down.
A Balanced Verdict
If you have a COE and you live in the home, the VA cash-out usually deserves a look first. It reaches the most equity, carries no mortgage insurance, and has no loan limit with full entitlement. The funding fee and the added interest on a bigger balance are the costs to weigh.
If you lack VA eligibility, the choice is made for you. If you hold eligibility but want to keep equity in the home, or the home is not your residence, conventional may fit better.
The tax angle does not tip the scale. Cash from either loan is generally not income, and interest deductibility turns on how you spend it. 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. For refinance categories, see Lendmire’s article VA Cash-Out Refinance vs. Conventional Cash-Out Under VA Type 1 and Type 2 Refinance Rules.
Key Terms Defined
Certificate of Eligibility (COE): The VA document that proves you qualify for a VA loan.
Residual income: The money left each month after major obligations, which VA treats as the controlling underwriting test.
Net tangible benefit: A measurable advantage to the borrower that a VA refinance must show, drawn from VA’s eight listed benefits.
Funding fee: A one-time VA charge, financeable and waived for exempt borrowers.
Seasoning: The waiting period before a VA-to-VA refinance is allowed.
Loan-level price adjustment: A pricing add-on for certain conventional cash-out loans, based on loan-to-value and credit score.
Frequently Asked Questions
Is the cash from a cash-out refinance taxable?
Generally no. The money is a loan you repay, not income. That holds for VA and conventional loans alike. Interest deductibility is a separate question tied to how you use the funds, so see IRS Publication 936 and a tax professional.
Can I use a VA cash-out if my current loan is not a VA loan?
Yes. A VA cash-out can refinance any loan type into a VA loan, with or without cash back. VA seasoning applies only when you refinance an existing VA loan.
Does a VA cash-out require mortgage insurance?
No. The VA program carries no mortgage insurance. It does have a funding fee, which is financeable and waived for veterans receiving compensation for a service-connected disability and other exempt groups.
Does a VA cash-out always put cash in my hand?
No. Some structures refinance a loan into VA or change its terms with no cash back. Confirm the structure with your loan officer before assuming proceeds.
How much equity can each loan reach?
A VA cash-out can reach 100% of the appraised value including the financed fee, on the wholesale programs Lendmire places. Conventional cash-out caps are lower and vary by occupancy and property type. Figures are subject to lender guidelines and full file review.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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.gov, Cash-out refinance loan
4. VA Loan Guaranty Conference, Refinancing Loans
6. Fannie Mae Selling Guide B2-1.3-03
7. CFPB, NewDay USA press release
8. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
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 Twice in a Row · Best VA Cash-Out Refinance Program When Child Support Counts as Income · VA Cash-Out Refinance Requirements on a Home You Own
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.