The Quick Read: A veteran with full entitlement who plans to stay in the home usually gets more usable equity from the VA path, because VA reaches 100% of appraised value and carries no mortgage insurance. Conventional fits a veteran who has no certificate of eligibility, owns a home that is not the primary residence, or wants to stay out of the VA program. Both paths require full underwriting and a new first mortgage that replaces the one you have.
Side-by-Side
Here is how the two cash-out paths compare on the points that decide most files. Figures for VA come from the wholesale programs Lendmire places files with and are subject to lender guidelines and full file review.
| Factor | VA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | Up to 100% of appraised value, financed fee included | Materially lower; set by Fannie Mae’s matrix |
| Credit floor | 580 decision score on wholesale programs | Set by lender and automated findings |
| Mortgage insurance | None | Often applies at higher leverage |
| One-time fee | Funding fee, waived for exempt veterans | None, but pricing add-ons apply |
| Occupancy | Primary residence only | Varies by occupancy and unit count |
| Eligibility | Certificate of eligibility required | No military requirement |
| Key income test | Residual income controls | Debt-to-income drives the review |
| Existing loan | Any loan type can be refinanced into VA | Existing first mortgage must be at least 12 months old |
The exact conventional leverage cap depends on occupancy and unit count. It is lower than VA’s ceiling. Check the current Fannie Mae Eligibility Matrix before building a plan around any number you have heard.
What Does Each Path Actually Do?
Both replace your existing first mortgage with a new, larger one and hand you the difference. The Consumer Financial Protection Bureau draws the line clearly: a cash-out refinance replaces the original mortgage, while a home equity loan or HELOC leaves the first lien in place.
The VA’s cash-out refinance page confirms two things many veterans miss. The loan can take cash from equity, and it can also refinance a non-VA loan into a VA-backed one. You do not need an existing VA loan to use it. Lendmire’s VA cash-out refinance program page covers how the wholesale programs handle this.
Conventional works the same way mechanically. Fannie Mae’s Selling Guide says proceeds can cover closing costs, pay off subordinate liens, or come out as equity for any purpose. It also requires the existing first mortgage to be at least 12 months old.
When VA Is the Better Fit
VA wins when the home is your primary residence and you want to pull the most equity. The ceiling is 100% of appraised value, counting the financed funding fee. On full entitlement there is no VA loan limit. No monthly mortgage insurance applies at any leverage.
That last point is the budget driver. A conventional cash-out at high leverage usually carries mortgage insurance. A VA cash-out never does. Fannie Mae’s price-adjustment matrix also excludes VA loans from its loan-level price adjustments, so those conventional add-ons never touch a VA file.
VA also helps when credit is thinner. VA sets no minimum score itself. The wholesale programs Lendmire works with start at a 580 decision score. Conventional files at that level are harder to place.
Disabled veterans get an extra edge. The funding fee is waived for veterans receiving compensation for a service-connected disability. Without an exemption, the cash-out fee runs 2.15% on first use and 3.3% on later use, and it can be financed. Because the fee counts toward the loan amount, it counts toward the 100% ceiling too.
Consider a veteran with a conventional loan on the home they live in, a good amount of equity, and a plan to fund a renovation and pay off credit cards. VA lets that veteran refinance the conventional loan into VA and reach up to 100% of value. The same veteran on a conventional cash-out sits under a lower cap.
When Conventional Is the Better Fit
Conventional wins in four situations.
No eligibility. The VA path requires a certificate of eligibility. Service requirements are VA’s rules, and the COE decides. No COE, no VA loan.
Not your primary residence. VA requires you to live in the home you refinance. A second home or a former residence that is now rented does not qualify. Conventional treats occupancy and unit count differently, with its own leverage limits for each.
Limited remaining entitlement. A veteran who has used entitlement on another property may face a down payment requirement on a new VA purchase. On a cash-out, that same entitlement situation is worth a conversation with a loan officer before you pick a path.
Lots of equity, small cash need. If you only want to pull a modest amount from a home with a large equity cushion, VA’s higher ceiling gives you nothing extra. The conventional loan may then carry no mortgage insurance anyway, because leverage stays low. Weigh whether the VA funding fee is worth paying for room you will not use.
Conventional also has a quirk worth knowing. Per Fannie Mae’s guidance, files run through Desktop Underwriter with a debt-to-income ratio above 45% can trigger reserve requirements. VA does not work that way. 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. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
What Does VA Require That Conventional Does Not?
Three VA-only steps catch people off guard.
Net tangible benefit. Under 38 CFR 36.4306, the new loan has to be in the veteran’s financial interest, and the lender must give you the test. VA lender training lists 8 qualifying tests. Examples include removing monthly mortgage insurance, moving to a shorter term, converting an adjustable loan to fixed, or landing at 90% or less of reasonable value.
Loan type test. VA Circular 26-19-05 counts the funding fee in the loan amount when it sorts a loan into Type I (new loan does not exceed the payoff) or Type II (new loan exceeds the payoff). Type II is the one that puts cash in your hand.
Seasoning, when the old loan is VA. If you are refinancing an existing VA loan, the later of 210 days from the first payment and the sixth monthly payment applies. The Federal Register notice says it applies only when the loan being refinanced is VA-guaranteed. A conventional-to-VA cash-out has no VA seasoning clock. Conventional-to-conventional has its own, including the 12-month age on the existing first mortgage.
Key Terms Defined
Certificate of Eligibility (COE): The VA document that confirms you qualify for the benefit.
Entitlement: The amount of loan guaranty VA gives you; full entitlement means no VA loan limit applies.
Funding fee: A one-time VA charge, reviewable, waived for exempt veterans. It is not mortgage insurance.
Residual income: What is left of monthly income after debts and living costs; VA’s controlling test.
Net tangible benefit: VA’s test that the refinance helps you financially.
Seasoning: The required waiting period before you can refinance.
Where Files Slip
On VA cash-out files, three things cause most of the preventable delays. First, the appraisal comes in under the number the borrower assumed, and the 100% ceiling shrinks with it. Second, the veteran expected a streamline-style process and did not realize full underwriting applies. The IRRRL is a different product: no cash, no VA appraisal. Third, a lender sets a lower leverage cap than VA allows. Some lenders do, and that is an overlay, not a VA rule. Ask for the actual cap before you pay for an appraisal.
On conventional files, the usual slip is the 12-month loan-age test, or reserves surfacing after a debt-to-income check lands above 45%.
Weigh the Risk Either Way
Cash-out turns equity into debt secured by your home. The CFPB has warned that converting non-mortgage debt into mortgage debt can put the home at risk of foreclosure if payments become unsustainable. Missing a credit card payment is unlikely to cost you the house. Missing a mortgage payment can. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
The Balanced Verdict
For a veteran with a COE, living in the home, who wants the most equity and no monthly mortgage insurance, VA is usually the stronger fit. For a veteran with no COE, a non-primary home, or a small cash need against deep equity, conventional can be the cleaner choice. Neither is better in the abstract. The deciding items are occupancy, entitlement, how much cash you need, and what the appraisal says.
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. Every figure here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
Frequently Asked Questions
Can I refinance a conventional loan into a VA cash-out loan?
Yes. VA says a cash-out refinance can move a non-VA loan into a VA-backed one. You still need a certificate of eligibility, full underwriting, the net tangible benefit test, and the home must be your primary residence.
Does a VA cash-out have a waiting period?
Only when the loan you are refinancing is a VA loan. Then the later of 210 days from the first payment and the sixth monthly payment applies. Conventional cash-out has its own test: the existing first mortgage must be at least 12 months old.
Is the funding fee the same as mortgage insurance?
No. It is a one-time charge that can be financed, and veterans receiving compensation for a service-connected disability are exempt. VA loans carry no monthly mortgage insurance. Conventional loans at higher leverage often do.
Can I use VA cash-out on a rental or second home?
Not generally. VA requires you to live in the home. Conventional cash-out treats occupancy and unit count differently, and leverage limits change with them.
What credit score do I need?
VA sets no minimum score. The wholesale programs Lendmire places VA loans with start at a 580 decision score. Some lenders set a higher floor. Conventional credit standards are set by the lender and the underwriting findings.
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. Consumer Financial Protection Bureau
2. VA.gov: Cash-out refinance loan
3. Fannie Mae Selling Guide B2-1.3-03
5. Fannie Mae (document 20786)
9. Federal Register, Dec 17, 2018 (seasoning rule)
10. CFPB: cash-out refinances and non-mortgage debt
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 IRRRL Vs VA Cash-out: Choosing The Right VA Refinance · VA Cash-out Refinance To Pay Off A Non-va Loan: Type I Vs Type II Explained · VA Cash-out Refinance: How The 100 Percent Ceiling Really Works
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.