The Quick Read: Your disability rating does not set the size of the check. The home’s appraised value, the loan you pay off, and any closing costs decide how much cash comes out. The rating helps in two indirect ways. It can remove the VA funding fee, and its monthly payment counts as qualifying income.
Key Takeaways
- A VA cash-out can reach 100% of the appraised value, with the financed funding fee counted inside that limit.
- Cash to you is the new loan minus the payoff, other liens, any funding fee and closing costs.
- Veterans receiving compensation for a service-connected disability owe no funding fee. That leaves more room under the 100% ceiling.
- A higher rating does not raise the ceiling. It can help you qualify on income.
- Residual income, credit and a net tangible benefit still decide whether the loan is allowed.
What Does “Cash-Out Releases” Mean Here?
It means the cash you receive from a VA cash-out refinance. You replace your current mortgage with a new VA-backed loan that is larger than your payoff. The difference, after costs, comes to you.
Searches for this phrase also bring up disability insurance buyouts, lump-sum benefit settlements and pension releases. This article is about none of those. It covers home equity and a mortgage on the home you live in.
Here is the plain picture. Say your home is worth a certain amount and you owe part of it. The gap between value and debt is your equity. A cash-out turns some of that equity into money in hand, and the new loan replaces the old one. It is not a second loan stacked on top.
VA describes the product as a way to take cash from equity for things like debt payoff, school or home improvements. It can also turn a non-VA loan into a VA-backed one, per VA’s cash-out refinance page. Converting a non-VA loan into a VA-backed one matters if you now hold a conventional or FHA mortgage.
How Is the Cash Amount Calculated?
The cash amount is the new loan minus everything that has to be paid out of it. Run the steps in this order:
1. The appraiser sets the home’s value. 2. The new loan can reach 100% of that value, including any financed funding fee. 3. Subtract the payoff of your current mortgage. 4. Subtract any other liens being paid, such as a second mortgage. 5. Subtract the funding fee if you owe one and finance it. 6. Subtract closing costs paid from proceeds. 7. What is left is your cash.
Two things cap this. The first is the appraisal, not your own estimate of value. If you think the house is worth more than the appraiser does, the appraiser’s number wins. The second is the 100% ceiling itself.
Lendmire’s VA cash-out refinance program page covers the program in general terms. The wholesale programs Lendmire places VA loans with reach 100% of the appraised value, refinance any existing loan type into VA, and carry no mortgage insurance. Those programs set a 580 decision-score floor. Some lenders in the wider market set a higher floor or hold cash-outs below 100%, so the ceiling you see depends on the lender. Everything here is subject to lender guidelines and a full file review, and none of it is a commitment to lend.
What Does the Rating Change, and What Doesn’t It?
The rating changes your costs and your qualifying income. It does not change the value ceiling. That is the main thing to understand.
| Factor | Does the rating change it? |
|---|---|
| 100% of value ceiling | No |
| Funding fee | Yes, waived if you receive compensation |
| Qualifying income | Yes, counts as income |
| Residual income test | Uses the actual award |
| Net tangible benefit test | No |
| Appraisal | No |
A higher rating can mean a larger monthly award. A larger award can strengthen the income side of your file. It still cannot lift the loan above 100% of reasonable value.
Many veterans assume a 100% rating means a bigger payout. It does not. A veteran with a 30% rating and one with a 100% rating, on identical homes with identical payoffs, face the same ceiling. They may differ on income, and that is all.
How the Funding Fee Waiver Adds to Your Cash
The waiver does not add cash directly. It stops the fee from using up part of your 100% ceiling. VA’s funding fee page says you owe no funding fee if you receive VA compensation for a service-connected disability. The fee applies when you buy, build, improve, repair or refinance, and it is charged on the loan amount, not the purchase price.
For a cash-out, the fee for a non-exempt borrower is 2.15% on first use and 3.3% on later use. Those are the figures across the wholesale programs Lendmire places VA files with. The fee can be financed, but the financed fee counts inside the 100% ceiling. Any part that would push the loan past the ceiling has to be paid in cash at closing.
Think of the ceiling as a fixed-size box. The payoff goes in first. Then closing costs. A fee, if you owe one, takes space too. Whatever space remains is your cash.
Put the same home through both paths. At the ceiling, a first-use non-exempt borrower gives up a little over two percent of the home’s value to the fee. A later-use borrower gives up about three percent. The exempt borrower keeps that room. The size of the gap depends on how close you run to the ceiling, which is why the exact math is worth a look on your own file.
Worked Example: Exempt vs. Non-Exempt, Same Home
Run the numbers with percentages only. Treat the appraised value as 100%. Say your payoff is 70% of that value. Assume closing costs are a modeled amount, the same for both borrowers.
| Line item | Exempt | Non-exempt, first use |
|---|---|---|
| Appraised value | 100% | 100% |
| Maximum loan | 100% | 100% |
| Funding fee | None | 2.15% of the loan |
| Payoff | 70% | 70% |
| Closing costs | Same | Same |
| Cash to you | Larger | Smaller by about the fee |
The exempt borrower keeps the share of value the fee would have taken. Both borrowers face the same value ceiling and the same payoff. That is why the rating shows up as savings, not as a higher limit.
The same logic applies at lower leverage. If you borrow well under the ceiling, the fee still adds to the loan balance if financed. An exempt borrower has a smaller balance, and so a smaller payment, than a non-exempt borrower on the same deal. That affects the monthly budget, though this article does not state payments.
The Rules Behind the Ceiling
You do not need the legal text to use a VA cash-out, but you should know where the numbers come from. The loan limit sits in 38 CFR 36.4306. It says the new loan cannot exceed 100% of the reasonable value of the home, as VA determines it. It also says a financed funding fee cannot push the loan above that value.
VA’s Circular 26-19-05 sets out the two cash-out types. In a Type I refinance, the new loan, fee included, does not exceed the payoff of the old loan. No equity comes out. In a Type II refinance, the new loan does exceed the payoff, and only Type II puts cash in your hands. The circular also defines loan-to-value as the total loan, fee included, divided by the appraised value.
One common mix-up: many lenders hold cash-outs to 90% of value. That is a lender choice, not a VA cap. The regulation also lists 90% as one of several ways to meet the net tangible benefit test. Across the wholesale programs Lendmire works with, 100% is reachable, but a given lender may set its own lower limit.
How the Loan Is Underwritten, Step by Step
Underwriting a VA cash-out follows a set order. Your rating shows up in the first and fourth steps.
Step 1: Certificate of Eligibility. The COE comes from VA. It shows your entitlement and whether you are exempt from the funding fee. It also shows your monthly service-connected compensation. The VA Lenders Handbook, Chapter 4 says to order it before the appraisal.
Step 2: Appraisal. VA’s appraisal process sets the reasonable value. The 100% ceiling applies to that number.
Step 3: Net tangible benefit. The new loan has to help you financially. The rules list several tests, such as a lower payment, higher monthly residual income, a move from an adjustable to a fixed loan, or a loan at or below 90% of value. Your lender must give you a written comparison early in the process and again at closing. Ask for it and read it.
Step 4: Income and residual income. Disability pay counts as income. Residual income is the controlling test: what is left each month after the mortgage, debts and living costs. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
Step 5: Seasoning, if refinancing a VA loan. The later of 210 days from the first payment and the sixth monthly payment has to have passed. The same net tangible benefit rule applies.
Step 6: Closing. The Loan Estimate and Closing Disclosure show your costs. VA warns that closing costs can add up to thousands of dollars. They can generally be paid from proceeds, as long as the total stays within the 100% ceiling.
How Disability Income Counts When You Qualify
Disability compensation counts as income, and it does not need a continuance letter. The Lenders Handbook says the COE generally shows the amount. An award letter or bank statement can also verify it. Pensions and similar income do carry continuance rules, so do not assume the same treatment applies to them.
Here is the part many veterans get wrong. Because the award is tax-free, a lender may adjust it upward when it calculates debt-to-income. That adjustment helps the ratio on paper. It does not create more cash for the residual income test, which looks at the actual award. A file with a high debt ratio can look better on the ratio and still fall short on residual income.
Because residual income is the controlling test across the wholesale programs Lendmire places VA loans with, it deserves more attention than the headline ratio. A veteran with moderate debts and a steady award is positioned well for that test. A veteran with heavy monthly obligations may fall short of it, even at a high rating.
Some VA education allowances and most unemployment compensation do not count as effective income. Documenting the award properly early saves back-and-forth later.
What Each Rating Level Means for a Cash-Out
VA ties the funding fee exemption to receiving compensation, not to a minimum percentage. The table below describes how each situation usually plays out. Your COE is the final word.
| Situation | Usual effect on a cash-out |
|---|---|
| 0% rating, no compensation paid | Exemption tied to compensation usually does not apply |
| Lower compensable rating | Compensation received, fee waived |
| Mid-range rating | Same waiver, larger income on the file |
| 100% rating | Same waiver, strongest income support |
| Combined rating | The COE shows the exemption status |
Secondary sources describe a 10% rating as enough. VA’s own wording points to receipt of compensation. Ask the lender to read the exemption line on your COE instead of relying on a rule of thumb.
Edge Cases Where the General Rule Bends
Pending or retroactive ratings. If a claim is pending, the exemption may turn on the award date versus the closing date. Ask the lender what the COE shows today. Also ask whether a refund is possible if an award is made retroactive. The answer depends on VA’s rules and your timing.
Entitled but not receiving compensation. Some veterans take retirement or active-duty pay instead of compensation. VA’s fee page lists other exempt groups beyond the first one. Check that page for the full list before assuming you are in or out.
A mortgage with no VA history. A cash-out can refinance a conventional or FHA loan into a VA-backed loan. You can reach cash and move to VA at once.
A paid-off home. A cash-out replaces existing mortgage or lien debt. A home with no lien is not a standard cash-out candidate. A loan officer can tell you which structure fits.
Occupancy. The rules cover a home owned and occupied by the veteran. An active-duty veteran who cannot occupy it can use occupancy by a spouse. A rental or second home is outside this article’s lane: occupancy decides the leverage, and a VA cash-out is built for the home you live in.
Prepayment penalties. If your current loan carries a contractual penalty, the refinance can include it.
State law. Some states restrict cash-out on a primary home. State law can be stricter than VA’s rules, so ask before you assume.
Energy improvements. Older VA guidance allowed adding some energy-efficiency costs to a refinance. Ask whether it applies now.
Other benefits. If you receive need-based benefits, speak with a benefits specialist before taking a large lump of cash. This article does not make claims about how proceeds affect them.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Pros and Cons of Taking the Cash
The cash is your equity. Spending it changes your balance sheet, so weigh it.
Common reasons veterans take cash out include paying off high-interest debt, funding home modifications, covering education and making repairs. Home modifications for a disability can be a strong fit, because they add function to the home itself.
The tradeoffs are real:
- You replace your current loan, so the balance, term and payment all change.
- Equity is smaller afterward, which leaves less cushion if values dip.
- Closing costs come out of the proceeds.
- Seasoning rules can delay a refinance on a recent VA loan.
- A lender may set limits tighter than VA’s.
A cash-out should pass the net tangible benefit test, and it should pass your own test too. If the only thing it does is raise your balance, ask why you are doing it.
Pre-Closing Checklist
- Order the COE and read the exemption line.
- Confirm your award amount and keep the award letter handy.
- Ask the lender to explain its limit, since it may sit below 100%.
- Ask for the net tangible benefit comparison.
- Confirm the seasoning date if you have a VA loan now.
- Check state-specific limits on cash-out for your home.
- Review the Loan Estimate for the funding fee line, which should read as waived if you are exempt.
- Run your monthly budget with the new balance, not just the ratio.
Key Terms Defined
Certificate of Eligibility (COE): The VA document that shows your entitlement and whether you are exempt from the funding fee.
Funding fee: A VA charge on the loan amount that exempt veterans do not pay.
Entitlement: The amount of VA backing you have available to use on a loan.
Net tangible benefit: The VA test that a refinance must leave you better off in a measurable way.
Residual income: The money left each month after the mortgage, debts and living costs.
Type II cash-out: A refinance where the new loan exceeds the payoff, so cash comes to you.
Reasonable value: The home’s value as VA’s appraisal process sets it.
Frequently Asked Questions
Does a higher disability rating mean more cash from a VA cash-out?
No. The ceiling is tied to the home’s appraised value, and the cash is what remains after payoff, any fee and costs. A higher rating can raise your qualifying income. It does not raise the ceiling.
Is a 0% rating enough for the funding fee exemption?
Usually not, because the exemption is tied to receiving compensation, and a 0% rating generally means no compensation is paid. Your COE shows your exemption status. If you are unsure, ask the lender to read it with you.
What if my rating is approved after I close?
Ask the lender about a refund before you close, and keep your award letter. Whether you can recover a fee already paid depends on VA’s rules and your dates. For a pending claim, the timing of the award can change what the COE shows.
Does a VA cash-out work if my current mortgage is not a VA loan?
Yes. VA describes the cash-out as a way to turn a non-VA loan into a VA-backed one. Net tangible benefit still applies, and the lender’s own limits may sit below the VA ceiling.
Can closing costs come out of the proceeds?
Generally yes, as long as the total loan stays within 100% of the appraised value. That includes a financed funding fee if you owe one. Your Loan Estimate lists the costs in detail.
Where This Leaves You
The takeaway is simple. Your rating works through the fee and your income, and the appraisal and payoff set the cash. 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 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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References
1. VA – Cash-out refinance loan
2. VA – Funding fee and closing costs
5. VA Lenders Handbook, Chapter 4
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: How Much a VA Cash-Out Releases After Big Home Value Gains · How Much Payment a VA Cash-Out Frees for a Veteran With a VA Loan · Is VA Cash-Out Better Than Conventional With a Disability Rating?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.