The Quick Read: VA rules do not require you to leave any equity in the home. The new loan, including a financed funding fee, can reach 100% of the appraised value. Whether you should keep a cushion is a separate choice. It depends on what the cash is for, how long you plan to stay, and how much monthly budget room you have.
If you are researching how much equity to keep on a VA cash-out, start with that split between what the program allows and what is wise. They are different questions. Most of the confusion comes from blending them.
What Does the Full Value Cap Actually Mean?
The full value cap means the new VA loan, fee included, can equal 100% of the home’s appraised value and no more. A VA-approved appraiser sets that value. The lender divides your total loan amount, funding fee included, by it. That quotient is your loan-to-value ratio.
Across the wholesale programs Lendmire places VA files with, this is the same ceiling a borrower with full entitlement will see. The VA cash-out refinance program replaces your current mortgage with a new VA-guaranteed loan. It can refinance any loan type into VA, not just an existing VA loan.
The federal rule is plain. Under 38 CFR 36.4306, the new loan cannot exceed 100% of the reasonable value of the home. VA said in Circular 26-19-05 that it will no longer guaranty a refinance whose LTV is above 100%. A financed funding fee cannot push the loan past that line.
That ceiling is a maximum. It is not a target, and it is not a recommendation.
Key Terms Defined
Reasonable value: The value VA’s appraiser assigns to the home, recorded on the Notice of Value. It is the denominator for the 100% test.
LTV (loan-to-value): The total new loan, funding fee included, divided by the reasonable value.
Funding fee: A one-time VA charge that can be financed into the loan. It is waived for veterans receiving compensation for a service-connected disability and for other exempt groups.
Net tangible benefit (NTB): A test showing the refinance is in the borrower’s financial interest. At least one prong must be met.
Residual income: What is left of your monthly income after debts, taxes, and living costs. It is the controlling underwriting test on VA loans.
Seasoning: The waiting period before a VA-to-VA refinance. It is the later of 210 days from the first payment and the sixth monthly payment.
How Is a VA Cash-Out Underwritten, Step by Step?
A VA cash-out moves through eligibility, appraisal, a loan-size check against the cap, the benefit test, seasoning where it applies, and full credit and income review. Each step can limit your proceeds, and the appraisal comes first.
1. Eligibility. Your Certificate of Eligibility (COE) from VA decides whether you qualify. Service requirements are VA’s rules, and the lender works from the COE.
2. Appraisal. An appraisal is mandatory for a VA cash-out, unlike the VA streamline refinance. The VA Home Loan Guaranty Buyer’s Guide explains that VA uses the value to decide how much of the loan to guarantee.
3. Loan size against the cap. The lender adds your payoff, any cash you want, closing costs you choose to finance, and the funding fee. That total must sit at or below 100% of the appraised value.
4. Net tangible benefit. The lender walks you through the test and gives you a loan comparison. The circular also calls for a disclosure of how much home equity the loan removes.
5. Seasoning. This applies to VA-to-VA refinances only. The later of 210 days from the first payment and the sixth monthly payment must have passed.
6. Credit and income review. Wholesale programs start at a 580 decision score, subject to lender guidelines. VA itself sets no minimum score, and individual lenders add their own.
Residual income is the controlling test here. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table, and it gets closer scrutiny. VA is explicit that you still need the credit and income for the loan amount you want, as its home loans page states.
How Does the Funding Fee Fit Under the Cap?
The financed funding fee counts toward the 100% limit. If the fee would push the loan above 100% of value, that slice must be paid in cash at closing. At full value, a financed fee comes straight out of your cash proceeds.
The cash-out funding fee is 2.15% on first use and 3.3% on later use. It is waived for exempt borrowers, including veterans receiving compensation for a service-connected disability. Confirm the current schedule with your loan officer, since it is a percentage of the loan and reduces what you walk away with.
Here is the mechanic in plain words. Say your appraisal supports a certain value and you want to borrow to the cap. The fee is a percentage of the loan itself, so the loan has to be sized so that the base amount plus the fee equals 100% of value. The more you borrow, the larger the fee, and the less of each additional dollar reaches you. The Federal Register final rule shows VA kept the 100% LTV the statute had allowed since 2008 and kept this cash-payment treatment of any fee overage. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Closing costs work the same way. They can be paid out of proceeds or financed if there is room under the cap. At full value there often is no room, so they reduce your net cash.
Where Does the 90% Number Come From?
The 90% figure is one prong of the net tangible benefit test, not a cap. A loan at or below 90% of reasonable value satisfies that prong automatically. Above 90%, you need a different prong to be met.
Many borrowers hear “VA caps cash-outs at 90%” and assume it is federal law. It is not. Under the same regulation, the other prongs include eliminating monthly mortgage insurance, shortening the term, lowering the rate, lowering the payment, increasing residual income, refinancing an interim construction loan, or converting an adjustable loan to a fixed one. The statute behind this, 38 U.S.C. 3709, directs VA to write rules on recoupment, seasoning, and net tangible benefit.
Some lenders also set their own lower LTV limits, and some tie them to credit score or debt ratios. That is a lender overlay, not a VA rule. It is why one borrower is quoted to the full cap while another is told the same file stops short of it. Ask early what the lender’s ceiling is.
There is one more place 90% appears. In certain cases involving financing costs, the resulting balance must keep the property at 90% LTV or less. That is a narrow case, but it matters if you are weighing those costs. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
What Happens at Different Cushion Levels?
Keeping more equity lowers your cash, shrinks your funding fee, and adds protection against a value dip. Borrowing to the cap maximizes cash but leaves no buffer. The table compares the same home at three cushion levels, described as percentages of value.
| Cushion left | Loan vs. value | Net tangible benefit | Cash to you | Risk if values fall |
|---|---|---|---|---|
| None | 100% | Needs a non-LTV prong | Highest | Underwater quickly |
| 10% | 90% | LTV prong met | Lower | Some buffer |
| 20% | 80% | LTV prong met | Lowest of the three | Larger buffer |
Read the first row carefully. At 100%, you need a rate, payment, term, mortgage-insurance, or residual-income prong to pass the benefit test. That is easy for a borrower swapping a high-cost loan, and harder for someone who only wants cash.
This is a genuine tradeoff, not a trick question. The no-cushion route makes sense when the cash does something durable, you plan to stay put, and your budget has slack. A cushion makes more sense when the cash is for spending that leaves nothing behind, or when your income feels tight.
Why Does Zero Equity Carry Real Risk?
At 100% LTV you have no equity buffer. A modest price dip puts you underwater, and a sale would not cover the loan plus selling costs. That is the cost you accept in exchange for maximum cash. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
The CFPB’s Office of Research notes in its review of cash-out refinances that the added risk for these borrowers is that their payments and loan terms both tend to increase. The home is collateral, so missed payments can lead to foreclosure. The CFPB’s report on cash-out borrowers adds that paying non-mortgage debts with mortgage debt can raise foreclosure risk.
Run a stress test in your head. Suppose you borrow to 100% and the home later sells for 5% less than the appraisal. Selling costs come on top of that. You would owe more than the sale brings in, and you would need to cover the gap in cash. A 20% cushion absorbs that dip with room to spare.
Debt consolidation deserves special care. Turning unsecured card balances into a mortgage lowers the monthly strain but puts the home behind the debt. If the spending habits that built the balances remain, you can end up with both the new loan and fresh balances.
What If the Appraisal Comes In Low?
A low appraisal shrinks the cap, and your cash falls with it. The new loan can only reach 100% of the appraised value, so every dollar of value you miss comes off the top of your proceeds.
Plan around a range, not a single number. If you counted on a specific amount of cash and the value lands lower, three things can happen. Your cash drops, your funding fee may have to be paid in cash instead of financed, or the refinance stops making sense. This is also why online estimates are only a starting point. The appraiser’s value on the Notice of Value is the number that counts.
If the number disappoints, you have options. You can take less cash, bring the difference in, or wait and revisit the refinance later.
Do Entitlement and Seasoning Change Your Cushion?
Yes, in two ways. Full entitlement lets a loan reach the full value cap with no VA loan limit, while reduced entitlement may require a down payment on larger amounts. Seasoning applies only to VA-to-VA files.
With full entitlement there is no VA loan limit, and the wholesale programs Lendmire places VA loans with serve amounts up to $4,000,000. With remaining entitlement, a down payment may be required, so speak with a loan officer about your specific situation. Lendmire’s piece Can a Veteran With Reduced Entitlement Do a VA Cash-Out at Full Value? covers that case in more depth.
On seasoning, a VA-to-VA refinance requires the later of 210 days from the first payment and the sixth monthly payment. A non-VA loan converting to VA is not held to that waiting period. The IRRRL is a separate program. It refinances an existing VA loan, including a move from adjustable to fixed, with no VA appraisal, a 0.5% fee unless exempt, and it cannot deliver cash.
How Should You Decide How Much to Keep?
Decide in this order: purpose of the cash, how long you will stay, your reserves, and your monthly comfort. If those four line up, borrowing near the cap can be reasonable. If any one is shaky, leave more equity.
- Purpose. Cash that improves the home, retires high-cost debt, or removes mortgage insurance has a payoff. Cash for spending that leaves nothing behind does not.
- Time horizon. Staying many years gives values time to recover from a dip. Possibly selling soon makes zero equity much riskier.
- Reserves. Without savings set aside, a job interruption plus no equity is hard to absorb.
- Monthly fit. A cash-out often brings a bigger payment or longer term than the loan it replaces. Check the Loan Estimate to see how the new monthly figure fits your budget.
A rule of thumb many borrowers find useful is to keep the cushion large enough that a plausible price dip and a sale would still leave you whole. That is a personal judgment, not a program rule. Reasonable people land in different places.
There are alternatives as well. You can take less cash. You can use a rate-and-term approach, such as the IRRRL if you already have a VA loan and only want a lower rate. Or you can choose a different tool, such as a separate home equity loan or line. A cash-out replaces your first mortgage, while those products leave it in place. Lendmire’s piece How Much Cash an FHA Cash-Out Releases at the LTV Cap shows how a different program handles the same tradeoff.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Does VA make me leave any equity in the home?
No. The regulation lets the new loan reach 100% of reasonable value, funding fee included. Any lower limit you hear about is usually a lender’s own policy. Subject to lender guidelines and full file review, some files reach the cap and others stop short.
Can I finance the funding fee on top of a 100% loan?
Only up to the cap. A financed fee counts toward the 100% limit, and any amount that would push the loan over must be paid in cash at closing. Exempt borrowers, such as veterans receiving compensation for a service-connected disability, are not charged the fee, so there is nothing to count toward the cap.
Is staying at or below 90% required?
Not by VA. Being at or below 90% of value satisfies one prong of the net tangible benefit test. Above 90%, you need another prong, such as lowering the payment or removing mortgage insurance. Some lenders set a lower ceiling than the federal one.
What credit score do I need for a VA cash-out?
VA sets no minimum score. The wholesale programs Lendmire places VA loans with start at a 580 decision score, though individual lenders can set higher floors and the file is reviewed in full. Residual income is the controlling test, and the 41% debt ratio is a guideline, not a cap.
Can I use a VA cash-out if my current loan isn’t a VA loan?
Yes. A VA cash-out can refinance any loan type into a VA loan, and the seasoning rule applies only when you are refinancing an existing VA loan. You still need a COE, an appraisal, and a net tangible benefit.
Where This Leaves You
The full value cap is a ceiling, and you choose where under it to land. Weigh the cash you need against the buffer you want, and compare a few cushion levels before you commit. 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
3. VA Home Loan Guaranty Buyer’s Guide
5. Federal Register, 2018 final rule on VA cash-out refinance loans
7. CFPB Office of Research, cash-out refinance mortgages and their borrowers
8. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
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 · Does a Disability Rating Exempt You From the VA Cash-Out Fee? · How Much a VA Cash-Out Funding Fee Adds to Your Monthly Payment
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.