The Quick Read: A costs-only VA cash-out is a regular VA cash-out refinance sized so the new loan covers the payoff, the funding fee, and the allowed closing costs, with no meaningful cash back. VA has no separate “costs-only” product. The structure comes from how you size the loan against the payoff and the appraised value. The loan, including the financed funding fee, has to fit under the VA value ceiling, and the file still needs a net tangible benefit.
What You Need to Know First
- VA’s cash-out refinance replaces your current loan with a new one. The new loan can pay off a VA loan or a non-VA loan.
- The home has to be your primary residence, and you need a Certificate of Eligibility.
- Full underwriting and a VA appraisal apply. This is not a streamline.
- Where the new loan lands against the payoff decides how VA classifies the file.
- The funding fee is one charge. Lender, title, appraisal, and prepaid items are separate.
- Everything here depends on lender guidelines and full file review. None of it is a commitment to lend.
What Does “Cash-Out” Mean When No Cash Comes Back?
“Cash-out” describes the loan type, not what you do with the money. VA treats any refinance that is not a streamlined rate reduction as a cash-out refinance. VA says it replaces your current loan with a new one under different terms. It can take cash from your equity, or it can move a non-VA loan into a VA-backed loan.
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 second use is where the costs-only structure lives. Picture a homeowner with a conventional or FHA loan who wants into the VA program. One reason to do it is to drop mortgage insurance and reset the loan. This homeowner doesn’t need cash. They just don’t want to bring a check to closing.
You get the loan through a private lender, not VA. Lendmire’s VA cash-out refinance program page covers the program at the wholesale level. Lendmire is a broker. It arranges these loans through wholesale lenders in the 16 states where it is licensed for consumer lending.
How Does VA Classify the Loan: Type I or Type II?
VA sorts cash-out loans by comparing the new loan amount to the payoff. VA Circular 26-19-05 sets the two definitions:
- Type I: the loan amount, including the funding fee, does not exceed the payoff of the loan being refinanced.
- Type II: the loan amount, including the funding fee, exceeds the payoff.
The rule behind these definitions applies to cash-out applications taken after the rule’s effective date, per VA Circular 26-18-30.
Now apply that to a costs-only file. If you pay every closing cost out of pocket and the loan with the funding fee stays at or below the payoff, the file is Type I. If you finance the costs and the loan lands above the payoff, the file is Type II. The math decides it, and no separate label exists for “costs only.” A costs-only structure that finances the fee and the costs therefore falls under Type II.
Why Do Sources Disagree About Rolling Costs In?
They mix up purchase rules and refinance rules. On a VA purchase, VA states you can finance only the funding fee into the loan. People then carry that sentence over to refinances, where the treatment of other fees differs.
On a refinance, whether a given fee can ride in the loan is a file-level question. Lenders apply VA’s allowable-fee rules plus their own overlays. Some finance a wider set of costs. Some finance only the funding fee. Some set a lower value cap than VA does. That is a lender overlay, not a VA rule.
Practical read: ask the loan officer, before you commit, which costs the lender will finance on a cash-out. Then check the Loan Estimate line by line. Don’t rely on a blog sentence, including this one.
How Do You Size the Loan? (A Percentage Walk-Through)
Sizing is one formula: the new loan equals the payoff, plus the funding fee, plus the financed costs. That total must fit under the value ceiling.
On the wholesale programs Lendmire places VA cash-outs with, the ceiling is 100% of the appraised value, with the financed funding fee counted inside it. The funding fee for a cash-out is 2.15% on first use and 3.3% on subsequent use. The reduced fee tiers tied to down payments do not apply to refinances. Veterans who are exempt, such as those receiving compensation for a service-connected disability, are not charged the funding fee.
Run it with modeled numbers, in percentages only:
1. Say the appraisal supports the home at 100% of value.
2. Say the payoff on the current loan is 85% of that value.
3. Add the funding fee, which is 2.15% on first use and is financed into the loan.
4. Add the financed costs, whatever the lender allows on the Loan Estimate.
5. The total lands a few points above the payoff, still comfortably under the 100% ceiling.
That file has room. Now change step 2: say the payoff is 96% of value. After the fee and costs, the loan wants to be above 100%. Something has to give. The borrower brings cash, the lender finances fewer costs, or the file doesn’t work.
Exempt borrowers have one less line. With no funding fee in the loan, the total sits closer to the payoff. That helps both the ceiling and the Type I versus Type II line.
How Is the Loan Underwritten, Step by Step?
A VA cash-out gets full underwriting. Here is the sequence on a typical file:
1. Certificate of Eligibility. VA’s COE decides eligibility. Service requirements are VA’s rules.
2. Payoff and fee sheet. The loan officer orders a payoff statement from the current servicer and builds the cost sheet.
3. VA appraisal. The appraisal sets the reasonable value, which caps the loan.
4. Credit and income review. Wholesale programs start at a 580 decision score. VA itself sets no minimum score, so overlays vary by lender.
5. Residual income. This is the controlling test. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
6. Net tangible benefit. The loan has to meet one of VA’s listed benefits. More on that below.
7. Loan Estimate and Closing Disclosure. This is a consumer mortgage, so both disclosures apply. You compare the final numbers against the estimate.
The VA Lenders Handbook, Chapter 6 defines the cash-out as a refinance of any existing mortgage or other debt secured by a lien of record.
What Is the Net Tangible Benefit Test?
Every VA cash-out has to show the borrower gets something real. The Handbook says all cash-out refinancing loans must meet a net tangible benefit requirement. VA lists eight acceptable benefits, and the file needs one of them:
- Removing monthly mortgage insurance, as when a conventional or FHA loan moves into VA. VA loans carry no mortgage insurance.
- A shorter loan term.
- A lower interest rate than the loan being paid off.
- Lower principal and interest.
- Higher residual income.
- Paying off a construction loan.
- Moving from an adjustable rate to a fixed rate.
- A new loan-to-value at or below 90% of reasonable value.
Pick the one that fits and document it. A homeowner already in a VA loan with no insurance, a fixed rate, and a similar term has a weaker case.
One more point. The half-percent rate-reduction test and the fee-recoupment test belong to the IRRRL, the streamlined VA refinance. They do not apply to the VA cash-out. Borrowers get confused about this because both products are called “VA refinances.”
Where Does Seasoning Apply?
Seasoning applies when you refinance a VA loan into another VA loan. 38 CFR 36.4306 says the new loan can’t be guaranteed until the later of 210 days from the first monthly payment and the date the sixth monthly payment is made. Both tests must be met. Six payments alone is not enough.
That limit applies only when the loan being paid off is VA-guaranteed. A conventional, FHA, or USDA payoff doesn’t carry it. A recently bought home with a non-VA loan can still move into VA, subject to the other tests.
Which Structures Fit Which Borrower?
| Structure | Loan vs. payoff | Typical fit |
|---|---|---|
| IRRRL (streamline) | Existing VA loan only | Lower rate or ARM-to-fixed |
| Type I cash-out | At or below payoff | Costs paid out of pocket |
| Type II cash-out | Above payoff | Costs financed, or cash taken |
| Non-VA payoff to VA | Either type | Drop mortgage insurance |
Costs-only files sit on the line between the middle two rows. The loan is small relative to the home’s value, and the extra balance is the funding fee and the costs.
Where Does the General Rule Break?
Five edge cases come up on real files:
- Fixed-to-adjustable. On a Type I refinance of a fixed-rate loan into an ARM with more than one discount point, the Handbook limits the loan to 90% of reasonable value.
- Low appraisal. The ceiling moves down with the value. A payoff that looked safe at the estimated value may not fit at the appraised one.
- Payoff drift. The payoff shifts between estimate and closing as interest accrues and escrow balances change. A file sized with no cushion can slip past the ceiling.
- State limits. Some states add their own cap on cash-out lending, and some close with an attorney. Ask the loan officer how your state changes the file.
- Entitlement. Paying off a non-VA mortgage needs enough available entitlement. A full-entitlement borrower has no VA loan limit, and the wholesale programs serve amounts to $4,000,000. With remaining entitlement, a down payment may be required, so speak with a loan officer.
Occupancy is a hard line. VA cash-out is for the home you live in. Occupancy decides the program, and a rental property is outside it.
What Does a Costs-Only Structure Do to the Balance?
It raises it. Financing the fee and costs means a larger balance than the payoff alone. The payment can also rise, and the loan can run longer. The CFPB cautions that a cash-out refinance may extend the time to pay off the mortgage and may raise the payment, because a larger loan replaces the old one.
The trade is simple. Financing keeps cash in your pocket at closing. Paying out of pocket keeps the balance lower. The right choice depends on how long you plan to stay and what else the cash would do.
A quick break-even check before you commit:
- Add up the fee and the financed costs from the Loan Estimate.
- Compare the monthly change after the refinance to the old loan, using the lender’s figures.
- Ask how long it takes for the monthly change, if it saves anything, to cover those costs.
- If the main benefit is dropping mortgage insurance, weigh that against the larger balance.
If you plan to sell or move on before the break-even point, a costs-only refinance may not pay off.
Who Should Skip This Structure?
- Borrowers whose payoff is already near the value ceiling should skip it, because there is no room for costs.
- Borrowers with an existing VA loan who already have a fixed rate, no insurance, and a similar term will see a thin net tangible benefit.
- Borrowers who are still inside the seasoning window on a VA loan cannot use this structure yet.
- Homeowners who will likely move soon should also skip it, since the larger balance may not pay back.
- Borrowers who may qualify for the streamlined IRRRL should look at that first. It needs no VA appraisal and carries a 0.5% fee unless the veteran is exempt.
Closing Disclosure Review Checklist
Before signing, compare the Closing Disclosure with the Loan Estimate:
- Does the loan amount match the sizing you expected, payoff plus fee plus allowed costs?
- Is the funding fee line correct for first or subsequent use, or zero if you are exempt?
- Is the payoff figure current?
- Did any cost line grow beyond what the estimate showed?
- Does the file document a net tangible benefit?
If a number is off, ask the loan officer to explain it before closing.
Key Terms Defined
Funding fee: a one-time VA charge on most loans, financeable and waived for exempt veterans.
Reasonable value: the value VA’s appraisal sets, which caps the loan.
Net tangible benefit: a documented improvement for the borrower, chosen from VA’s list of eight.
Type I / Type II: VA’s two cash-out classes, split by whether the loan with the fee exceeds the payoff.
Seasoning: the waiting period before a VA loan can be refinanced into a new VA loan.
Residual income: the money left each month after debts and living costs, VA’s controlling test.
IRRRL: VA’s streamlined refinance of an existing VA loan, with no VA 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. A loan officer can size the payoff, fee, and allowed costs against the appraised value before you commit to anything.
Frequently Asked Questions
Can I finance all my closing costs in a VA cash-out?
Not always. On a VA purchase, only the funding fee can be financed. On a refinance the treatment of other fees depends on VA’s allowable-fee rules and the lender’s overlays. Ask which costs the lender will finance, then check the Loan Estimate.
Does a costs-only refinance count as Type I?
Only if the loan, with the funding fee, stays at or below the payoff. If you finance costs and the loan lands above the payoff, VA classifies it as Type II. The classification follows the arithmetic.
Do I need an existing VA loan?
No. A VA cash-out can pay off a conventional, FHA, or USDA loan, subject to entitlement and the other tests. The 210-day and sixth-payment seasoning applies only when the loan being paid off is VA-guaranteed.
What if the appraisal comes in low?
The ceiling drops with the value. If the payoff, fee, and costs no longer fit under it, the options are to bring cash, finance fewer costs, or wait. A reconsideration request with better comparable sales is sometimes an option.
Is a VA cash-out the same as an IRRRL?
No. The IRRRL refinances an existing VA loan with no VA appraisal and a 0.5% fee unless exempt. The cash-out needs full underwriting, an appraisal, and a net tangible benefit, and it can pay off any loan type.
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.
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
1. VA.gov, Cash-out refinance loan
4. VA.gov, Funding fee and closing costs
5. VA Lenders Handbook (Pamphlet 26-7), Chapter 6
7. CFPB, Older Americans Housing Guide
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: How to Use a VA Cash-Out to Fund a Condo Renovation · Rolling Closing Costs Into a VA Cash-Out vs Paying Them Upfront · VA Cash-Out vs Jumbo Cash-Out to Buy Out an Ex Who Is on Title
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.