The Quick Read: The ceiling is 100% of the value VA determines through the appraisal, and the financed funding fee counts inside that ceiling, not on top of it. Cash to the borrower is what’s left after the payoff, liens, allowable costs and the fee come out of that cap. Residual income and the net tangible benefit test can pull the final loan below the ceiling. Everything here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
The Cap Logic in Plain Words
The cap works like this: the new loan cannot exceed 100% of reasonable value. The VA Lenders Handbook, Chapter 6 says closing costs, including the funding fee, may be paid from loan proceeds, but the loan amount may not exceed the maximum. It also notes there is no maximum dollar amount for VA loans.
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.
Two old beliefs need to go. The first is the 90% cap. The Handbook revision note says the chapter was updated to remove references to a 90 percent limit. Some lender pages still advertise it. Skip that advice.
The second is the idea that the fee sits above the cap. It doesn’t. It’s inside.
The formula in words: the maximum loan equals the appraised value, and the new loan, including the financed funding fee, must fit under that figure. The new loan is built from the payoff of every lien being retired, the financed funding fee, allowable closing costs, and whatever cash the borrower takes. Cash to the borrower is the room left under the cap once the payoff, the fee and the costs are counted.
This is the mechanics view of what Lendmire’s VA cash-out refinance program page covers for homeowners. Across the wholesale programs placed through Lendmire, the cap is 100% of the appraised value, including the financed fee. The loan comes through a private lender, not VA directly, per VA’s cash-out page.
How Is the Loan Underwritten, Step by Step?
An underwriter works in a fixed order. Here is the sequence on a typical file.
1. Eligibility and occupancy. The borrower shows a Certificate of Eligibility (COE) and lives in the home being refinanced. The COE can come through the lender, VA.gov, or by mail. For active-duty members, a spouse or dependent can satisfy occupancy.
2. Classify the loan. The new loan amount, including the funding fee, is compared with the payoff of the old loan. At or below the payoff is Type I. Above it is Type II, and the excess is the cash to the borrower.
3. Order the appraisal. VA reasonable value comes from an appraisal. Everything downstream depends on this number.
4. Build the loan amount. Add the payoff of all liens retired, the financed fee, allowable costs, and any cash out. The total must stay at or under 100% of reasonable value.
5. Run the net tangible benefit test. The lender documents it and gives the borrower a comparison of the old and new loans. More on that below.
6. Full credit and income underwriting. This is not a streamlined review. Residual income is the controlling test, and the 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
7. Seasoning check on VA-to-VA files. The wholesale programs require the later of 210 days from the first payment and the sixth payment.
8. Disclosures and closing. Loan Estimate and Closing Disclosure rules apply, since this is a consumer mortgage.
On the credit side, VA sets no minimum score. The wholesale programs Lendmire places VA loans with start at a 580 decision score, though individual lenders can set their own floors.
Worked Example Without Dollar Amounts
Picture a borrower whose home appraises at a given value, with a first lien to pay off. Say the first-use funding fee applies at 2.15%.
| Line | How it works |
|---|---|
| Appraised value | Sets the ceiling at 100% |
| Maximum loan | 100% of that value, fee included |
| Less: payoff of liens | Comes off the top |
| Less: financed funding fee | Counts inside the cap |
| Less: allowable closing costs | Counts inside the cap |
| Equals: cash to borrower | What remains |
Now the same borrower with a funding fee exemption, for example a veteran receiving compensation for a service-connected disability. The fee line drops to zero and the cash line grows by the same amount. Nothing else changes.
One more point: the fee is a percentage of the base loan, and the fee itself is financed. So the base loan and the fee together have to fit under the cap. If the fee pushes the total over, the lender trims the cash out, or the borrower covers the gap at closing.
Funding Fee Facts That Move the Math
For a cash-out refinance, the fee is 2.15% on first use and 3.3% after first use. VA’s funding fee page says refinance rates don’t change based on down payment amount, so a bigger equity position doesn’t lower it. The fee is a one-time charge, not monthly mortgage insurance. VA loans carry no mortgage insurance of any kind.
For contrast, the IRRRL streamline carries a 0.5% fee. That’s a different product.
Net Tangible Benefit: The Test That Can Shrink the File
The rule lives in 38 CFR 36.4306. The new loan has to be in the borrower’s financial interest, and the lender must give the borrower the test in writing. A cash-out must meet one of VA’s eight listed benefits. Examples include eliminating monthly mortgage insurance, a shorter term, a lower interest rate, a lower payment, or higher monthly residual income.
Refinancing an FHA, USDA, or conventional loan into VA is allowed. For an FHA borrower, dropping the monthly mortgage insurance payment can serve as the benefit.
Here’s a point that trips up files: the half-percent rate-reduction and fee-recoupment tests are IRRRL rules. They don’t apply to the VA cash-out as the wholesale programs run it. The official print of the regulation ties its 36-month recoupment language to specific loan types, so the underwriter has to read it against the actual file. Don’t assume.
Where the General Rule Breaks
The 100% ceiling is the program maximum. A lot can pull the actual number below it.
- Low appraisal. The cap shrinks with the value. Options: appraisal reconsideration with recent nearby sales, a smaller cash-out, or bringing cash to close.
- Fee over the cap. If the base loan plus the financed fee exceeds 100%, something has to give.
- Income limits. Residual income can restrict the loan even when the equity is there. A cash-out that pays off other debts can help the residual figure. One that adds balance can hurt it.
- Lender overlays. VA sets the ceiling. A lender can set a lower one, so a borrower may see less than the program allows. A broker shopping several wholesale lenders can match the file to the overlay that fits.
- State law. Some states restrict cash-out on homesteads, which can lower the ceiling. Check the state before planning the amount.
- Entitlement. On a VA-to-VA refinance, the new loan is treated as obtained with the entitlement used on the loan being refinanced.
- Construction-to-permanent. VA lists construction loans as eligible for the cash-out option when the borrower owns and occupies the home.
For the Type I versus Type II split in more depth, see Lendmire’s piece How Lenders Underwrite a VA Cash-Out Refinance When Weighing Type I Against Type II. For how credit gets weighed, there’s a separate article on how lenders weigh credit differently.
Key Terms Defined
Reasonable value: the value VA determines through the appraisal, treated as market value, and the base for the 100% cap.
Financed funding fee: the one-time VA fee added to the loan balance, counted inside the cap.
Type I: a cash-out where the new loan, fee included, does not exceed the payoff of the old loan.
Type II: a cash-out where the new loan, fee included, exceeds the payoff, with the excess paid to the borrower.
Net tangible benefit: a documented, listed advantage the new loan must give the borrower.
Residual income: the money left each month after obligations, the controlling underwriting test.
Cash-Out Versus the Streamline
| Factor | VA cash-out | IRRRL |
|---|---|---|
| Old loan type | Any loan type | VA loan only |
| Appraisal | Yes | No VA appraisal |
| Underwriting | Full | Limited |
| Funding fee | 2.15% first use, 3.3% after | 0.5% unless exempt |
| Cash to borrower | Yes | No |
What the Borrower’s Decision Looks Like
The decision is a trade. More balance, plus a financed fee, in exchange for cash and possibly a different structure. Equity left after closing is lower than the cash-out amount alone suggests, because costs and the fee come out of the same 100%.
Before committing, ask four things. What does the appraisal need to say for the cash number to work? Does the benefit test point to a real gain? Does residual income hold after the new balance? Which lender’s overlays leave the most room? VA’s cash-out page also warns about misleading refinance offers, so compare the Loan Estimate line by line.
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.
Frequently Asked Questions
Does the funding fee come on top of the 100% limit?
No. The fee is financed and counts inside the cap. The base loan plus the fee must fit under 100% of reasonable value. If it doesn’t, the cash out shrinks or the borrower pays the difference.
Is there a dollar limit on a VA cash-out?
VA sets no maximum dollar amount. The wholesale programs serve amounts up to $4,000,000 with full entitlement. An individual lender can still impose its own limit, and remaining entitlement can change things, so speak with a loan officer.
What happens if the appraisal comes in low?
The ceiling drops with it. A reconsideration request with recent comparable sales can sometimes recover value. Otherwise the options are a smaller cash-out, a different structure, or paying cash.
Can I refinance an FHA or conventional loan into a VA cash-out?
Yes, VA allows refinancing any loan type into a VA-backed loan. The net tangible benefit still has to be met. Removing monthly mortgage insurance is one listed benefit.
Does a bigger down payment lower the refinance funding fee?
No. VA says refinance fee rates don’t change based on down payment amount.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. 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 Lenders Handbook (VAP 26-7), Chapter 6, Refinancing Loans
2. VA cash-out refinance loan page
3. VA funding fee and closing costs
5. 38 CFR 36.4306 (GovInfo CFR print)
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 Much Waiting a VA Loan Requires Before a Cash-Out Refinance · Top VA Cash-Out Refinance Providers After a Divorce When One Spouse Holds the VA Loan · VA Cash-Out Refinance Requirements Before Your ARM Resets
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.