The Quick Read: A VA cash-out releases the home’s appraised value, up to the VA ceiling, minus what it takes to pay off your current loan, any other liens, the funding fee and closing costs. The ceiling is the home’s reasonable value, not your estimate of what it’s worth. Only VA-eligible borrowers can use it, and the lender’s own cap is often tighter than VA’s.
Key Takeaways
- Cash in hand = new loan − payoff of the old loan − other liens paid − funding fee (if paid in cash) − closing costs.
- VA caps the new loan, funding fee included, at the home’s reasonable value. Full equity does not reach your pocket.
- Only veterans, eligible service members and eligible surviving spouses with a valid Certificate of Eligibility qualify. A standard FHA or conventional borrower cannot use this program.
- Leaving an FHA loan likely forfeits any unearned upfront premium. Leaving it also ends the FHA monthly premium.
- Lenders can set a lower cap than VA does. The program maximum is not a promise.
What a VA Cash-Out Actually Is
A VA cash-out is a new VA-guaranteed loan that replaces the mortgage you have. It is not a second loan stacked on top. VA describes it as a way to take cash from home equity for debts, school, improvements or other needs. It can also refinance a non-VA loan into a VA-backed one.
You hold a conventional or FHA loan. You are VA-eligible. You want to know how much cash the swap puts in your hands.
Two limits apply from the start:
- Occupancy. The home must be one you live in (or, for an active-duty member, one a spouse or dependent lives in). Second homes and rental properties do not qualify.
- Full underwriting. Credit, income and a VA appraisal are required. This is not a streamline. The streamline-type VA loan refinances an existing VA loan only, so it cannot pay off an FHA or conventional mortgage.
How Is the Release Calculated?
Start with the appraised reasonable value. VA sets the ceiling there. Everything after that is subtraction.
The steps, in the order a file moves:
1. Confirm eligibility and the Certificate of Eligibility. A cash-out is a new VA loan, so entitlement has to be in place. The lender can pull the certificate, or you can get it through VA.gov or by mail.
2. Order the VA appraisal. The appraiser’s value, not your purchase price or your guess, drives the ceiling.
3. Get the payoff statement. The payoff includes the unpaid balance plus accrued interest. An escrow shortage or a second lien can add to it.
4. Set the new loan amount. It cannot exceed the ceiling, and a financed funding fee counts inside it.
5. Subtract the payoff, other liens and costs. What remains is your cash.
6. Sign the closing paperwork. You also sign a statement showing the cash paid to you and the debts paid from proceeds.
The Loan Estimate shows your estimated costs and cash figure. Compare it to the Closing Disclosure when it arrives. If costs jump, ask the lender to explain why.
The same home, two different payoffs
Take one home and call the appraised value 100%. Say the payoff on the old loan is 70% of that value. If the new loan could reach the full ceiling, the gross gap is 30 points of value. That is not your cash.
The funding fee comes out of it if it is financed. Closing costs come out too. Any lien beyond the first mortgage comes out as well. What lands in your account is smaller than the gap.
Now run an FHA payoff and a conventional payoff against that same home. The payoff balance is the same in both cases, except that the FHA balance also includes any financed premium. The difference is what sits around the payoff:
| Item | Conventional payoff | FHA payoff |
|---|---|---|
| Payoff balance | Unpaid principal plus interest | Same, plus any financed premium inside the balance |
| Monthly mortgage insurance after | Goes away only if one existed | Ends with the loan |
| Unearned upfront premium | Not applicable | Likely not refunded |
| Cash effect | Set by value, payoff and costs | Same, but check for rolled-in premium |
The FHA upfront premium (1.75% of the base loan on the FHA purchase and rate-and-term programs the network places) is usually financed into the balance. That means it sits inside the payoff you are paying off. It does not come back to you as a credit.
What Shrinks Your Cash
Five items sit between the equity you have and the check you receive.
The funding fee. VA’s funding fee page explains that it is a one-time payment on a VA-backed loan. It applies to refinances unless you meet an exemption, such as receiving VA compensation for a service-connected disability. The percentage depends on your use history and the loan type, and VA publishes the chart. Check the cash-out row on that chart before you plan around a number.
You can finance the fee or pay it at closing. Financing it raises the loan and uses up room under the ceiling. Paying it in cash keeps the ceiling clear but cuts what you take home.
Closing costs. VA cautions that these can add up to thousands of dollars. They reduce net proceeds the same way the fee does.
Payoff extras. Accrued interest and per-diem interest on the old loan make the payoff higher than the balance on your last statement. Any escrow shortage or second lien adds to it.
The appraisal. A lower value pulls the ceiling down with it. If the appraisal comes in light, the release shrinks dollar for dollar. Ask the lender about an appraisal reconsideration if the comps look thin.
Lender caps. Many lenders set their own limit below VA’s. Some also set a higher credit floor. The ceiling VA allows and the ceiling your lender uses are separate numbers.
Program Ceiling Versus Lender Cap
VA Circular 26-19-05 sets the outer limit. VA no longer guarantees refinances when the loan exceeds the home’s reasonable value. The ratio is the total loan, including any financed funding fee, divided by the appraiser’s value.
That is permission, not a promise. A lender can say yes to less. A borrower who plans on the full ceiling can be surprised when the file lands under a tighter cap. Ask early what the lender will actually allow.
Compare that to the FHA side. FHA cash-out reaches 80% LTV on a home you have owned and occupied for 12 months. Anyone weighing an FHA exit should look at the FHA cash-out refinance program as the alternative. It lets you keep the FHA loan but reaches less of the equity. The tradeoff is eligibility: FHA does not require military service, VA does. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Type I and Type II
VA sorts cash-out loans by what happens to the proceeds.
| Feature | Type I | Type II |
|---|---|---|
| New loan versus payoff | Does not exceed payoff | Exceeds payoff |
| Cash to borrower | None | The excess |
| Common use | Swap into VA with no cash | Pull equity out |
VA treats a non-VA payoff as a cash-out product either way, because the old loan is not a VA loan. That means full underwriting and an appraisal even when you take nothing out.
Taking zero cash can be the smarter move. Some owners just want out of a monthly mortgage insurance premium. A Type I loan can do that without raising the balance beyond the payoff.
Where the General Rule Breaks
FHA premium refund. HUD’s FHA fact sheet says a refund of the old upfront premium may apply toward the new premium when you refinance into a new FHA loan. For loans endorsed after December 8, 2004, no refund is due unless the new loan is also FHA, and none is due after the third year. Moving from FHA to VA therefore likely forfeits any unearned upfront premium. That is an inference from HUD’s wording, so ask the lender to confirm it on your file.
Seasoning. Waiting-period tests are generally described as applying to VA-to-VA refinances, not to paying off an FHA or conventional loan. The VA Lenders Handbook (Pamphlet 26-7) holds the rules in its refinancing chapter. Confirm the current text with the lender.
Net tangible benefit. VA’s net tangible benefit standards apply to all cash-out refinancing loans. The usual ways to show it include a lower payment, a move from an adjustable to a fixed loan, or dropping mortgage insurance. The lender documents which one fits your file.
State rules. Some states limit how much equity a homestead can carry. Ask the lender whether any state cap applies where you live.
Loan limits. A borrower with full entitlement has no VA loan limit, so no-down-payment borrowing is not capped at the conforming limit. Entitlement affects the guaranty. A borrower with prior VA use may have reduced entitlement.
What This Does to Your Monthly Budget
A bigger balance generally means a bigger principal-and-interest payment. The CFPB’s equity guide notes that a cash-out can extend your payoff time and raise the payment, because a larger loan replaces the current one. It also says none of the equity options turns 100% of equity into cash.
On the FHA side, the monthly premium (0.15% to 0.75% of the balance, depending on term, amount and LTV) goes away with the old loan. On a thirty-year FHA loan above 90% LTV, the premium lasts the full term. At or below 90%, it ends after eleven years. VA carries no monthly mortgage insurance. Whether your payment falls depends on the new balance, term and rate. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Risk matters too. Using the house to pay off other debt turns unsecured balances into debt secured by the home. If payments become hard to meet, the home is what is at risk.
Is It Worth It? A Checklist
Run through these before you ask for a quote:
- Is your Certificate of Eligibility available, and is your entitlement sufficient?
- Is the home your primary residence?
- Do you know your payoff, including accrued interest and any second lien?
- Have you asked what cap the lender will actually use?
- Do you know whether you owe the funding fee or qualify for an exemption?
- Is the goal cash, or is it dropping mortgage insurance? If it is the second, Type I may fit better.
- Have you compared the total cost of the new loan against keeping your current one?
Common Mistakes
- Reading the ceiling as a payout. The cap includes the financed fee, and costs come out too.
- Assuming any FHA borrower can do it. Only VA-eligible borrowers can.
- Expecting an FHA refund. The refund applies to FHA-to-FHA refinances only.
- Skipping the payoff statement. A last-statement balance understates the payoff.
- Taking max cash by default. More cash means a larger loan and less margin if prices dip.
Key Terms Defined
Reasonable value: The appraiser’s opinion of what the home is worth, which sets the VA loan ceiling.
Funding fee: A one-time VA fee on a VA-backed loan, which can be financed or paid at closing unless you are exempt.
Type I cash-out: A VA refinance where the new loan does not exceed the payoff, so no cash goes to the borrower.
Type II cash-out: A VA refinance where the new loan exceeds the payoff, and the excess is paid to the borrower.
Net tangible benefit: A test showing the refinance leaves the borrower better off in a defined way.
Certificate of Eligibility: The document that proves you qualify for a VA loan.
Frequently Asked Questions
Can I use a VA cash-out if I have an FHA loan?
Yes, if you are VA-eligible and the home is your residence. The new VA loan pays off the FHA loan in full. You face full credit and income review and a VA appraisal. Anyone without VA eligibility cannot use this route.
Does VA let me take out 100% of my equity?
VA’s ceiling is the full reasonable value, with any financed funding fee counted inside it. That is the program limit. Your lender may cap lower, and closing costs and the fee still come out of what you receive.
Do I get my FHA upfront premium back?
Probably not. HUD’s refund rule is written for FHA-to-FHA refinances, and no refund is due after the third year of insurance. Moving to VA likely forfeits any unearned premium, so ask the lender to confirm it for your loan.
Is the VA funding fee waived on a cash-out?
Only if you qualify for an exemption, such as receiving VA compensation for a service-connected disability. Otherwise the fee applies. Check VA’s published chart for the cash-out row.
Can I do this on a rental or second home?
No. VA cash-out loans are for a home you occupy as your residence.
Weighing It Against Keeping Your Loan
The cash is real, but so are the costs between your equity and your account. The choice often comes down to whether dropping FHA insurance or reaching more equity is worth a new balance and a new fee.
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 the fee side, see Lendmire’s piece How Much a VA Cash-Out Funding Fee Costs After a Conventional or FHA Loan. To sort out who to ask, see how to choose a VA cash-out lender from a conventional or FHA loan. 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
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
1. VA.gov – Cash-out refinance loan
2. VA.gov – Funding fee and closing costs
4. HUD – FHA Homeowners Fact Sheet
5. CFPB – Using home equity guide
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: Should a Condo Owner Choose FHA Cash-Out or Conventional? · How Much the Upfront MIP Cuts an FHA Cash-Out on Your Existing FHA Loan · FHA Streamline vs FHA Cash-Out for a Better Loan and a Little Cash
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.