The Quick Read: A VA cash-out is built for veterans who want the most equity access and no mortgage insurance. A conventional cash-out is built for borrowers who have lots of equity and don’t need to reach as far. “Type I” and “Type II” are VA labels only. They describe loan structure, not what you plan to do with the money. Conventional loans have no such split.
A veteran with a Certificate of Eligibility (COE), living in the home, who wants to borrow against a large share of its value, usually fits VA. A borrower with no VA eligibility, or one who wants to keep a cushion of equity, usually fits conventional. Type I versus Type II only matters once VA is on the table.
Key Takeaways
- Type I means the new loan, funding fee included, does not exceed the payoff of the loan being replaced. Type II means it does.
- A VA cash-out can reach 100% of the appraised value, financed fee included. A conventional cash-out stops lower.
- VA carries no monthly mortgage insurance. Conventional loans above 80% of value generally need it.
- Both VA types need a net tangible benefit. Both are full, underwritten loans with an appraisal.
- Your choice depends on eligibility, how much equity you want to leave in the home, and what the cash is for.
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.
Side-by-Side
This table puts the three paths together. Program details vary by lender, and every figure is subject to lender guidelines and full file review.
| Factor | VA Type I | VA Type II | Conventional cash-out |
|---|---|---|---|
| Who it’s for | Eligible veterans whose new loan does not exceed the payoff | Eligible veterans whose new loan exceeds the payoff | Any borrower meeting agency guidelines |
| Leverage | Up to 100% of appraised value | Up to 100% of appraised value | 80% on a one-unit primary residence; lower for other uses |
| Credit floor | 580 decision score on wholesale programs we place | Same | Set by lender and agency rules |
| Mortgage insurance | None | None | Generally needed above 80% of value |
| Occupancy | You must live in the home | You must live in the home | Primary, second home, investment (lower caps) |
| Documentation | COE, appraisal, residual income, net tangible benefit | Same | Income, assets, appraisal |
| Fee at closing | VA funding fee, unless exempt | VA funding fee, unless exempt | No VA fee; lender and third-party costs |
Two rows deserve a note. The 580 figure is the decision-score floor on the wholesale programs Lendmire places VA files with. VA itself sets no minimum score, and some lenders set a higher floor. The 100% figure includes the financed funding fee, so the fee has to fit inside that ceiling.
How VA Sorts Cash-Out Loans Into Type I and Type II
The test is arithmetic. Add up the new loan amount, including the funding fee. Compare it to the payoff of the loan you’re replacing. If the new loan is at or below the payoff, it’s Type I. If it’s above, it’s Type II.
VBA Circular 26-19-05 sets out these definitions. A Type I can still sit inside VA’s “cash-out” category even though you walk away with no cash. That surprises people. The label follows structure, not intent.
Two situations produce a Type I:
- A veteran with a non-VA loan, such as FHA, USDA or conventional, who wants to move into a VA-backed loan without taking cash.
- A veteran who wants to switch from an adjustable-rate loan to a fixed one, or drop monthly mortgage insurance, and takes nothing out.
A Type II is the “I want cash” version. The equity pulled out is what pushes the new balance above the payoff.
Here’s where files go sideways. A borrower plans a Type I, then rolls closing costs and the funding fee into the balance. The total tips above the payoff. Now it’s a Type II. The borrower should know before the Loan Estimate arrives, so ask the loan officer which type the file is classified as.
Lendmire’s VA cash-out refinance program page covers how the product works from the veteran’s side. For a closer read on the two types, see Lendmire’s piece VA Cash-Out Refinance Type I vs. Type II for a Veteran Taking Cash.
The Rules Both VA Types Share
Whichever type the file lands in, the VA cash-out comes with the same core requirements. VA’s own cash-out page says you need a COE and you must live in the home. VA doesn’t lend the money. A private lender does, and VA backs part of it.
Net tangible benefit. The loan has to give the veteran at least one listed benefit. 38 CFR 36.4306 lists them. They include eliminating monthly mortgage insurance, raising the borrower’s monthly residual income, and refinancing an adjustable-rate loan into a fixed-rate one. VA lists eight benefits in all.
Reasonable value. The VA appraisal sets the value. The loan, financed fee included, cannot exceed it. If the appraisal comes in light, the cash-out shrinks, or the file stalls.
Seasoning on VA-to-VA files. If you’re replacing an existing VA loan, VA’s seasoning rules apply. In plain terms, the later of 210 days from the first payment and the sixth payment. If the loan being paid off isn’t a VA loan, VA seasoning doesn’t apply, though the net tangible benefit still does.
Disclosures. The required cash-out disclosures have to be completed or VA won’t guarantee the loan.
Residual income. On VA files, residual income is the controlling test. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
One more point, because it confuses people. The half-percent rate-reduction test and the fee-recoupment test are streamline (IRRRL) rules. They don’t govern the VA cash-out. A Type I is not an IRRRL. It needs a full appraisal and full underwriting, and it follows its own rules.
The Funding Fee, Mechanically
VA charges a one-time funding fee instead of mortgage insurance. For a cash-out refinance, it’s 2.15% on first use and 3.3% after that. The fee can be financed into the loan. Veterans receiving compensation for a service-connected disability, and the other exempt groups, don’t pay it. VA’s fee table lives in Circular 26-23-06, Exhibit B. That exhibit is dated, so confirm the current table on VA.gov before you rely on it.
The fee interacts with leverage. If you borrow to 100% of value and finance the fee, the whole thing has to fit under the appraised value. That’s the mechanical reason some veterans ask for less cash than they could take.
When VA Is the Better Fit
VA wins on four fact patterns.
You want the highest leverage the product allows. A VA cash-out reaches 100% of the appraised value, financed fee included. Conventional on a one-unit primary residence stops at 80%, per the Fannie Mae Eligibility Matrix. If a project needs more equity than 80% allows, VA is often the only path.
You’d otherwise pay mortgage insurance. VA has no monthly mortgage insurance. A conventional loan above 80% of value generally carries it. Eliminating mortgage insurance is itself a listed net tangible benefit. Consider a borrower in an FHA loan who wants out of the insurance. A Type I into VA does that with no cash taken.
You want to change loan type. A VA cash-out refinances any loan type into VA. FHA, USDA and conventional borrowers with a COE can all use it. The same goes for an adjustable-rate loan that needs to become a fixed one.
Your credit has a few dings. The wholesale programs Lendmire works with start at a 580 decision score on VA files. Conventional floors run higher on many lender menus. A veteran with a thinner credit profile may find VA is the program that fits.
Type I or Type II then follows from the goal:
- Choose the Type I path when the aim is to swap programs, drop mortgage insurance, or lock a fixed structure, and you want little or no cash out.
- Choose the Type II path when you have a specific use for the equity, such as repairs, consolidating other debt, or a large expense. CFPB’s data on cash-out borrowers says proceeds often go to paying down other debts, especially credit card and auto loans.
The trade-off is equity. Borrowing to 100% of value leaves no cushion if prices slip. That’s a real cost, and a veteran should weigh it honestly.
When Conventional Is the Better Fit
Conventional wins when VA doesn’t apply or when VA’s strengths don’t matter.
You have no COE. VA requires one. A non-veteran co-borrower or a borrower without qualifying service can’t use the program. Conventional is open to anyone who meets agency guidelines.
You don’t need to borrow much. If you want a modest amount of cash and have plenty of equity, the 80% ceiling isn’t a limit. You keep a cushion, and you avoid the VA funding fee, which is 2.15% on first use.
The property isn’t your home. VA requires you to live in the home. Conventional allows second homes and investment properties, with lower leverage caps than the one-unit primary residence. A cash-out on a second home is a conventional conversation. One sentence settles it: occupancy decides the leverage.
You’re an exempt-fee borrower thinking about the math. Even veterans who don’t pay the funding fee may prefer conventional if they have strong credit and a large equity position. There’s no VA appraisal-to-value ceiling to work around, and no VA-specific disclosure steps.
Conventional comes with its own friction. There’s a title-seasoning clock, so the property generally has to have been owned for a minimum period before the new loan. There’s also a loan-age clock. Check the current Fannie Mae Selling Guide for the exact terms, because the version most lenders cite changes. A delayed-financing exception exists for borrowers who bought with cash. State law can add limits on conventional cash-out too, and Texas has its own matrix entry.
Conventional also has no Type I or Type II, no net tangible benefit test and no VA-style residual-income test. Its documentation is income, assets and an appraisal. For a self-employed borrower or someone with a complex file, that’s a different kind of paperwork, not necessarily a lighter one.
What Goes Wrong on These Files
A few failure modes show up often enough to name.
The appraisal comes in below the plan. VA caps the loan at reasonable value, fee included. A cash-out sized to a hoped-for value gets cut. Build the plan with room.
Seasoning is assumed away. On a VA-to-VA file, the later of 210 days from the first payment and the sixth payment still applies. Files that skip this get kicked back. A non-VA payoff skips VA seasoning, but it faces the net tangible benefit test.
Net tangible benefit isn’t documented. The lender needs to show at least one listed benefit. If the point of the loan is only cash, say so early so the file is built around the right test.
The type changes late. Closing costs or the funding fee get financed, the balance tips over the payoff, and a Type I becomes a Type II. Confirm the type once the final numbers are known.
Cash-out disclosures are missed. VA won’t guarantee the loan without them. Loan Estimate and Closing Disclosure timing under TRID applies too, because this is a consumer mortgage.
Borrowers underweight the budget effect. CFPB’s guide on using home equity says a cash-out refinance can extend your payoff time and raise your monthly payment, because a larger loan replaces the current one. That applies to either program.
One more thing. VA itself warns veterans to be careful with refinance offers and links to signs of misleading ones. A mailer promising to “unlock your equity” with no mention of the funding fee isn’t telling the whole story. “No closing costs” claims deserve the same scrutiny, because the costs get built into the balance.
Key Terms Defined
Type I cash-out: A VA cash-out where the new loan, funding fee included, does not exceed the payoff of the old loan.
Type II cash-out: A VA cash-out where the new loan, funding fee included, exceeds the payoff.
Net tangible benefit: A listed advantage to the veteran that a VA refinance has to deliver, such as dropping mortgage insurance or moving from adjustable to fixed.
Certificate of Eligibility (COE): The VA document that confirms you qualify for the program.
Residual income: The money left each month after major obligations, which VA treats as the controlling underwriting test.
Seasoning: The waiting period tied to the loan being refinanced.
Funding fee: VA’s one-time fee, which can be financed and is waived for exempt veterans.
The Balanced Verdict
Neither option is better in the abstract. For an eligible veteran who needs high leverage, wants to avoid mortgage insurance, or wants to move from another loan type into VA, VA is usually the stronger tool. Type I fits the switch-and-simplify goal. Type II fits the take-cash goal.
For a borrower without a COE, a borrower who wants to keep a larger equity cushion, or an owner financing something other than a primary home, conventional is the cleaner path.
When the choice is close, run the question both ways: how much equity do you want left in the home afterward, and which program’s tests does your file clear cleanly?
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. Every figure above is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Does a VA Type I cash-out refinance put any cash in my pocket?
No cash is meant to come out of a Type I. The new loan, funding fee included, stays at or below the payoff. It still sits in VA’s cash-out category because of how the loan is structured, and it still needs a full appraisal, full underwriting and a net tangible benefit.
Can I refinance an FHA or conventional loan into a VA loan?
Yes, if you have a COE and will live in the home. VA lists refinancing a non-VA loan into a VA-backed loan as a stated purpose of the cash-out product. VA seasoning applies only when the loan being paid off is a VA loan, but the net tangible benefit test applies either way.
How much of my home’s value can each option reach?
A VA cash-out can reach 100% of the appraised value, including the financed funding fee. Conventional cash-out on a one-unit primary residence is capped at 80% per Fannie Mae’s matrix, and caps are lower for two units and other occupancies. Individual lenders can set tighter limits than either agency.
Does the VA cash-out have mortgage insurance?
No. VA charges a one-time funding fee instead, 2.15% on first use and 3.3% on later use for a cash-out, waived for exempt veterans. Conventional loans above 80% of value generally require private mortgage insurance. The funding fee schedule changes, so confirm the current table on VA.gov.
Is a VA cash-out the same as a VA streamline?
No. The streamline (IRRRL) refinances an existing VA loan with no VA appraisal and a 0.5% fee unless exempt. The cash-out needs a full appraisal, full underwriting, and a net tangible benefit. It can also refinance any loan type into VA, which the streamline can’t do.
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
2. VA.gov: Cash-out refinance loan
4. VA Circular 26-23-06, Exhibit B
5. Fannie Mae Eligibility Matrix
6. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
7. CFPB – Using home equity guide (older Americans)
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 Get a VA Cash-Out Refinance With an Unpermitted Addition · How Lenders Underwrite a VA Cash-Out Refinance Choosing Between Type 1 and Type 2 · How to Qualify and Apply for a VA Cash-Out Refinance as a Type I or Type II Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.