The Quick Read: the type comes from one comparison. The new loan amount, funding fee included, is held against the payoff of the loan being replaced. At or below the payoff, it is Type I. Above the payoff, it is Type II. Costs you roll into the loan count toward that comparison, so financing them can push a file over the line. You do not pick the type. It falls out of the final numbers.
Key Takeaways
- Type I and Type II are defined by loan amount versus payoff, not by whether you get cash back.
- The VA funding fee counts inside the loan amount, so it counts toward the comparison.
- Financed closing costs add to the loan amount. Enough of them can turn a Type I file into a Type II file.
- A Type I that raises your principal-and-interest payment faces a limit on which costs the lender may charge.
- Whether the old loan is VA or non-VA changes which extra tests apply.
What Is a Type I VA Cash-Out, Really?
A Type I VA cash-out is a refinance where the new loan, funding fee included, does not exceed the payoff of the old loan. That is the whole definition. It says nothing about cash in your pocket.
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.
That is why the name confuses people. VA calls any non-streamline refinance a cash-out. Some of them put no cash in your hands. A Type I can be a pure swap, such as moving a conventional or FHA loan into a VA loan, or trading one VA loan for another with different terms.
Type II is the version where the new loan comes out larger than the payoff. The extra amount is what can reach you as cash, or what covers costs you chose to finance.
Here is the tension in the title. “Type I with rolled-in costs” pulls two ideas against each other. Every financed cost adds to the new loan. The Type I test asks whether the new loan stays at or below the payoff. So costs you finance eat into the room you have, and that interaction is the key to the whole topic.
Lendmire’s VA cash-out refinance program page lays out the program basics. This article covers the sorting step inside it.
Key Terms Defined
Payoff amount: what you owe on the loan being replaced, as shown on the payoff statement your current servicer issues.
Type I: a VA cash-out where the new loan amount, funding fee included, is at or below the payoff.
Type II: a VA cash-out where the new loan amount, funding fee included, is above the payoff.
Funding fee: VA’s one-time charge on the loan. It can be financed. It is waived for veterans receiving compensation for a service-connected disability and the other exempt groups.
Recoupment: the idea that refinancing costs should be paid back through a lower regular payment within a set window. The lender certifies it on certain loans.
Net tangible benefit: a test that the refinance actually helps you. The loan must satisfy at least one of VA’s eight listed benefits.
How Does the Lender Sort the File, Step by Step?
The lender builds the loan amount from its parts, then compares it to the payoff. The order of work below applies across the wholesale programs Lendmire places VA files with. VA’s own lender system also works out the type automatically from the numbers, per VA’s cash-out quick reference guide.
1. Confirm eligibility. You need a VA certificate of eligibility (COE) and you must live in the home. A cash-out is not a streamline, so a new COE is part of the picture. VA’s cash-out loan page covers both points.
2. Order the appraisal. The lender orders it. The value on the appraisal sets the ceiling.
3. Apply the value cap. The new loan, funding fee included, cannot exceed 100% of the appraised reasonable value. Financed costs and fee sit under that same cap.
4. Build the loan amount. Start with the payoff. Add any financed funding fee and any financed closing costs. Add any cash you want to receive.
5. Compare to the payoff. At or below the payoff means Type I. Above it means Type II.
6. Run the extra tests. Every cash-out needs a net tangible benefit. A Type I that pays off a VA loan faces more checks, covered below.
7. Underwrite the file. A cash-out is fully underwritten like a purchase. The lender reviews credit, income and residual income, which is the controlling test on VA loans. The wholesale programs Lendmire works with start at a 580 decision score, subject to lender guidelines and full file review.
Step five is where rolled-in costs bite. The lender does not guess. It takes the final figures and lets the comparison decide.
One caution on step four. The payoff is whatever the servicer’s payoff statement says on the day, and VA’s rules define what counts. Do not assume items like accrued interest or escrow balances sit inside or outside it. Ask the lender to show you the payoff figure it used.
Do Rolled-in Costs Change the Type?
Yes, they can. Financed closing costs raise the loan amount. If the total passes the payoff, the file becomes Type II.
VA’s lender handbook, Pamphlet 26-7, Chapter 6, says closing costs, including the funding fee, may be paid from loan proceeds. The loan still cannot exceed the maximum loan amount. “May” matters. Paying costs from your own funds is an option, and sometimes it is the move that keeps the file Type I.
Here are two illustrative examples. They use an index of 100 for the payoff, not real dollars. They are not a quote, and every program figure stays subject to lender guidelines.
Example A: stays Type I. A veteran is exempt from the funding fee. The payoff is 100. The borrower pays closing costs out of pocket.
| Item | Amount (index) |
|---|---|
| Payoff | 100 |
| Funding fee | 0 (exempt) |
| Financed costs | 0 |
| New loan | 100 |
| Result | At payoff: Type I |
Example B: overshoots. Same payoff, but the borrower finances 1.5 of closing costs.
| Item | Amount (index) |
|---|---|
| Payoff | 100 |
| Funding fee | 0 (exempt) |
| Financed costs | 1.5 |
| New loan | 101.5 |
| Result | Above payoff: Type II |
The fix is a choice, not a trick. The borrower can pay the 1.5 in cash and keep the file at Type I. Or the borrower can accept Type II and its different rules.
A non-exempt veteran has one more piece. The funding fee is part of the loan amount for both the type test and the value cap. On a first-use cash-out the fee is 2.15%. On subsequent use it is 3.3%. If the fee is financed, it counts. If the borrower pays it in cash, it does not.
What Extra Tests Hit a Type I?
It depends on what the old loan is. Two paths exist, and they differ.
When the loan being paid off is already a VA loan, VA adds seasoning checks on top of the net tangible benefit. Seasoning means the new loan’s note date must fall on or after the later of two points: 210 days from the first payment due date on the old loan, and the date the sixth monthly payment is made. VA’s Circular 26-18-30 sets the framework for Type I and Type II, the value calculation, the net tangible benefit and these checks.
That circular also describes a recoupment certification for Type I loans that refinance an existing VA loan. The lender certifies that fees and costs are paid back through a lower regular payment within the window the law sets. 38 U.S.C. § 3709 states the test, and 38 CFR 36.4306 carries the rule. Taxes, escrowed amounts and certain other items are excluded. This is a lender-side certification. You do not calculate it yourself, but it explains why a Type I that raises your payment gets scrutiny.
Do not confuse any of this with the streamline. The half-percent rate-reduction test and the fee-recoupment test are streamline (IRRRL) rules. A VA cash-out is a different product.
When the old loan is not a VA loan, such as FHA, conventional or USDA, the seasoning and recoupment steps tied to refinancing a VA loan do not come into play. The net tangible benefit and the cash-out disclosures still do. This is the path a non-VA homeowner takes into VA.
Type I vs. Type II at a Glance
| Factor | Type I | Type II |
|---|---|---|
| Loan vs. payoff | At or below | Above |
| Fee counted in test | Yes | Yes |
| Cash to borrower | Usually none | Possible |
| Net tangible benefit | Required | Required |
| Extra tests, VA payoff | Seasoning and the checks covered above | Seasoning |
Both types are capped at 100% of appraised value, funding fee included. Both are fully underwritten.
Where Does “Just Roll Everything In” Break Down?
It breaks in three named places.
The payment-increase limit. If a Type I raises your principal-and-interest payment, the handbook limits the charges. The lender may not charge loan fees, closing costs or expenses other than taxes, escrowed amounts and the VA funding fee. This holds no matter the new loan’s term or rate. So a bigger balance is not only an interest cost. It can restrict which costs may be charged at all.
The overshoot. Financed costs that carry the total past the payoff flip the type. You then work under Type II rules, which may or may not fit your goal.
The value ceiling. Even a Type II stops at 100% of appraised value. If the funding fee and financed costs already use up the room, there is nothing left for cash.
Two smaller edges. A construction loan being refinanced into a permanent loan falls under the same rule. And a VA cash-out is for a home you currently own and live in, not a rental.
Borrowers hear “VA lets you finance costs” and assume it applies in every structure. The lender’s final figures decide, and those arrive after the payoff statement does. Ask early which costs the lender plans to finance.
For more detail, see this explanation of how a VA lender adds financed closing costs to a cash-out loan.
Financed or Paid Outside: A Quick Table
| Cost | If financed | If paid in cash |
|---|---|---|
| Funding fee | Adds to loan, counts in test | Loan stays lower |
| Closing costs | Adds to loan, can flip type | Keeps room under payoff |
| Cash to borrower | Makes Type II | Not applicable |
CFPB notes that closing costs rolled into a loan reduce upfront costs but add to overall costs, because you pay interest on them. That is the trade in plain form.
What Does the Decision Look Like in Practice?
You are choosing among several moves. Each one trades cash today against balance, payment and loan type.
1. Pay costs in cash and stay Type I. This keeps the balance at or below the payoff. It needs cash at closing.
2. Finance a small amount and check the total. If the final figures still land at or below the payoff, the file stays Type I. If they pass it, the type changes.
3. Accept Type II. This fits when you want cash out or when the numbers cannot stay under the payoff. The extra balance costs interest over time.
Picture a homeowner with a conventional loan who wants to move into VA with no cash out. The goal is a clean swap. Keeping the new loan at the payoff is the whole game, so paying the costs from savings matters. Now picture a veteran with a first-use cash-out who also wants money for repairs. That file is Type II by design, and the right questions shift to value room and payment.
Questions to put to the lender or broker:
- What payoff figure did you use, and from what date?
- Which costs are financed in this structure, and what is the new loan total?
- Does the file land at or below the payoff?
- If my payment goes up, which charges are restricted?
- How much room is left under the 100% value cap?
The best program for your situation depends on your current loan, your entitlement, your equity and what you want from the cash-out. Lendmire is a mortgage broker. It shops the file across wholesale lenders and matches the structure to the scenario, which is how you compare Type I and Type II side by side before you commit.
Common Misreadings
“Type I means no costs are financed.” Not quite. Costs may come from proceeds. Financing them can still flip the file to Type II.
“VA caps cash-out at 90%.” The cap is 100% of reasonable value, funding fee included, per VA’s January 2019 lender call. Ninety percent shows up only in narrower situations. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
“Cash-out always means cash back.” A Type I can involve none.
“Only VA loans can be refinanced this way.” A VA cash-out can replace any loan type, per VA’s cash-out loan page.
“The borrower picks the type.” The loan amount versus payoff comparison decides it.
Frequently Asked Questions
Does the VA funding fee count when the lender compares the loan to the payoff?
Yes. VA includes the funding fee in the loan amount for both the Type I test and the value cap. If you finance it, it counts. If you pay it in cash, it does not. Veterans exempt from the fee have nothing to add.
Can I roll closing costs in and still have a Type I?
Only if the total new loan stays at or below the payoff. Any financed cost reduces that room. If the total passes the payoff, the file is Type II. Paying part of the costs in cash is the usual way to stay under the line.
Does seasoning apply if my old loan is not a VA loan?
Not in the way it does for a VA payoff. Seasoning and the recoupment certification relate to refinancing an existing VA loan. A non-VA payoff still faces the net tangible benefit, the 100% value cap, the appraisal and full underwriting.
Why would a lender restrict costs on my Type I?
A Type I that raises your principal-and-interest payment limits the charges to taxes, escrowed amounts and the funding fee. This holds regardless of the new term or rate. A larger balance from rolled-in costs is one way the payment rises, so the structure needs a check.
Is a Type I the same as a streamline?
No. A streamline (IRRRL) is for VA-to-VA only, carries its own 0.5% fee unless exempt and skips the VA appraisal. A Type I cash-out needs a certificate of eligibility, an appraisal and full underwriting. Both are VA products, but they work differently.
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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, 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.
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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
2. VA Cash-Out Quick Reference Guide
3. VA.gov cash-out refinance page
4. VA Lenders Handbook, Pamphlet 26-7, Chapter 6
7. 38 CFR Part 36, Subpart B (eCFR)
8. CFPB
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: Best VA Cash-Out Refinance Program to Go Fixed · How a VA Lender Adds Financed Closing Costs to a Cash-Out Loan · How Much Cash Comes Out of a VA Cash-Out Refinance With Funding Fee Rolled In?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.