The Quick Read: Rarely, and mostly when VA isn’t available or doesn’t fit the file. On cash alone, VA wins: it reaches higher into your equity and carries no monthly mortgage insurance. FHA can come out ahead in a few narrow cases, covered below. This piece assumes you now hold a conventional mortgage and are choosing between a new FHA cash-out and a new VA cash-out.
What Are We Actually Comparing?
A cash-out refinance replaces your current mortgage with a bigger one and hands you the difference. Your home’s equity becomes spendable money. The label is a little misleading, because “cash-out” is the category even when you take little or no cash.
Here is the setup. You’re a veteran, and your current loan is conventional. You want to pull equity out of the home you live in. Two doors are open: the FHA cash-out refinance program and a VA cash-out.
If you aren’t a veteran, or your VA eligibility is gone, this comparison is moot. FHA is simply one of your options. The rest of this article is for the veteran who has both choices.
Where Does VA Win on the Numbers?
VA wins on three counts: how much of the home’s value you can borrow against, what the loan costs over time, and the lack of monthly mortgage insurance. Those three decide most files before anything else comes up.
Start with leverage. Across the wholesale programs Lendmire works with, an FHA cash-out reaches 80% of the home’s value, and the combined balance of all liens counts toward that cap. VA can back a cash-out up to 100% of the home’s reasonable value, and any financed funding fee has to fit under that ceiling. If you want to borrow 85% or 90% of value, FHA is off the table. That settles it for many veterans. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Next, insurance. FHA charges an upfront premium of 1.75% of the base loan, usually financed into the balance. It also charges an annual premium, collected monthly, that runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV. VA skips monthly insurance. It charges a one-time funding fee instead, which can also be financed.
Last, structure. FHA files run on debt ratios. The base pair is 31/43 (housing costs over income, then all debts over income), and documented compensating factors can stretch that to 40/50 at the top tier. VA looks at ratios too, but it also weighs residual income, the money left each month after your obligations.
Side by Side
| Factor | FHA cash-out | VA cash-out |
|---|---|---|
| Max financing | 80% of adjusted value | Up to 100% of reasonable value |
| Upfront cost | 1.75% premium, reviewable | One-time funding fee, reviewable |
| Monthly insurance | Annual premium | None |
| Occupancy | Owned and lived in 12 months | Primary residence |
| Who can use it | Anyone who qualifies | Eligible veterans and some others |
Program figures are subject to lender guidelines and full file review. Nothing here is a commitment to lend.
Why FHA’s Cap Is 80% (and Why a Second Lien Doesn’t Help)
HUD cut the FHA cash-out limit from 85% to 80% of adjusted value in Mortgagee Letter 2019-11, citing risk to the FHA insurance fund. The cap applies to combined loan-to-value. A HELOC or second mortgage that stays in place uses up room under the 80%.
So an FHA second mortgage doesn’t get you past the cap. It just spends the same room.
VA works from the other direction. VA Circular 26-19-05 says VA will not guarantee a refinance above 100% loan-to-value. It also sorts cash-outs into two types. Type I covers a loan that doesn’t exceed the payoff, funding fee included. Type II covers a loan that exceeds the payoff, which is where you take cash. Any lower ceiling you hear about is a lender’s own choice, not a VA rule.
When Can an FHA Cash-Out Actually Win?
FHA wins when the VA route is closed, awkward, or costs more than the cash is worth to you. The cases are few, but they’re real. Treat each as a test to run before you pick.
You can’t use VA at all
You may have no usable eligibility or entitlement. Entitlement is the portion of your VA benefit that backs a loan. Or the file may fail VA’s property or appraisal standards. In either case the comparison ends and FHA stands on its own merits.
The person on the loan isn’t a veteran
Eligibility for a VA guarantee follows the veteran. If a co-borrower who isn’t a veteran carries much of the income, the structure needs a loan officer’s review. FHA has its own limit here: on a cash-out, income from someone who doesn’t live in the home generally can’t be used to qualify. Neither program is a clean fit, so the file decides.
The file fits FHA’s ratios and credit rules better
Credit floors and overlays differ by program and by lender. In the wholesale programs Lendmire places FHA files with, FHA starts at a 580 decision score. A VA lender may set its own floor above that. A file that fails one lender’s VA rules can still fit an FHA lender’s. That’s a lender-by-lender question, so don’t assume either direction.
The cash you need is small and the funding fee is high
This is the one pure cost case. Suppose you’ve used your VA loan before and aren’t exempt. You’d pay the funding fee at the higher repeat-use tier. And suppose you need only a modest slice of equity. Then FHA’s 1.75% upfront premium may be cheaper at closing.
Run it as a full cost comparison. FHA’s annual premium keeps coming. On a thirty-year loan at or below 90% LTV, as every FHA cash-out is, it ends after eleven years. That’s still more than a decade of monthly cost VA doesn’t have. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
This one is a genuine toss-up on paper. The upfront savings are real, but they get chipped away every month. A veteran who plans to sell or refinance within a few years sees something different than one who plans to stay put.
Don’t Skip the Exemption Check
Veterans with certain service-connected disability ratings pay no VA funding fee. For an exempt veteran, VA is nearly always cheaper, because the one cost that could have tipped it toward FHA disappears. VA.gov lists who qualifies, and Lendmire’s article VA Cash-Out vs Conventional for a Veteran Exempt From the Funding Fee walks through the comparison.
If you think you might be exempt, confirm it before you compare anything else. It can flip the entire answer.
A Scenario, Described in Percentages
Say you own a home outright, or close to it. You want cash for a kitchen overhaul. Your target is a new loan at about 70% of the home’s value.
That fits under both programs, because 70% sits below FHA’s 80% ceiling. The decision now turns on cost. FHA adds the upfront premium and years of monthly premium. VA adds a funding fee and no monthly insurance. For most veterans staying in the home a long time, VA looks cheaper.
Now change one fact. You want about 90% of value, to clear a pile of other debts. FHA can’t reach that. VA can, if the home appraises and the funding fee fits under the ceiling.
Be careful with that second plan, though. Paying down other debts with your home’s equity is common. The CFPB found that paying off bills or debts was the most common reason for a cash-out refinance. The same report cautions that covering non-mortgage debt with mortgage debt can raise foreclosure risk. Reaching 100% is possible with VA. Whether you should is a different question.
What Does the Lender Check?
The paperwork differs by program, but the questions are similar. Does the new loan help you, and can you carry it?
- VA: your certificate of eligibility, a VA-assigned reasonable value from the appraisal, credit, income and residual income. Lenders must also find at least one net tangible benefit, a real advantage to you. VA’s cash-out guide says the new loan’s terms must be disclosed upfront.
- FHA: adjusted value, 12 months of ownership and occupancy, a documented payment history and your credit and debt ratios.
Seasoning is the waiting period before you can refinance a recent loan. VA applies it only when you’re refinancing an existing VA loan. A conventional or FHA loan can move into VA without it. That helps in your situation, since your current loan is conventional.
Key Terms Defined
Cash-out refinance: a new, larger mortgage that pays off the old one and gives you the difference.
LTV (loan-to-value): the loan balance divided by the home’s value, shown as a percentage.
Entitlement: the part of a veteran’s VA benefit that backs a loan.
Funding fee: the one-time VA charge that stands in for monthly mortgage insurance.
Mortgage insurance premium: FHA’s upfront and monthly charge that protects the lender.
Net tangible benefit: a clear gain for the borrower from the refinance, which VA requires lenders to find.
Reasonable value: the home’s value as VA’s appraisal sets it.
Common Misconceptions
“Cash-out tops out at 80% everywhere.” That’s FHA’s cap, and conventional lenders often use it. VA’s ceiling is 100% of reasonable value.
“VA has no mortgage insurance, so it’s free.” It has a funding fee instead, and exempt veterans pay none.
“A bigger down payment lowers the VA cash-out fee.” On a refinance, VA’s reduced fee tiers for larger down payments don’t apply.
“VA seasoning applies to everyone.” It applies only to VA-to-VA refinances.
“An IRRRL can give me cash.” An IRRRL refinances an existing VA loan and provides no cash. A cash-out is a separate product with a full appraisal and underwriting.
“VA is cheaper in every case.” Close, but not exactly. For a non-exempt, repeat-use veteran taking a small amount of equity, FHA’s upfront cost can be lower.
A Five-Question Test
Run these in order and stop when one answers it.
1. Do you have usable VA eligibility and entitlement? If not, FHA is your path.
2. Do you want to borrow above 80% of the home’s value? If yes, only VA reaches that.
3. Are you exempt from the funding fee? If yes, VA almost certainly costs less.
4. Does your file fit one lender’s rules and not the other’s, on credit, ratios or the appraisal? Follow the program that fits.
5. Are you staying long enough for FHA’s monthly premium to outrun its lower upfront cost? Longer holds favor VA.
If the test ends in a tie, ask your loan officer for both programs side by side on the Loan Estimate. Compare the full cost, not just the closing bill.
Next Step for the Home You Live In
If you are weighing a cash-out refinance on your own home against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. A mortgage broker can put an FHA file and a VA file next to each other and show you where each one lands for your situation as a veteran homeowner.
Frequently Asked Questions
Can I refinance my conventional loan into a VA loan and take no cash?
Yes, if you’re eligible. “Cash-out” is the program label even when you take nothing. The new loan can simply pay off the old one, and VA’s seasoning rule doesn’t apply because the loan you’re leaving isn’t a VA loan.
Does a larger down payment reduce the VA funding fee on a cash-out?
No. VA’s reduced fee tiers for larger down payments don’t apply to refinances. The fee depends on whether you’ve used the benefit before and whether you’re exempt.
Is FHA’s 80% cap based on the first mortgage only?
No. It’s based on the combined balance of every lien. A second mortgage or HELOC left in place counts against the cap. HUD’s Mortgagee Letter 2019-11 set that standard.
How long does FHA’s annual premium last on a cash-out?
FHA’s annual premium on a thirty-year loan at or below 90% LTV ends after eleven years. Because FHA cash-outs cap at 80%, that’s the group you’d be in, subject to lender guidelines. HUD describes the structure on its FHA mortgage insurance page.
Do FHA loan limits cap how much I can borrow?
Yes. FHA limits are set by county and change every year, so county loan limits apply. Your loan officer can check the limit for your county before you apply.
To compare both programs for your own home, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD Mortgagee Letter 2019-11
3. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
4. VA Cash-Out Refinance Quick Reference Guide
5. HUD FHA Resource Center, FHA mortgage insurance premium structure
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How Much Cash an FHA Cash-Out Releases Over an Existing FHA Loan · Should an Eligible Veteran Ever Choose an FHA Cash-Out Over VA? · Can a High DTI Get an FHA Cash-Out After a Conventional Decline?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.