The Quick Read: A veteran who wants only a little cash is usually steered toward a Type II, because only a Type II puts money in your hand. The type is set by one comparison: the new loan, funding fee included, against the payoff of the old loan. A Type I stays at or below the payoff and generally returns no cash. A Type II goes above it, but a small request can be eaten by the financed fee and costs before you see a dollar.
The Honest Answer on Who Each Option Fits
Type I is for the veteran who wants a different loan, not cash. Think of someone moving a non-VA loan into VA, or swapping out a mortgage for a different structure, with no equity pulled. Type II is for the veteran who wants actual cash at closing and accepts a larger balance to get it.
Here’s the catch for small-cash borrowers. You don’t choose the type by intent. The math chooses it. Finance the funding fee and your would-be Type I can land above the payoff, which makes it a Type II. Ask for a small amount of cash, and the financed costs may swallow it.
Neither option is a small tweak. Both are full refinances. Lendmire’s VA cash-out refinance program page covers how the product works across the wholesale lenders Lendmire places VA files with, and the sections below referee the two types.
Side-by-Side
| Factor | Type I | Type II |
|---|---|---|
| New loan vs. payoff | At or below payoff, fee included | Above payoff, fee included |
| Cash to borrower | Generally none | Equity can be taken out |
| Leverage ceiling | Up to 100% of appraised value, fee included | Up to 100% of appraised value, fee included |
| Credit floor | 580 decision score on wholesale programs | 580 decision score on wholesale programs |
| Mortgage insurance | None | None |
| Occupancy | You live in the home | You live in the home |
| Documentation | Full underwriting, residual income test | Full underwriting, residual income test |
| Seasoning (VA loan paid off) | Applies | Applies |
| Net tangible benefit | Required | Required |
| Fee recoupment test | Applies on VA-to-VA | Treated as met if the benefit test is satisfied |
Those figures reflect the wholesale programs Lendmire places files with. Every one is subject to lender guidelines and full file review, and some lenders set tighter limits than VA does.
The VA’s own circular is the source for the Type I and Type II distinction. The same document says seasoning applies to VA-to-VA cash-outs. In practice that means waiting until the later of 210 days after the first payment due date and the sixth payment before refinancing a VA loan.
When Type I Is the Better Fit
Type I earns its place when cash isn’t the goal. Three situations come up most.
You’re moving a non-VA loan into VA. A conventional, FHA or USDA payoff can be refinanced into a VA loan. With a non-VA payoff there is no seasoning certification, though the net tangible benefit and disclosures still apply. If the point is to shed mortgage insurance on the old loan, that can be exactly the benefit the test looks for. VA loans carry no mortgage insurance.
You can fund the small need another way. If the cash need is modest and you have savings or another source, taking Type I and skipping the equity draw keeps the balance from growing. Fewer moving parts, a smaller loan.
You’re protecting a low existing structure. Replacing a mortgage resets the term and the payment. If your current loan is working, a Type I that changes little may not be worth the full refinance process.
The tradeoff: Type I on a VA-to-VA loan also carries the fee recoupment test, a 36-month benefit measure in the regulation. It is more constrained on the VA side, not less. And remember that a Type I is still fully underwritten. No shortcut.
If your goal is trimming a VA loan with no cash at all, the IRRRL is a separate product. It can’t take equity out, and any amount that would create cash has to be rounded down. It is not a “small cash” route.
When Type II Is the Better Fit
Type II fits the veteran who needs real cash and has run the numbers on what’s left after costs.
The cash clears the financed costs. The funding fee on a cash-out refinance is 2.15% on first use and 3.3% after, unless you’re exempt, for example as a veteran receiving compensation for a service-connected disability. That fee applies to the whole new loan, not just the cash. So does most of the rest of the closing cost picture, which VA itself warns can add up to thousands of dollars.
Run the logic in percentages. If you request cash equal to a small slice of the home’s value and the fee alone is 2.15% of the loan, a meaningful share of your request goes to the fee before closing costs enter the picture. The smaller the ask, the larger the share consumed. That’s an inference from the net-cash math, not a VA rule, but it holds.
You’re exempt from the funding fee. Waived fees change the arithmetic a great deal. For an exempt veteran, a small cash request faces less drag, and Type II becomes more practical.
The recoupment test is a hurdle you’d rather skip. Under 38 CFR 36.4306, a new loan above the payoff is deemed to meet recoupment if the benefit test is satisfied. For a Type II, that’s one less test to chase.
You have the equity and a stable file. A VA cash-out reaches up to 100% of the appraised value, funding fee included, on the programs Lendmire works with. A small request sits far below that ceiling, so leverage rarely limits you. What limits you is whether the net cash justifies a new loan.
The flip point: if a Type II would leave you with very little net cash after costs, the answer may be neither type. Weigh keeping your current loan and covering the need elsewhere. That’s often the right call for truly small amounts.
Thinking Through a Small Request
Say a veteran holds a VA loan, has a long-standing structure they like, and wants a modest sum for a repair. Type I yields no cash. Type II yields cash but resets the loan, adds a fee on the full balance, and requires an appraisal, full underwriting and a net tangible benefit test. This one is a genuine toss-up, and for many veterans the honest answer is that a cash-out only makes sense when the cash is big enough to justify the refinance.
Now flip it. A veteran holds a conventional loan with monthly mortgage insurance and wants a small amount of cash too. Moving to VA removes the mortgage insurance and can satisfy the benefit test. Here Type II can be a reasonable fit, because the refinance does more than deliver cash.
Across the wholesale programs Lendmire places VA files with, the file that goes smoothly is usually the one where the veteran decided the purpose first. Cash-only requests for small amounts tend to stall at the net-benefit question. Requests that also fix something structural, like mortgage insurance on a non-VA payoff, tend to hold together better.
Compare Like With Like
One practical warning. A refinance can look cheaper than it is if the comparison is uneven. The CFPB’s action in the NewDay USA order involved a lender that showed only principal and interest on the new loan while the old loan figure included taxes and insurance. Put both loans on the same footing, using your Loan Estimate, before deciding.
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
Type I: a VA cash-out refinance where the new loan, funding fee included, doesn’t exceed the payoff of the loan being replaced.
Type II: a VA cash-out refinance where the new loan, funding fee included, exceeds the payoff, so equity can come out as cash.
Net tangible benefit: a test showing the new loan is in the borrower’s financial interest, such as removing monthly mortgage insurance.
Seasoning: the waiting period on a VA loan before it can be refinanced, the later of 210 days from the first payment and the sixth payment.
Residual income: the money left each month after major obligations, which is the controlling VA underwriting test.
Balanced Verdict
For a veteran who wants only a small amount of cash, Type II is the only one of the two that delivers any, but it is often not worth doing for the amount alone. Type I fits a veteran who wants a structural change with no equity pulled, or one moving a non-VA loan into VA. If the cash is small, ask first whether the fee and costs on the whole new loan leave anything meaningful. When they don’t, keeping your loan and funding the need elsewhere may beat both.
Lendmire’s related pieces can help frame the next step: VA cash-out versus conventional for a veteran wanting the most cash covers the large-cash case.
Frequently Asked Questions
Does a Type I VA cash-out give me any cash?
Generally no. A Type I keeps the new loan at or below the old payoff, funding fee included, so there is no room for cash. It still needs a full appraisal, underwriting and a net tangible benefit test.
Can I take out just a little cash?
Yes. Once the new loan exceeds the payoff, it becomes a Type II. The catch is that the financed funding fee and closing costs come out of the same pool, so a very small request may net close to nothing. Some lenders also set tighter limits than VA does.
Can a streamline give me some cash back?
No. The IRRRL cannot take equity out, and a loan amount that would create cash has to be rounded down. It exists to lower the cost or change the structure of an existing VA loan, not to return money.
Does the VA offer a home equity loan or line of credit?
No. The VA route to equity is the cash-out refinance, which replaces your current loan. That makes the small-amount decision harder, because you refinance the whole balance to reach a slice of equity.
What if my current loan isn’t VA?
A conventional, FHA or USDA loan can be refinanced into VA. There’s no seasoning certification for a non-VA payoff, but the net tangible benefit and disclosures still apply, and you must live in the home. Eligibility depends on your certificate of eligibility and the lender’s 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. Nothing here is a commitment to lend; all 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 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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References
2. VA.gov: Cash-out refinance loan
4. CFPB: NewDay USA order press release
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: Can a Veteran With Thin Credit Do a VA Cash-Out on an Existing VA Loan? · Texas VA Cash-Out Limits for a Veteran With an Existing VA Loan · VA Cash-Out vs. a Veteran Small-Business Loan for Business Capital
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.