The Quick Read: The VA ceiling is 100% of the home’s appraised value, including any financed funding fee. A lender’s own cap can sit below that line, and the cap, not the VA rule, then sets your cash. Take the capped value, subtract your payoff, liens and costs, and what remains is what reaches you.
What an Overlay Actually Is
An overlay is a rule a lender or investor adds on top of a program. It is stricter than the agency rule. VA does not write it, and VA does not require it.
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.
Three terms keep the pieces apart:
- Program rule: the limit VA sets for every VA-guaranteed loan.
- Overlay: a tighter limit set by the lender or the investor who buys the loan.
- Reasonable value: the appraised value of the home, the number every percentage is applied to.
Keep these separate in your head and the rest of the file makes sense. A borrower who hears “VA allows 100%” and then sees a smaller offer has not been misled. The program ceiling and the lender’s cap are two different numbers.
Across the wholesale programs Lendmire places VA files with, the VA cash-out reaches 100% of the appraised value, including the financed funding fee. It also refinances any loan type into VA, not only existing VA loans. Whether a given file reaches that line depends on the lender it lands with. For the program basics, see Lendmire’s VA cash-out refinance program page.
What Is the VA Ceiling, and Does the Funding Fee Count?
The ceiling is 100% of reasonable value, and the funding fee counts inside it. VA Circular 26-18-30 says VA stopped guaranteeing refinance loans above 100% LTV. It also defines LTV as the total loan amount, fee included, divided by reasonable value.
The fee can be financed. But any part that would push the loan past 100% must be paid in cash at closing, per the Federal Register rule that rewrote the cash-out regulation. So the fee never sits “on top of” 100%. It sits inside it.
The funding fee for a cash-out refinance is 2.15% on first use and 3.3% on later use. Veterans who receive compensation for a service-connected disability, and the other exempt groups, owe nothing. Exempt status removes the fee from the loan amount entirely, which leaves more room under any cap.
Where the 90% Number Comes From
Most borrowers who have heard “90%” heard it as a hard VA cap. It was one, years ago. Congress set a 90% cash-out limit in 1989, and the regulation carried it forward. The 2018 rule, effective for applications taken on or after February 15, 2019, replaced that with the 100% statutory ceiling.
Today 90% survives in two places:
1. As one of the net tangible benefit criteria. A new loan at 90% or less of reasonable value is one way to show the refinance helps the borrower, per the Federal Register text. VA treats retained equity as one factor among several.
2. As a lender’s own overlay. Many lenders choose to cap below 100%. When that happens, the cap is lender policy and should never be described as VA policy.
How the Cap Sets Your Cash (Step by Step)
The mechanics run in a fixed order. Here is the file as it moves.
1. Certificate of eligibility. You get your COE through the lender or VA.gov. VA decides eligibility, and the service rules are VA’s. VA.gov’s cash-out page also requires that you live in the home you are refinancing.
2. Appraisal. The lender orders it. VA’s page confirms the lender, not VA, handles this. The appraised value is the base for every percentage that follows. A low appraisal shrinks the maximum loan one-for-one.
3. Apply the cap. Multiply the appraised value by the lower of two numbers: VA’s 100% or the lender’s overlay. That is your maximum loan, funding fee included.
4. Subtract what comes out first. Take away the payoff of the current loan, any liens, and closing costs. A financed funding fee is already inside the maximum, so it does not come out a second time.
5. What is left is your cash. That is the formula: capped value, minus payoff, minus liens and costs.
6. Qualification. A cash-out is fully underwritten. It is not an IRRRL. Credit, income and residual income all apply, and 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 VA table. Across the wholesale programs Lendmire places VA loans with, the decision-score floor starts at 580. Individual lenders may set a higher floor.
A thing to watch on every file: the cap applies to the whole loan, including the financed fee. A lender that caps at 90% is not capping the base loan at 90% and then adding the fee. The fee eats into the capped amount.
The Same Home at the Ceiling and Under a Cap
Run it with percentages, no dollars. Take a home appraised at some value, with a payoff equal to 60% of that value. Costs and the financed fee together come to roughly 4%.
| Scenario | Cap on value | Cash before costs | Cash after payoff and costs |
|---|---|---|---|
| VA ceiling | 100% | 40% of value | about 36% of value |
| Lender cap | 90% | 30% of value | about 26% of value |
| Tighter lender cap | 80% | 20% of value | about 16% of value |
The 4% for costs is an illustration, not a quote. The point is the spread. Moving from a 100% ceiling to a 90% overlay drops this borrower’s cash by 10% of the home’s value. That is a quarter of the cash, taken by a lender’s own cap rather than by a VA rule.
Now compare how much the same overlay hurts a borrower with a bigger mortgage. At a payoff of 85% of value, a 90% cap leaves only 5% before costs. After a financed fee and costs, the borrower may net close to nothing. Overlays bite hardest on files with thin equity.
Type I and Type II: Which One Does the Cap Touch?
VA sorts cash-outs two ways, per Circular 26-18-30:
| Factor | Type I | Type II |
|---|---|---|
| New loan vs. payoff | Does not exceed payoff, fee included | Exceeds the payoff |
| Cash back | None | Yes |
| Can refinance a non-VA loan into VA | Yes | Yes |
| Net tangible benefit | Applies | Applies |
| LTV ceiling | 100% | 100% |
The overlay hits Type II hardest, because Type II is the loan that takes cash out. Type I has nothing to cap in the borrower’s pocket. Its question is whether the new loan, fee included, fits under the lender’s limit at all.
Net Tangible Benefit, Seasoning and What Does Not Apply
Net tangible benefit applies to every VA cash-out. The lender must show the loan helps you, using one of VA’s eight listed benefits. Staying at or under 90% of value is one. Refinancing an interim construction loan is another. Moving from an adjustable rate to a fixed rate is a third. The lender also gives you a comparison of the old and new loan.
Seasoning is the later of 210 days from the first payment and the 6th payment, and it applies on cash-outs that refinance a VA loan. A lender buying the loan may add its own seasoning as an overlay, so treat that as a question to ask rather than a rule to assume.
Two IRRRL tests never apply here: the half-percent rate-reduction test and the fee-recoupment test. Borrowers who read an IRRRL guide and apply those tests to a cash-out will misread their own file.
Where the General Rule Breaks
Named edge cases, each worth checking before you order an appraisal:
- Funding fee near the line. If the appraisal is tight and the financed fee would cross 100%, the excess is paid in cash. A borrower expecting a zero-cash closing needs to see the number first.
- Non-VA loan being refinanced. You do not need a current VA loan. VA says you can refinance a non-VA loan into a VA-backed one. The VA cash-out carries the same net tangible benefit test whichever loan type is being paid off, but the seasoning requirement applies only when the loan being refinanced is VA-guaranteed.
- Occupancy. VA’s pages tie these loans to a home you will live in. A second home or a rental does not fit that language, so occupancy is a question of eligibility before it is a question of leverage.
- State law. Some states restrict cash-out lending on a home. A state rule can sit below both VA’s ceiling and the lender’s cap. Ask the loan officer whether one applies where the home sits.
- Large loan amounts. With full entitlement there is no VA loan limit. Some lenders and investors set their own maximums and may change terms on a very large loan. The wholesale programs Lendmire places VA loans with serve amounts to $4,000,000 with full entitlement. Remaining entitlement can mean a down payment. Speak with a loan officer on that point.
What to Ask a Lender About Overlays
Overlays show up late if you never ask. Raise these before you pay for an appraisal:
- What is your maximum LTV on a VA cash-out, and does it include the financed funding fee?
- Is the cap different for Type I and Type II?
- Is there a minimum decision score on a cash-out above a certain LTV?
- Do you add seasoning beyond VA’s, especially on a non-VA payoff?
- Does a larger loan amount change the cap or the term?
A written answer to the first question tells you most of what you need. Lendmire works with a range of wholesale lenders, and caps differ among them. Shopping the cap is a real step, not a courtesy.
When Less Cash Is the Smarter Choice
Sometimes a capped loan serves you better than the full ceiling. A lower LTV keeps more equity in the home. It leaves more breathing room if the market softens. It can also keep the loan inside the 90% net tangible benefit test, which gives the file one more clean path to approval.
A tighter cap also shrinks the new loan, and a smaller loan carries a smaller payment. Residual income is the controlling test, so a borrower close to the line may find that taking less cash makes qualifying easier. The budget question, not the equity question, often decides it.
If the cap blocks the cash you need, the options are short:
1. Take a smaller draw and fund the rest another way.
2. Ask a different lender for its cap. Overlays vary.
3. Look at a second lien or a home equity product, which leaves the first mortgage alone. Those carry their own terms and a separate qualification.
4. Wait on the project until equity builds or the appraisal improves.
VA.gov adds a plain caution on its cash-out page: understand how the new loan amount relates to the value of your home, and be careful with refinance offers. That is sound advice. Read the Loan Estimate, check the loan amount against the appraisal, and compare it with your payoff.
Key Terms Defined
- Reasonable value: the appraised value VA uses as the base for the loan limit.
- Overlay: a lender or investor limit that is stricter than the VA rule.
- Type I cash-out: a refinance where the new loan, fee included, does not exceed the payoff.
- Type II cash-out: a refinance where the new loan exceeds the payoff, so cash comes back to you.
- Net tangible benefit: the test showing the refinance helps you, met through one of VA’s eight listed criteria.
- Residual income: what is left of monthly income after your major obligations and living costs, the controlling VA test.
- Funding fee: the VA fee, which can be financed and is waived for exempt veterans.
Frequently Asked Questions
Is a VA cash-out capped at 90% of value?
No. The 90% cap ended with the 2018 rule, effective in 2019. The current VA ceiling is 100% of reasonable value, funding fee included. The 90% figure now appears as one net tangible benefit criterion and as a limit some lenders choose to set themselves.
If VA allows 100%, will every lender lend to that level?
Not necessarily. Lenders set their own overlays, and many set them below 100%. That is common practice. The same appraisal can support a larger or smaller loan depending on which lender holds the file. Ask for the cap in writing before you order an appraisal.
Does the funding fee reduce the cash I receive?
Yes, when it is financed, because it sits inside the maximum loan. The cash-out fee is 2.15% on first use and 3.3% on later use, and exempt veterans owe none. Any part that would push the loan above 100% of value must be paid in cash at closing.
Do I need an existing VA loan to do a VA cash-out?
No. VA says you can refinance a non-VA loan into a VA-backed loan. Seasoning under VA’s rule applies only when the loan being refinanced is VA-guaranteed. You do need a certificate of eligibility and must live in the home.
Does a VA cash-out need full underwriting?
Yes. Unlike the IRRRL, a cash-out is fully underwritten, with credit, income and residual income reviewed. Everything is subject to lender guidelines and full file review.
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 your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. 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. Federal Register, 83 FR 64459 (Dec 17, 2018)
3. VA.gov: Cash-out refinance loan
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 Qualify and Apply for a VA Cash-Out Refinance When Borrowing at a High LTV · VA Cash-Out vs Jumbo Cash-Out to Buy Out an Ex Who Is on Title · How to Use a VA Cash-Out to Fund a Condo Renovation
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.