The Quick Read: The VA’s own ceiling on a cash-out refinance is 100% of the appraised reasonable value, and the financed funding fee sits inside that ceiling. When the loan being paid off is already a VA loan, the file picks up extra tests: seasoning, a net tangible benefit, and, if the new loan is not larger than the payoff, a cost-recovery test. Any lower cap you run into is usually a lender overlay, not a VA rule.
Which “Cap” Are You Asking About?
The word “cap” gets used for three different things, and most confusion on these files comes from mixing them up. Sort them first.
| What people call a cap | What it limits | Who sets it |
|---|---|---|
| Value ceiling | New loan vs. appraised value | VA regulation |
| 90% benchmark | One way to pass the benefit test | VA regulation (an option, not a limit) |
| Lender overlay | LTV a given lender will write | The lender’s business choice |
The first is a rule. The second is a menu item. The third is a preference. A borrower who hears “VA caps cash-outs at 90%” is hearing a mash-up of the second and third.
Across the wholesale programs this brokerage places VA files with, the VA cash-out reaches 100% of the appraised value, including the financed funding fee. That matches the federal ceiling. Lender guidelines and full file review still decide whether a given file gets there.
Why Older Articles Still Say 90%
The old rule capped VA cash-out loans at 90% of reasonable value, a limit Congress set in 1989. The Federal Register notice on the VA cash-out rule explains the change: federal law now requires that cash-out loan amounts not exceed 100% of reasonable value. The new rule applied to applications taken on or after February 15, 2019.
Web articles written before that date never got updated. They keep repeating the old number. Skip them.
The 90% figure survives in two places. It is one of the listed ways to pass the net tangible benefit test, and many lenders still use it as their own limit. Neither makes it a VA cap.
The Federal Ceiling in Plain Terms
Under 38 CFR 36.4306, the new loan may not exceed 100% of the reasonable value of the home, as determined by VA. Reasonable value comes from the VA appraisal. So the appraisal is the denominator for everything.
Two practical points follow.
First, the funding fee counts. It can be financed into the loan, but any portion that would push the loan above 100% of reasonable value has to be paid in cash at closing. The fee is not carved out of the ceiling.
Second, there is no separate dollar cap on a cash-out written into that rule. The ceiling is a value test. With full entitlement, the VA loan limit does not apply. With remaining entitlement, a down payment may be required, and that is a conversation for a loan officer, not a rule of thumb.
How the Underwriting Runs, Step by Step
A VA cash-out is not a streamline. It is a full-documentation loan. Here is the sequence on a file where the payoff is an existing VA loan.
1. Confirm eligibility. The Certificate of Eligibility (COE) from VA decides. Service requirements are VA’s rules. The home must be one you own and occupy.
2. Identify the payoff. The lender needs the payoff figure on the current loan. For a VA-to-VA file, the existing VA loan number must be valid and the loan must be active in VA’s system.
3. Classify the loan as Type I or Type II. This is the pivot. If the new loan, including the financed funding fee, is at or below the payoff, it is Type I. If it is above the payoff, it is Type II. VA’s system calculates this automatically.
4. Order the VA appraisal. Value sets the ceiling. A light appraisal moves every number on the file.
5. Run the tests that apply. At least one net tangible benefit must be found. Seasoning has to be certified on every VA-to-VA refinance. Recoupment has to be certified on Type I VA-to-VA refinances. The lender uploads the initial and final cash-out compliance disclosures to VA.
6. Underwrite the borrower. Residual income is the controlling test. The 41% debt-to-income figure is a guideline, not a cap, and a ratio above it needs residual income well above the table. The wholesale programs start at a 580 decision score, subject to lender guidelines.
7. Apply the funding fee inside the ceiling. The fee on a cash-out is 2.15% on first use and 3.3% on later use, unless the borrower is exempt. It is reviewable, and it counts toward the 100%.
8. Close and issue the guaranty. The new loan is a first lien and the old loan is paid off from proceeds.
Type I vs. Type II: Where the Extra Tests Come From
VA Circular 26-19-05 defines both types. The difference looks small on paper and changes the file a lot.
| Factor | Type I | Type II |
|---|---|---|
| New loan vs. payoff | At or below payoff | Above payoff |
| Cash to borrower | Limited | Real cash out |
| Seasoning | Applies | Applies |
| Net tangible benefit | Required | Required |
| Cost recoupment | Required on VA-to-VA | Not listed |
Type I looks like a cash-out in name only. The borrower is mostly restructuring. Because there is little new money, VA applies the strictest standards here, especially where the old loan was fixed-rate and the payoff is equal to or more than the new loan. In practice, that means the borrower has to show the refinance earns its keep.
Type II is the file most borrowers picture when they say “cash-out.” The loan is bigger than the payoff, the extra goes to the borrower, and the recoupment certification is not listed for it. Seasoning and the benefit test still apply.
Seasoning: How the Clock Actually Runs
Seasoning on a VA-to-VA cash-out is the later of two things: 210 days from the first payment on the loan being refinanced, and the sixth monthly payment. Both conditions must be met.
The clock starts at the first payment due date, not at closing. That one detail trips up a lot of borrowers, who count from the closing date and come up short by a month or two. A borrower who closed a VA purchase and made a handful of payments is usually still waiting.
The IRRRL carries the same seasoning, so do not assume the cash-out is stricter or looser on this point. Some refinances are exempt, such as paying off an interim construction loan or non-mortgage debt. The VA Lenders Handbook governs those exceptions.
The Net Tangible Benefit Test
The cash-out has to be in the borrower’s financial interest. Under the federal regulation, the test is met if the loan satisfies at least one listed criterion:
- It eliminates monthly mortgage insurance.
- The new term is shorter than the old term.
- The new rate is lower than the old rate.
- The new payment is lower than the old payment.
- Monthly residual income goes up.
- It refinances an interim construction or repair loan.
- The new loan is at or below 90% of reasonable value.
- It refinances an adjustable-rate mortgage to a fixed rate.
That is the 90% line most people remember. It is one of eight ways through the door. A borrower at 100% of value can still pass on another criterion, such as eliminating monthly mortgage insurance.
The lender also gives the borrower a loan comparison showing what changes. Read it. On a Type I VA-to-VA file, the comparison carries the recoupment piece: the savings have to exceed the fees and costs of the refinance within 36 months, and a rate-drop test applies on fixed-rate loans. Those are the consumer-protection rules VA put in place with the 2019 change, and the CFPB summarized them in its notice on new protections for servicemembers and veterans. One caution: the archived CFPB post states the rate-drop and recoupment language broadly. VA’s own guidance ties them to Type I VA-to-VA loans, so go by VA’s version.
Where the General Rule Breaks
The 100% ceiling is the rule. Here are the places a file can behave differently.
Lender overlays are the binding cap. Many lenders write cash-outs at lower leverage than VA allows. That is a business choice. It is why two borrowers with the same appraisal can get different answers. The wholesale programs this brokerage uses reach the full 100%, but a lender that does not will tell you the cap is 90% and it will sound like a VA rule. It is not.
Financing costs can interact with leverage. VA lender guidance has addressed how certain costs included in the loan amount interact with the LTV limit. The exact scope is a Handbook question, and it is one more reason to ask the loan officer which rule they mean.
The IRRRL is a different loan. It refinances an existing VA loan into a new VA loan, including from adjustable to fixed, with no VA appraisal and a funding fee unless exempt. It pays out no cash. A borrower who wants cash cannot use it. A borrower whose goal is only to change the terms of an existing VA loan should compare it before assuming a cash-out is needed.
Occupancy is required. A cash-out is for a home you currently own and occupy. Second homes and rentals are out. A spouse of an active-duty veteran can satisfy the occupancy requirement.
The funding fee can be waived. Veterans receiving compensation for a service-connected disability, and the other exempt groups, do not pay it. That frees room under the ceiling.
The payoff loan can be any type. A VA cash-out refinances any loan type into VA. The VA-to-VA rules above apply only when the loan being paid off is itself a VA loan. Paying off a conventional or FHA loan avoids the recoupment and Type I questions.
State law can add limits. Some states layer their own restrictions on top. Ask the loan officer whether yours does.
A Walk-Through Without Dollar Figures
Picture a veteran with a fixed-rate VA loan, well past the seasoning date, in a home that appraises well. She wants cash for repairs.
She asks for a loan at the full 100% of value. Her funding fee, 2.15% on first use, is financed, so it is part of that 100%. Anything over the ceiling would have to be paid in cash. The new loan is above her payoff, so it is Type II. Seasoning is met. For the net tangible benefit, she needs one criterion. Say the new term is shorter than the old one. That passes.
Now change one fact. She wants almost no cash, just a restructure, and the new loan lands at or below her payoff. That is Type I. Now the recoupment and rate tests come into play, and the file has to show real savings. A different borrower in a nearly identical house can get a different answer because of that one switch.
What Happens When You Hit the Ceiling
A file that runs into the 100% limit has a short list of fixes:
- Take less cash, which lowers the new loan.
- Pay part of the funding fee in cash so it does not sit above the ceiling.
- Check whether you are exempt from the funding fee.
- Wait for a better appraisal outcome, or ask for reconsideration with recent comparable sales.
- Compare the IRRRL if the goal is only a lower rate.
None of these is a trick. They are the arithmetic of a value-based ceiling.
Cost, Balance, and the Decision
A cash-out raises the balance, and a higher balance means more interest over the life of the loan. VA News notes that the cash taken out is typically added into the refinanced loan. These loans typically do not require cash at closing, and allowable fees may be paid from loan proceeds. That is convenient. It also means the cost is built into the balance, not gone.
A VA loan carries no mortgage insurance, which is a real benefit. The funding fee is the cost that replaces it. Weigh the cash against the fee, the larger balance, and whether keeping your current loan serves you better.
Be wary of unsolicited offers that promise skipped payments, big cash back, or no out-of-pocket costs. The CFPB and VA have jointly warned that refinance solicitations can look official and sound too good to be true.
The mechanics of the VA cash-out refinance program are also laid out on the brokerage’s program page.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Reasonable value: The value VA assigns to the home through its appraisal, used as the base for the 100% ceiling.
Net tangible benefit: A test showing the refinance is in the borrower’s financial interest, met by at least one listed criterion.
Type I: A cash-out where the new loan, with the financed fee, is at or below the payoff.
Type II: A cash-out where the new loan, with the financed fee, is above the payoff.
Seasoning: The waiting period, the later of 210 days from the first payment and the sixth payment.
Recoupment: Showing that savings exceed the refinance costs within 36 months, applied to Type I VA-to-VA loans.
Lender overlay: A limit a lender sets above and beyond VA’s rules.
Frequently Asked Questions
Does VA cap a cash-out refinance at 90%?
No. VA’s ceiling is 100% of reasonable value, and the financed funding fee counts inside it. The 90% figure is one way to pass the net tangible benefit test, and some lenders use it as their own limit. Subject to lender guidelines and full file review.
Is a VA-to-VA cash-out the same as an IRRRL?
No. The IRRRL refinances an existing VA loan to a lower rate or from adjustable to fixed, with no VA appraisal and no cash out. A cash-out needs a VA appraisal, full underwriting, and a net tangible benefit, and it can pay cash to the borrower.
Can I roll the funding fee into the loan if I am at 100% of value?
Only up to the ceiling. The fee can be financed, but any portion that would push the loan above 100% of reasonable value has to be paid in cash. Veterans exempt from the fee do not face this issue.
How long do I have to wait before refinancing my VA loan for cash?
The wait is the later of 210 days from the first payment on the loan being refinanced and the sixth monthly payment. The clock starts at the first payment, not at closing. Some refinances, such as interim construction loans, are exempt.
What changes when the loan I am paying off is already a VA loan?
Seasoning and recoupment certifications apply to the VA-to-VA file, and the Type I versus Type II split decides how strict the tests are. Type I, where the new loan is at or below the payoff, gets the strictest review. Paying off a non-VA loan avoids those extra certifications.
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
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Federal Register, VA cash-out rule
4. CFPB, new protections for servicemembers and veterans
6. CFPB/VA WARNO on refinance offers
This article is part of Lendmire’s VA Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: VA Cash-Out Credit Score Requirements for Lender Overlays and LTV · VA Cash-Out Requirements for Paying Off a Non-VA Loan · VA Cash-Out Appraisal Requirements and the Tidewater Process
Brandon Miller
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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.