The Quick Read: A VA cash-out reaches further into your equity than a conventional one, and it asks for less mortgage insurance and a lower credit floor. A conventional cash-out has no entitlement to document, but it leaves more equity untouched and demands cleaner credit and ratios. VA is built for eligible veterans who want the most cash or who are moving out of another loan type. Conventional is built for borrowers who don’t qualify for VA, want to leave a cushion in the house, or are cashing out on a home they don’t live in. Subject to lender guidelines and full file review.
Key Takeaways
- VA allows a new loan up to 100% of the appraised value, with the financed funding fee counted inside that number.
- Conventional cash-out caps sit meaningfully lower, so more of a big equity pile stays locked in the home.
- With lots of equity, income, credit and reserves usually set your limit, not the equity itself.
- VA carries no monthly mortgage insurance. It does carry a funding fee, waived for exempt veterans.
- Occupancy decides a lot: VA requires the home to be your primary residence.
Side-by-Side
Here is how the two stack up on the requirements that actually move your check. Program figures reflect the wholesale programs Lendmire places files with and remain subject to lender guidelines.
| Factor | VA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum loan-to-value | Up to 100% of appraised value, fee included | Meaningfully lower than VA’s ceiling |
| Credit floor | 580 decision score on wholesale programs | Generally higher; set by lender and findings |
| Mortgage insurance | None; a funding fee applies unless exempt | Often required when little equity stays |
| Occupancy | Primary residence | Primary, second home, or other use at lower caps |
| Documentation | Income, assets, residual income test | Income, assets, debt-to-income driven |
| Eligibility gate | Certificate of eligibility from VA | None beyond the lender’s standards |
| Existing loan | Any loan type can refinance into VA | Current first mortgage must be 12 months old |
| Seasoning | Applies when refinancing an existing VA loan | 12 months on the loan, six months on title |
Two rows deserve a second look. The existing-loan row means an FHA or conventional borrower can switch into VA with a cash-out. You do not need a VA loan today. The VA cash-out is the one that reaches 100% of value and refinances any loan type into VA, which is what the VA cash-out refinance program page lays out in more detail.
The mortgage insurance row matters too. Leave a thin slice of equity behind on a conventional loan and insurance often enters the picture. VA skips it. That alone changes the monthly budget.
What “High Equity” Actually Changes
When you have a lot of equity, the equity stops being the main hurdle. Your income, credit, reserves and the program’s cap take over. The smaller of those limits sets your check.
Think of it as two gates. Gate one is the equity gate: the loan-to-value ceiling on the new loan. Gate two is the borrower gate: can your income carry the larger loan, and does your credit clear the floor? A high-equity owner sails through gate one, then meets gate two.
Here is the math in percentages, so you can see the shape. Say the home appraises with your payoff sitting at about 40% of value. A VA loan can reach 100% of value, which leaves room for roughly 60% of value in cash before the financed fee and closing costs come out. A conventional loan with a meaningfully lower ceiling leaves a bigger slice stuck in the house. Same home. Same equity. Different check.
And the surplus? It just stays in the home. That isn’t a penalty. The Consumer Financial Protection Bureau’s guide for older homeowners notes that lenders typically require you to keep some equity, and that no cash-out option converts 100% of your equity into cash (CFPB). VA is the exception that gets closest.
Closer is not the same as wise, though. A bigger loan can mean a higher monthly payment and a longer payoff, and the same CFPB guide says so plainly.
Key Terms Defined
Cash-out refinance: a new mortgage that pays off your old one and hands you the difference in cash.
Loan-to-value (LTV): the new loan balance divided by the home’s appraised value.
Reasonable value: the appraised value VA’s appraiser sets, which the VA loan-to-value test uses.
Funding fee: a one-time VA charge that can be financed into the loan. It counts toward the 100% ceiling. Exempt veterans, including those receiving compensation for a service-connected disability, don’t pay it.
Residual income: what’s left of your monthly income after taxes, debts and housing costs. On VA loans it is the controlling test.
Net tangible benefit: VA’s requirement that a cash-out must leave you better off in a measurable way.
Seasoning: the waiting period a lender requires between events, such as owning the home or making payments on the current loan.
Reserves: cash or liquid assets left in your accounts after closing.
How VA Sizes the Loan
VA’s cap is 100% of the property’s reasonable value. That ceiling comes from 38 CFR 36.4306, and VA Circular 26-19-05 confirms that a financed funding fee cannot push the loan past it. So the fee comes out of your room. Every point of fee you finance is a point of cash you don’t receive.
The funding fee on a cash-out is 2.15% for first use and 3.3% for later use. Exempt veterans skip it entirely. That exemption can move the numbers more than any other single factor, so confirm yours early.
Underwriting is where VA differs most from what people expect. Across the wholesale programs Lendmire places VA files with, residual income is the controlling test. The 41% debt-to-income figure works as a guideline, not a cap. A ratio above it needs residual income well above VA’s table. Credit starts at a 580 decision score on those programs, though some lenders set a higher floor. VA itself sets no minimum.
Then comes the net tangible benefit. Every VA cash-out has to pass it. Passing means meeting at least one listed condition, such as removing monthly mortgage insurance or shortening the loan term. One listed option is a new loan at or below 90% of reasonable value. Note that wording: it is a test option, not a wall. Many lenders add their own 90% overlay, which is where the common belief that VA caps at 90% comes from. The regulation does not.
Seasoning applies when you are refinancing an existing VA loan. The standard is the later of the sixth monthly payment or 210 days after the first payment due date. If you’re coming from a conventional or FHA loan, that VA-to-VA seasoning isn’t the gate, but the net tangible benefit and the required disclosures still are.
How Conventional Sizes the Loan
Conventional cash-out follows the Fannie Mae Selling Guide, and its rules are tighter on timing. The new loan must be a first mortgage on the same property. If you are paying off an existing first mortgage, that mortgage must be at least 12 months old, measured note date to note date. At least one borrower must have been on title for six months before funding, with exceptions such as delayed financing after an all-cash purchase (Fannie Mae Selling Guide B2-1.3-03).
Reserves enter at the high end of debt. On automated underwriting files, a debt-to-income ratio above 45% requires six months of reserves. That can matter for a high-equity owner whose income looks thin next to a large new loan.
The loan-to-value cap lives in Fannie Mae’s eligibility matrix. It sits meaningfully below VA’s ceiling for a primary residence, and it drops further for second homes and non-owner-occupied properties. Occupancy decides the leverage, and that’s all this article needs to say about those.
One practical note: state law can lower the cap in some places. A lender will tell you early if yours is one of them.
When VA Is the Better Fit
VA is the better fit when you are eligible, you live in the home, and you want the largest slice of your equity. It also wins when your credit is bruised but your cash flow is solid.
Picture a veteran with a substantial amount of equity and a mortgage that’s a few years old. A conventional cap would leave a large share of that equity sitting in the house. VA’s 100% ceiling reaches much further. Add no monthly mortgage insurance, and the larger loan may carry a gentler monthly cost than a conventional loan at lower leverage. (Run both, though. Math beats assumptions.)
VA also suits the borrower coming out of another loan type. An FHA owner paying monthly mortgage insurance can refinance into VA, pass the net tangible benefit by dropping that insurance, and take cash in the same move.
Credit is the other draw. A 580 decision score floor on the wholesale programs we use leaves room for borrowers conventional lenders would pass on. Residual income, rather than a hard debt-to-income wall, gives a stretched ratio a path if the monthly cash flow supports it. Qualification is still subject to lender guidelines and credit approval.
The catch: the funding fee. If you aren’t exempt, it eats cash. And the home must be your primary residence. You will certify that.
When Conventional Is the Better Fit
Conventional is the better fit when you don’t have VA entitlement, when you’d rather leave a cushion in the home, or when the property isn’t your primary residence.
Start with eligibility. VA needs a certificate of eligibility. Without one, the conversation ends. Conventional asks only that you meet the lender’s standards.
Consider a homeowner with strong credit, steady income and a long ownership history. VA’s higher ceiling isn’t the point for this borrower. They want a modest check and a loan that leaves a healthy equity buffer. A conventional cash-out can do that, and it spares them the funding fee.
Conventional also covers properties VA won’t touch on occupancy. A second home can be cashed out under conventional rules, at a lower cap.
Then there’s the free-and-clear home. Conventional rules allow a cash-out on a home with no mortgage. Some lenders treat a VA cash-out on a fully paid-off home differently, so ask early if that’s your situation.
The tradeoff is real. Conventional leaves more equity in the house, asks for stronger credit and ratios, and brings mortgage insurance into play when leverage climbs. For a very high-equity owner, though, that last point may not bite at all.
If your alternative is a line of credit instead of a refinance, Lendmire’s piece Conventional Cash-Out vs Home Equity Line for a Homeowner Above the Cap covers when each makes sense.
When Neither Fits
Sometimes the honest answer is neither. If your current mortgage is a keeper, a cash-out replaces it with a new loan, whatever it costs you. A home equity loan or line leaves the first mortgage alone. That tradeoff is worth a real look, especially if you only need a smaller sum.
The CFPB found that paying off other debts was the most common reason borrowers took cash out, but swapping non-mortgage debt for mortgage debt can raise foreclosure risk (CFPB). Cash out for a plan, not for a feeling.
Three Quick Scenarios
These use percentages only, as modeled assumptions.
Scenario one: veteran, large equity, primary residence. The payoff is a minority of value. VA’s 100% ceiling leaves meaningful room. Funding fee financed, net tangible benefit satisfied by removing monthly insurance. VA likely produces the larger check.
Scenario two: non-veteran, large equity, strong income. No entitlement, so VA is off the table. Conventional works, subject to the 12-month and six-month tests. The cap leaves a cushion behind.
Scenario three: large equity, income is the constraint. Here the equity is plentiful and the borrower’s monthly cash flow is not. VA’s residual income test may give a path where a conventional ratio doesn’t. If the ratio runs above 45% on a conventional file, reserves enter the picture. The smaller limit wins, and it isn’t the equity.
The Balanced Verdict
Neither option wins on every file. VA gives eligible veterans the highest reach into equity, no monthly mortgage insurance and a lower credit floor, at the cost of a funding fee for non-exempt borrowers and a primary-residence requirement. Conventional works for everyone else, and for the veteran who wants a cushion, because it uses no entitlement and carries no funding fee, at the cost of a lower ceiling and stricter standards.
Honestly, for a veteran with big equity and a mortgage that carries insurance today, VA is usually worth running first. But a veteran who wants a small check and a conservative balance might land on conventional and not regret it.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire, a mortgage broker, can help you compare the programs and the equity each one reaches. Nothing here is a commitment to lend, and every figure is subject to lender guidelines and full file review.
Frequently Asked Questions
Can I take out all of my equity?
Rarely. Conventional caps leave a meaningful share of equity in the home. VA allows a new loan up to 100% of appraised value, but the financed funding fee and closing costs come out of that room, so your cash is smaller than your equity. The CFPB guide says no cash-out option lets you convert 100% of equity into cash.
Do I need an existing VA loan to do a VA cash-out?
No. A homeowner with an FHA, conventional or other loan can refinance into VA with a cash-out. You do need a certificate of eligibility, the home must be your primary residence, and the loan must pass the net tangible benefit test.
Is 90% the limit on a VA cash-out?
No. The regulation sets the ceiling at 100% of reasonable value. Ninety percent is one way to satisfy the net tangible benefit test and a common lender overlay. A lender may set a lower cap than VA does, so ask which one applies to your file.
Can I cash out a home with no mortgage?
Under conventional rules, yes. A VA cash-out on a fully paid-off home gets treated differently by some lenders, so check early. If it’s not workable, a conventional loan or a home equity option may be the path.
Why is the offer smaller than my equity?
Several things shrink it: the program or lender cap, your payoff and any other liens, the financed funding fee on VA, closing costs, and the borrower limits of income and credit. When equity is high, those last two usually decide the number.
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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References
1. CFPB, Using Your Home Equity guide
4. Fannie Mae Selling Guide B2-1.3-03
5. CFPB
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 vs Conventional Cash-Out Requirements for a Veteran · Can a Veteran With a High DTI Still Get a VA Cash-Out? · Can a Veteran Take a VA Cash-Out for the Full Home Value?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.