The Quick Read: For most veterans who qualify, VA cash-out is the stronger fit, and FHA cash-out is the fallback when VA does not work. A co-trustee changes the paperwork more than the program choice. The real questions are who holds title, who signs, and whose income drives lender review.
Key Takeaways
- A co-trustee question is a title-and-signing question first. It becomes a program question only when income or occupancy is involved.
- VA cash-out generally reaches more equity and carries no monthly mortgage insurance. It requires a veteran with a Certificate of Eligibility who lives in the home.
- FHA cash-out tops out at 80% of the home’s value and carries mortgage insurance. It works for borrowers who are not eligible for VA, or who prefer to leave VA benefits untouched.
- On FHA cash-out, a co-trustee who does not live in the home cannot add income to help qualify.
- A revocable trust is generally workable under both programs. An irrevocable trust is the usual deal-stopper.
Who Each Option Is Really For
VA cash-out is built for a veteran (or a surviving spouse who qualifies) who lives in the home and wants to pull equity out. It can also refinance a non-VA loan, including an FHA loan, into a VA-backed loan. That second use is allowed, so a veteran with an FHA loan can consider it.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
FHA cash-out is built for owner-occupants who want cash from equity and do not have VA eligibility, or do not want to use it. It is also the program some veterans land on when entitlement is short or the home needs something VA’s appraisal process will not accept.
Either way, the co-trustee is not a third program. The lender needs to know three things. Who is on title? Who signs? Who is the qualifying borrower? Answer those three cleanly and the rest of the file follows.
Side-by-Side
| Factor | FHA Cash-Out | VA Cash-Out |
|---|---|---|
| Maximum leverage | 80% of value | Higher than FHA; many lenders set their own cap |
| Credit floor | 580 decision score in the network Lendmire uses | Set by each lender; no single floor |
| Mortgage insurance | Upfront 1.75% plus annual premium | No monthly insurance; one-time funding fee |
| Occupancy | Owned and lived in 12 months before case number | Veteran must live in the home |
| Who qualifies | Any eligible owner-occupant | Veteran with a Certificate of Eligibility |
| Non-occupant co-trustee income | Cannot be counted | Centers on the veteran and spouse |
| Documentation | Standard income, assets, trust papers | Same, plus eligibility and entitlement |
| Appraisal | FHA appraisal | VA appraisal and Notice of Value |
Every figure here is subject to lender guidelines and full file review. Nothing in the table is a commitment to lend.
Terms You Will Hear
Co-trustee is a person who shares the legal job of managing a trust. Two trustees may need to sign together, depending on the trust document.
Settlor (also called a grantor) is the person who created the trust and funded it with the home.
Revocable trust is a trust the settlor can change or cancel. Lenders generally accept these because the settlor keeps real control over the home.
Non-borrowing trustee is a trustee who signs for the trust but is not on the loan and does not earn qualifying income for it.
Certificate of Eligibility (COE) is the VA document that proves a veteran earned the benefit. A lender can pull it, or the veteran can get it through VA.gov or by mail.
Entitlement is the amount of the VA benefit available to back a loan. A veteran may have all of it, part of it, or none, depending on past VA loans.
What a Co-Trustee Changes (and What It Does Not)
Start with the split between the note and the security instrument. The note is the promise to repay. The borrower signs it. The security instrument pledges the home as collateral. When the home sits in a trust, the trustee signs that one, in the trustee’s capacity.
So a co-trustee often signs even when they are not borrowing. That is normal. It does not mean they are on the loan, and it does not mean their credit or income gets reviewed.
Whether the veteran also signs personally depends on the lender and the title company. Expect the title company to review the trust papers before anything else moves. It will tell you exactly who must sign.
Here is where programs split. On FHA cash-out, HUD’s Handbook 4000.1 is the lender-facing policy source. It limits cash-out refinances to owner-occupied principal residences, and a non-occupant co-borrower’s income cannot be used to qualify. So an adult child who serves as co-trustee but lives elsewhere can sign for title. They cannot be the income that makes the numbers work.
VA qualification centers on the veteran, and on the spouse if there is one. A non-borrowing trustee’s signature is a title matter. Lenders handle it differently, so ask before you apply.
One more FHA point. HUD changed its residency rules so that non-permanent-resident borrowers are no longer eligible for FHA on newer case numbers. If a co-borrower is not a citizen or permanent resident, FHA may be off the table.
Trust rules vary, so treat the trust mechanics here as a map. Confirm the specifics with the lender, the title company and an estate attorney.
When FHA Cash-Out Is the Better Fit
FHA is the better fit in a handful of situations. Each one is about eligibility or structure, not about the program being better in general.
The veteran is not eligible, or the entitlement is spent. Without a Certificate of Eligibility and enough available entitlement, VA is not open. FHA is a standard owner-occupant program.
The borrower is not a veteran. Maybe the co-trustee is a spouse who is the one earning the income and borrowing. If neither person qualifies for VA, the comparison ends.
The veteran wants to keep VA entitlement untouched. A VA cash-out can affect entitlement available for later VA use. FHA cash-out does not touch it. A veteran planning another VA purchase may weigh that.
The credit profile fits FHA’s structure. The wholesale programs Lendmire places FHA loans with start at a 580 decision score. Ratios start at 31/43 with no compensating factors, and documented factors can stretch them to 40/50 at the top tier. Automated findings govern most files. VA lenders set their own credit floors, and some set higher ones.
The home has been owned and lived in for 12 months. FHA cash-out requires that history before the case number is assigned. There is an exception for inherited property, with limits if the home was rented. If the 12 months are met, FHA is simple on this point.
The tradeoffs are real. FHA cash-out stops at 80% of value, so the equity you can reach is smaller. Mortgage insurance has two parts. There is an upfront premium of 1.75% of the base loan, which is typically financed. There is also an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount and leverage. At or below 90% LTV on a thirty-year loan, the annual premium ends after eleven years. These are program facts, not advertised prices. The Loan Estimate shows what applies to your file.
When VA Cash-Out Is the Better Fit
VA is usually the stronger program for a veteran who qualifies. Here is why.
More equity is reachable. VA allows a higher ceiling than FHA’s 80%. Many lenders set their own cap below VA’s ceiling, so ask what each one offers. A higher ceiling is a possibility, not a promise.
No monthly mortgage insurance. VA’s cash-out page says the program does not require monthly mortgage insurance or down payments. There is a one-time funding fee instead. It can usually be financed within limits, and some veterans are exempt. A veteran who receives disability compensation, for instance, may be, and the lender confirms it on the file. Structurally, that is a different cost shape than FHA’s two-part premium. Over a long hold, the difference can matter.
It can refinance an FHA loan. A veteran with an FHA loan can move into a VA-backed loan through cash-out. This is the main reason the two programs get compared.
VA has its own guardrails. VA sorts cash-out refinances into two types under VA Circular 26-18-30. In a Type I, the new loan, including the funding fee, does not exceed the payoff. In a Type II, it does. VA also applies a net tangible benefit test, which asks whether the refinance actually helps the veteran. Lenders review that, so the file has to show it.
The tradeoffs are these. VA requires a Certificate of Eligibility, enough available entitlement, and that the veteran live in the home. A VA cash-out may reduce entitlement available later. A VA appraisal produces a Notice of Value, which is VA’s reasonable-value opinion of the home.
Do not confuse cash-out with the VA streamline. VA’s interest rate reduction refinance does not allow cash from the proceeds. It also does not allow any loan other than the existing VA loan to be paid off. If cash is the goal, the streamline is the wrong tool.
Three Co-Trustee Scenarios
These are hypotheticals, with no dollar figures.
A veteran and spouse are co-trustees. The home sits in a revocable trust they created together. The veteran lives there and holds the Certificate of Eligibility. The spouse is a co-settlor and co-trustee and can be part of the loan. This is the cleanest VA file. Both sign as trustees, and the title company confirms the borrower’s signatures. FHA also works here if VA is not available.
A veteran with an adult-child co-trustee. The child lives in another state and is not on the loan. On FHA cash-out, the child’s income does not count, so the veteran must qualify alone. On VA, the veteran qualifies alone as well. The question for both is signing. If the trust says both trustees must sign, the child has to sign as trustee. Ask the lender early whether remote signing is allowed. If the child is out of reach, the trust terms may let one trustee act alone. The title company decides that from the document.
A veteran with an FHA loan inside a trust. The veteran wants to cash out and move out of the FHA loan’s mortgage insurance. A VA cash-out can pay off the FHA loan. The trust is reviewed the same way as for any VA file. The veteran confirms entitlement first, then checks that the trust is revocable and that the trustees can pledge the home.
Trust Problems and Common Fixes
- Irrevocable trust: typically a barrier under both programs. An attorney can advise whether the home can lawfully be moved out of the trust. Do that before choosing a lender.
- Trustees lack power to borrow: the trust may need an amendment or a clearer certification of trust.
- Outdated trustee list: update the roster so the people who sign are the people the trust names.
- A co-trustee who disagrees or cannot be reached: read the trust terms on who can act alone. A disagreement can stall the file at title review.
- Moving the home into or out of a trust: the change can affect title review. Ask the lender whether it affects anything on the file, and settle it before you apply.
Pre-Application Checklist
1. Gather the vesting deed, the trust agreement or certification of trust, and the names of every trustee.
2. Confirm the trust is revocable and the trustees can pledge the home.
3. Decide who the qualifying borrower is, and who is only signing for title.
4. For VA, get the Certificate of Eligibility and check available entitlement.
5. For FHA, check the 12-month ownership and occupancy history.
6. Confirm the home is the veteran’s primary residence.
The Balanced Verdict
If the veteran is eligible, lives in the home, and has the entitlement, VA cash-out is usually the stronger starting point. It generally reaches more equity and has no monthly mortgage insurance. The co-trustee mostly affects who signs.
FHA cash-out is the fair alternative, not the weak one. It suits borrowers who are not VA-eligible, veterans who want to preserve entitlement, and files where credit or property details fit FHA better. Its cost is the lower ceiling and the two-part insurance premium.
One caution applies to both. VA warns that misleading refinance offers exist, such as claims that you can skip payments. Compare full terms on the Loan Estimate before choosing.
This is general information, not legal advice. An estate attorney can confirm how your trust is set up before any lender gets involved.
Frequently Asked Questions
Does a co-trustee have to be on the loan?
No. A co-trustee often signs in a trustee capacity without borrowing. They are not underwritten unless they are also a borrower. On FHA cash-out, a non-occupant co-borrower’s income cannot be counted anyway. Ask the lender how it handles a non-borrowing trustee’s signature.
Can a veteran use VA cash-out to pay off an FHA loan?
Yes. VA cash-out can refinance a non-VA loan, including FHA, into a VA-backed loan. The veteran needs a Certificate of Eligibility and enough entitlement, and has to live in the home. This differs from the VA streamline, which does not allow cash and applies only to existing VA loans.
Does a trust stop a VA or FHA cash-out?
Usually not, if it is revocable and the trustees can pledge the home. An irrevocable trust is typically the barrier under both programs. Trust rules are reviewed at title, so confirm the specifics with the lender, title company and an attorney.
What if the co-trustee is a spouse who is not a veteran?
A non-veteran spouse can generally be part of the trust and the loan, and the lender reviews the setup. On VA, qualification centers on the veteran and spouse. If the spouse is a surviving spouse who was not on the original VA loan, VA guidance points to cash-out refinance as the path once they qualify. Check that guidance for currency.
Which one is better for a trust file?
Neither is simply cleaner. Both need revocability, trustee authority and a title review. The practical difference is who qualifies and what the veteran’s entitlement can do. Confirm the setup with a lender before spending on an appraisal.
Next Step
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.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
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
2. HUD Mortgagee Letter 2025-09 (residency eligibility)
3. VA.gov: Cash-out refinance loan
6. VA.gov Interest rate reduction refinance loan
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: FHA Cash-Out vs Selling an Inherited Home as a Retiree · How an FHA Cash-Out Lender Reads Condo Litigation · How an FHA Cash-Out Works With a Non-Borrowing Spouse
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.