The Quick Read: It depends on how much equity you have and whether you owe the funding fee. VA cash-out reaches up to 100% of the appraised value with no mortgage insurance, but charges a one-time funding fee unless you are exempt. Conventional cash-out has no funding fee but stops at a lower loan-to-value, so it suits veterans with plenty of equity. An exempt veteran loses the fee argument entirely, and the choice shifts to equity and credit.
The Honest Answer First
VA cash-out is built for the veteran who needs to reach more equity than a conventional loan allows, or whose credit profile is easier to place under VA rules. Conventional cash-out is built for the veteran with deep equity, strong credit, and a reason to avoid a fee that sits on top of the balance.
Neither is better in the abstract. The funding fee is real money, but it is only one line in a larger comparison. Across the wholesale programs Lendmire places VA files with, the fee is the first thing veterans ask about and often not the deciding factor. Equity, credit score, and how long you plan to keep the loan usually decide it.
The VA path starts with the VA cash-out refinance program, which refinances any loan type into a VA loan. You need a Certificate of Eligibility, and the home must be your residence.
Side-by-Side
| Factor | VA cash-out | Conventional cash-out |
|---|---|---|
| Maximum leverage (1-unit home) | Up to 100% of appraised value | 80% for a primary residence |
| Upfront government fee | Funding fee unless exempt | None |
| Mortgage insurance | None | Generally none at the 80% cap |
| Occupancy | Veteran’s home | Primary residence at the top tier |
| Credit floor | VA sets none; lenders do | Set by loan-to-value and debt ratios |
| Documentation | Full underwriting; residual income test | Full underwriting; debt-to-income test |
| Appraisal | Required (VA appraisal) | Required |
| Eligibility proof | Certificate of Eligibility | None beyond standard file |
Both products need full underwriting and an appraisal. Neither is a streamline. A veteran who only wants a different rate or term, with no cash out, should look at the VA interest rate reduction loan (IRRRL) instead, which cannot be used to take equity out.
How the Funding Fee Actually Works
The funding fee is a one-time charge paid to VA, not to the lender. It is financeable, so most veterans roll it into the loan rather than paying cash at closing.
Under VA Circular 26-23-06, Exhibit B, the cash-out refinance fee is 2.15% for first use and 3.3% for subsequent use. Cash-out has no down-payment tiers. The lower 1.5% and 1.25% tiers apply to purchase loans with larger down payments.
Here is the catch with financing it. The fee raises your balance, and a higher balance raises your payment and the interest you carry. You are borrowing the fee and paying interest on it. There is also a ceiling: the new loan, fee included, cannot exceed 100% of reasonable value, and any piece of the fee that would push past that line has to be paid in cash. The rule sits in 38 CFR Part 36, Subpart B.
Veterans who receive VA compensation for a service-connected disability, along with a few other groups, are exempt. Your Certificate of Eligibility shows your status, and VA is the place to confirm it. Do not assume you owe the fee until you have checked.
When VA Cash-Out Is the Better Fit
VA wins when equity is the constraint. A conventional cash-out stops at 80% of value, so a veteran who has built limited equity may not reach the cash they need. VA’s ceiling of up to 100% of appraised value can change that, though individual lenders may set a lower cap.
It also wins for the veteran who wants to avoid monthly mortgage insurance on a higher-leverage loan. VA loans carry none. The funding fee is the price of that structure.
Consider a veteran with a moderate credit score who owns a home with a modest equity cushion. Conventional guidelines tie credit minimums to leverage and debt ratios, and a thinner file can run into limits. VA sets no minimum score of its own. The wholesale programs Lendmire places VA loans with begin at a 580 decision score, and each lender applies its own overlays, so the file is reviewed case by case.
The underwriting style differs too. VA treats residual income, the money left after debts and living costs, as the controlling test. The 41% debt-to-income figure is a guideline rather than a cap. A veteran with a higher ratio but strong residual income can still be reviewed favorably. Conventional underwriting leans harder on the debt-to-income ratio, which can cut against a borrower with heavier obligations.
And the exempt veteran has the clearest case of all. With the fee gone, VA offers higher leverage and no mortgage insurance with no upfront government charge.
Two more points favor VA. It permits refinancing any loan type into VA, so an FHA or conventional borrower can move over. And a veteran paying monthly mortgage insurance on the current loan may find that dropping it is the main benefit, which satisfies one of the net tangible benefit tests.
When Conventional Is the Better Fit
Conventional wins when you have plenty of equity and do not need to reach past 80%. If your target cash fits comfortably inside that cap, you skip the funding fee entirely. Over a long hold, avoiding a fee that would have been added to the balance matters.
It also wins when your credit is strong. A borrower with a clean file and low debt gets the benefit of conventional underwriting without paying VA’s fee for flexibility they do not need.
Entitlement is another reason. A veteran with reduced or tied-up entitlement may face limits on VA leverage and loan size. Conventional does not draw on entitlement, so it can be the cleaner path.
Then there is the subsequent-use tier. A veteran who has used the benefit before pays 3.3% on cash-out, the higher end of the range. At that level, a veteran with ample equity should run the conventional option carefully, since the fee can swamp the benefit of the extra leverage.
Property type matters. Conventional cash-out falls to 75% for two-to-four-unit homes and 65% for manufactured housing under the Fannie Mae Eligibility Matrix. VA’s occupancy rule, by contrast, is that the dwelling must be the veteran’s home under 38 CFR 36.4306. A veteran who is not occupying the home cannot use VA cash-out for it, and that settles the question before cost enters.
One more wrinkle on timing. Conventional cash-out generally requires that an existing first mortgage be at least 12 months old and that a borrower have been on title for about six months, per the Fannie Mae Selling Guide. VA has its own seasoning and net tangible benefit tests. Check both against your timeline.
The Same Veteran, Three Paths
Picture a veteran with a home worth a round number and a loan balance around half of it. Cash needed: roughly a fifth of the value, for repairs and debt payoff.
Conventional. Total leverage lands well inside 80%. The veteran keeps the loan balance lowest of the three paths.
VA with the fee financed. The fee is added on top, so the balance is higher than the conventional route for the same cash. Leverage stays well under the 100% ceiling, so the whole fee can be financed.
VA, exempt. The balance matches the cash taken plus the old payoff. Leverage and mortgage insurance are the only differences from conventional.
In this case, conventional beats VA for a non-exempt veteran, because the equity is deep enough that VA’s extra leverage buys nothing. For the exempt veteran, the two are close, and the call turns on credit, underwriting style, and how each lender reviews the file.
Now flip the facts. Same home, but equity is thin and the veteran needs more cash than 80% allows. Conventional cannot get there. VA is the only workable path of the two, and the fee becomes the cost of access.
Mistakes Veterans Make on This Decision
Comparing only the fee. The fee is visible, so it gets all the attention. Leverage, credit review, mortgage insurance, and the true balance matter at least as much.
Assuming the fee is a lender charge. It goes to VA. A different lender does not change it.
Skipping the exemption check. A veteran who qualifies and does not claim it pays thousands in fee for nothing. Confirm status before comparing.
Ignoring what the old loan carries. Cash-out replaces your current mortgage, so the existing rate and term go away. The CFPB notes that cash-out can lengthen payoff time and raise the payment.
Using secured debt carelessly. The CFPB also notes that paying non-mortgage debts with mortgage debt can raise foreclosure risk. Moving credit card balances onto your home makes sense only if the spending that created them has stopped.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Funding fee: A one-time charge paid to VA on most VA loans, which can usually be financed into the loan.
Certificate of Eligibility (COE): The VA document that confirms your service qualifies and shows your fee-exempt status.
Residual income: The money left each month after debts, taxes, and living costs, which is the main VA underwriting test.
Net tangible benefit: A required improvement from the refinance, such as dropping mortgage insurance, a lower payment, or a shorter term.
Entitlement: The amount of VA backing you have available, which can limit loan size if part of it is in use.
Loan-to-value (LTV): The loan balance divided by the home’s appraised value.
A Balanced Verdict
For a non-exempt veteran with deep equity and strong credit, conventional cash-out can be the better fit, because the extra leverage VA offers may go unused. For a veteran with thin equity, a thinner credit file, or an exempt status, VA cash-out can be the better fit, because it reaches more of the home’s value and does not carry monthly mortgage insurance.
The flip point is equity. If you can take the cash you need inside 80% of value, price out conventional first. If you cannot, VA is likely your only path of the two, and the fee is the cost of reaching it. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
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. Reach the team at 828-256-2183 or request a quote through the site.
Frequently Asked Questions
Can I finance the VA funding fee on a cash-out refinance?
Yes, in most cases. The fee can be included in the new loan, but the total cannot exceed 100% of the home’s reasonable value. If the fee would push past that line, the overage has to be paid in cash at closing.
Does conventional cash-out require mortgage insurance?
Generally not. Mortgage insurance applies above 80% loan-to-value, and conventional cash-out on a primary home caps at 80%. If a veteran keeps a conventional loan that does carry it, the CFPB explains you can request removal at 80% of original value, with automatic termination at 78%.
Is the fee different for a second use of my VA benefit?
Yes. A cash-out refinance carries 2.15% for first use and 3.3% for subsequent use. The higher tier makes the conventional comparison more important for a repeat user with solid equity.
Do I need an existing VA loan to do a VA cash-out?
No. A VA cash-out can refinance any loan type into VA. The IRRRL, by contrast, only refinances an existing VA loan, and it cannot take cash out.
Does VA set a minimum credit score?
No, VA itself does not. Lenders set their own floors. The wholesale programs Lendmire places VA loans with start at a 580 decision score, and the full file, including residual income, is reviewed under each lender’s guidelines.
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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References
1. VA Circular 26-23-06, Exhibit B
2. eCFR, 38 CFR Part 36, Subpart B
3. Fannie Mae Eligibility Matrix
5. Fannie Mae Selling Guide B2-1.3-03
6. CFPB
7. CFPB
This article is part of Lendmire’s VA Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Can a Veteran With a VA Loan Use VA Cash-Out to Buy After a PCS? · VA Cash-Out Funding Fee With Partial or Restored Entitlement · How Much More the Largest VA Cash-Out Releases Than Conventional
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.