The Quick Read: A VA cash-out refinance replaces your current mortgage with a new VA-backed loan on the home you live in. The loan is Type I when the new balance, funding fee included, does not exceed what you owe on the payoff. It is Type II when the new balance is larger, and the difference is the cash you can take. You qualify through a valid certificate of eligibility, satisfactory credit, enough residual income, and an appraisal that supports the loan amount, all subject to lender guidelines and full file review.
What Is a VA Cash-Out Refinance?
A VA cash-out refinance is a new VA-backed mortgage that pays off your old loan. The new loan can reach up to 100% of the appraised value, including the financed funding fee. It can also move a non-VA loan (conventional, FHA, or USDA) into the VA program.
VA cash-out estimate
Seeded with an example value, a typical balance, and a round cash request at the first-use fee; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a VA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the full-value VA cap with the first-use funding fee 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.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a VA cash-out refinance quote; a VA loan is priced by the lender at lock. The total loan, funding fee included, is capped at the program leverage on the reasonable value; the fee follows the tier chosen. The cash available is what the cap allows less the balances paid off and the fee, before closing costs, which are not included. The HELOC line is the line program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. The debt-to-income figure is a guideline; residual income decides a VA file. Licensed in sixteen states for consumer mortgages.
VA does not lend the money. Per VA’s cash-out refinance page, you go through a private bank, mortgage company, or credit union. A mortgage broker like Lendmire arranges these loans through wholesale lenders. Lendmire’s VA cash-out refinance program page covers the program side. Here is the mechanics side.
The cash can pay off debt, fund school, cover home improvements, or handle other needs. You must live in the home you are refinancing. Investment properties and second homes are not the intended use.
Two things people often assume are wrong. You do not need an existing VA loan. And you do not need to take cash at all, which brings us to the types.
Type I vs. Type II: Which One Is Yours?
The type depends on one comparison: the new loan amount (funding fee included) against the payoff of the loan you are replacing. The VA Lenders Handbook, Chapter 6 draws the line this way. The purpose of the loan does not matter. Only the math does.
| Factor | Type I | Type II |
|---|---|---|
| New loan vs. payoff | At or below payoff | Above payoff |
| Cash to you | None | The difference |
| Seasoning (VA-to-VA) | Applies | Applies |
| Net tangible benefit | Required | Required |
VA still labels Type I as “cash-out,” even though no cash comes to you. It exists mostly so you can move a non-VA loan into VA, or roll the funding fee into the balance. It sits apart from an IRRRL, the streamlined VA-to-VA rate refinance, which is a different product.
A Simple Way to Find Your Type
Say you owe a certain payoff amount, and the new loan, with the funding fee financed, comes out at exactly that figure. That is Type I. Now say the new loan comes out larger because you want money for a roof and a debt payoff. The gap is your cash, and that is Type II.
The check you receive in a Type II loan is smaller than the gap suggests, because the gap is the new loan minus the payoff and also minus any other liens you are clearing and your closing costs. The funding fee is already inside the new balance, so it is not subtracted a second time. Plan around the check amount, not the headline loan size.
Some borrowers start out thinking they want Type II, then find the costs and liens leave little cash. Others start with Type I in mind and add a modest cash amount that tips the loan over. Your loan officer can run both versions on the same appraisal.
How Do You Qualify?
Certificate of eligibility (COE). VA’s COE decides whether you are eligible. Service requirements are VA’s rules. Your lender can pull the COE, or you can request it through VA.gov or by mail, per VA’s home loans page.
Credit. VA sets no minimum credit score, but lenders do. The wholesale programs Lendmire places VA loans with start at a 580 decision score, and some lenders set a higher floor. A lender with a higher floor is not breaking a rule. It is applying its own overlay.
Income and residual income. VA wants satisfactory credit and enough income to meet your expected monthly obligations. The controlling test is residual income: what is left each month after your housing payment, debts, taxes, and living costs, measured against a VA table. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
Occupancy. You must live in the home. The standard for active-duty servicemembers has its own wrinkles, so ask your loan officer if that is you.
The home and the value cap. An appraisal sets the value. The loan, including the financed fee, can reach 100% of that value. Reaching it leaves no equity cushion, which matters if prices dip or you plan to sell soon.
Everything here is subject to lender guidelines and full file review. Nothing is a commitment to lend.
The Net Tangible Benefit Test
Every VA cash-out refinance must show a net tangible benefit. That means the new loan has to be in your financial interest, and the lender has to prove it with one of VA’s eight listed tests under 38 CFR 36.4306.
One of those eight is eliminating monthly mortgage insurance, whether public or private, or monthly guaranty insurance, per the regulation text. That fits a borrower moving out of an FHA loan or a conventional loan with mortgage insurance. A VA loan carries no monthly mortgage insurance of any kind.
The lender must also give you a comparison of your current loan terms and the new ones, plus a statement of how refinancing affects your home equity. Read both. They are the plainest picture of what you are trading.
Seasoning: The Waiting Period for VA-to-VA Loans
Seasoning is the minimum time your current loan must have existed before you can refinance it. It applies when the loan being paid off is a VA loan, for both Type I and Type II. The seasoning test is the later of 210 days from your first payment date and the sixth payment made.
It does not apply when you refinance a non-VA loan into VA. A conventional or FHA borrower can move into the VA program without waiting out a seasoning clock.
To check your own date, find the due date of your first payment on the existing loan. Count 210 days forward, then confirm you have made six payments. You need both. If you are short, the fix is simple: wait.
What About the Rate-Reduction and Recoupment Tests?
Here the general rule breaks, and this is where borrowers get confused online. The half-percent rate-reduction test and the fee-recoupment test are IRRRL rules. Across the wholesale programs I place VA cash-out files with, they do not apply to the VA cash-out refinance.
Some pages mention a 36-month recoupment test for Type I. If you hear it, ask the lender which loan product the rule applies to. For the cash-out you are applying for, the tests that apply are seasoning on a VA payoff and a net tangible benefit. Your loan officer should confirm the exact tests for your file against the current handbook language.
The Funding Fee
The funding fee is a one-time VA charge that helps lower program costs for taxpayers, since the loan has no down payment or monthly mortgage insurance. You can finance it into the loan within the value cap.
For a cash-out refinance, the funding fee is 2.15% on first use and 3.3% on subsequent use. Veterans receiving compensation for a service-connected disability, and the other exempt groups, do not pay it. Confirm your exemption status on VA.gov and with your lender before you assume either way.
Because the fee counts toward the loan amount, it reduces the cash left in a Type II loan. A loan is still Type I as long as the new balance, fee included, does not exceed the payoff. Whichever type you land in, that is a classification point, not a problem.
Edge Cases Worth Knowing
- Non-VA payoff. A conventional, FHA, or USDA loan can be converted. Seasoning does not apply, but a net tangible benefit still does.
- Other liens. A second mortgage or lien being paid off through the new loan changes the cash math and can affect classification. Tell your loan officer about every lien up front.
- Spouse on the old loan. Title and loan-holder issues can complicate a payoff. Raise them early so the file is built around them.
- Texas homestead rules. State rules can limit cash-out on a primary residence. Lendmire’s consumer lending is licensed in 16 states, so confirm what applies to your state before planning around a number.
- Entitlement. The loan limit question depends on whether you have full entitlement. With full entitlement there is no VA loan limit. With remaining entitlement, speak with a loan officer about whether a down payment applies.
- Repeated refinancing. Each refinance can stack costs and reset your seasoning clock.
How to Apply, Step by Step
1. Confirm eligibility. Get your COE through your lender, VA.gov, or by mail.
2. Identify your goal. Decide whether you want cash, a switch from a non-VA loan, or both. This sets Type I or Type II.
3. Find your payoff. Request a payoff figure from your current servicer, plus the details of any other liens.
4. Pick a broker or lender. Compare the Loan Estimate you receive from each. The Loan Estimate is the standard disclosure that shows loan terms and costs side by side.
5. Submit documents. Expect pay stubs, tax returns or other income proof, bank statements, ID, and your COE. Lenders vary.
6. Appraisal. The appraiser sets the value that caps the loan.
7. Underwriting. The lender reviews credit, income, residual income, and net tangible benefit.
8. Review the Closing Disclosure. It shows final terms and costs. Compare it to the Loan Estimate before you sign.
Which Type Fits Your Goal?
Choose by what you need the money to do.
| Your goal | Likely type |
|---|---|
| Move off a non-VA loan, no cash | Type I |
| Drop monthly mortgage insurance | Type I or II |
| Fund repairs or pay off debt | Type II |
| Roll the funding fee in, no extra cash | Type I |
Honestly, this one is a genuine judgment call for borrowers who want modest cash. A larger Type II loan leaves less equity cushion and can raise the payment, since the balance is bigger. A Type I conversion keeps the balance flat. Weigh what the cash buys against the equity you give up.
If your goal is only a lower rate or a switch from adjustable to fixed on an existing VA loan, the IRRRL may be the better tool. It needs no new COE and no appraisal.
Where Files Stall
Most delays trace back to a handful of things:
- A payoff that does not match the numbers on the application.
- Residual income that falls short, especially with a high debt load.
- An appraisal below the value you expected.
- A VA payoff that is not yet seasoned.
- A missing COE or a COE with entitlement questions.
Each has a fix. Pay down a debt, wait out seasoning, or restructure the loan so it stays within the value cap.
Watch for Misleading Offers
The CFPB ordered a lender to pay $2.25 million over cash-out loans, finding its payment comparisons misleading and incomplete. The CFPB and VA also warned veterans about pressure to refinance within a month or two of the last closing.
A payment that leaves out taxes and insurance next to one that includes them is not a comparison. And no legitimate cash-out skips the appraisal and income documents.
For more on how the two types differ in a cash-taking scenario, see Lendmire’s piece VA Cash-Out Refinance Type I vs. Type II for a Veteran Taking Cash.
Key Terms Defined
Certificate of eligibility (COE): The VA document that confirms you qualify for a VA loan.
Funding fee: A one-time VA charge on the loan, which can be financed and is waived for exempt borrowers.
Net tangible benefit: A test showing the new loan serves your financial interest, using one of VA’s eight listed benefits.
Residual income: The money left each month after your major obligations, measured against a VA table.
Seasoning: The minimum age of your current VA loan before you can refinance it.
Payoff amount: The balance needed to close out your current loan.
Frequently Asked Questions
Can I do a VA cash-out refinance if my current loan is not a VA loan?
Yes. A VA cash-out refinance can pay off conventional, FHA, or USDA loans and move you into the VA program. Seasoning does not apply to a non-VA payoff, but you still need a net tangible benefit and full underwriting.
Does a Type I loan really give me cash?
No. Type I is labeled cash-out, yet the new loan does not exceed the payoff. It may simply roll the funding fee into the balance or convert a non-VA loan to VA.
What credit score do I need?
VA sets no minimum score, but lenders do. The wholesale programs Lendmire places VA loans with start at a 580 decision score, and lenders may set higher floors. Approval depends on the full file.
How much can I borrow?
Up to 100% of the appraised value, including the financed funding fee. Residual income still has to support the payment, and every program is subject to lender guidelines.
Do I pay the funding fee out of pocket?
Not necessarily. You can finance it within the value cap, or pay it in cash. Exempt borrowers, such as veterans receiving service-connected disability compensation, do not pay it.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
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
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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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. VA.gov: Cash-out refinance loan
2. VA Lenders Handbook Pamphlet 26-7, Ch. 6
5. GovInfo: 38 CFR 36.4306 (2025 ed.)
This article is part of Lendmire’s VA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: VA Cash-Out Refinance Requirements Within a Year of Buying · VA Cash-Out Refinance vs Conventional Cash-Out Under VA Type 1 and Type 2 Refinance Rules · VA Cash-Out Refinance Requirements for Energy Efficiency Improvements on a Veteran’s Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.