The Quick Read: The two loans charge for risk in different ways. A VA cash-out refinance has a one-time funding fee and no monthly mortgage insurance. A conventional cash-out can carry monthly private mortgage insurance, depending on how much of the home’s value you borrow. VA tends to fit borrowers who want to reach more equity, and conventional tends to fit borrowers who borrow modestly and have strong credit. Eligibility, equity and how long you will keep the loan decide the rest.
Key Takeaways
- The VA funding fee is a single charge, not a monthly premium. It can be paid at closing or added to the loan balance.
- Conventional mortgage insurance is a recurring charge that ends under federal cancellation rules. Whether you pay it at all depends on your loan-to-value (LTV), the share of the home’s value you borrow.
- Veterans who receive compensation for a service-connected disability, and the other exempt groups, owe no funding fee. That changes the comparison completely.
- Financing the fee shrinks the cash you take home, because the fee counts inside the VA loan amount.
The VA cash-out refinance program can reach up to 100% of the appraised value, including the financed fee. It also lets you refinance any loan type into a VA loan. Those are the features most borrowers are really comparing when they ask about fees.
Side-by-Side
Here is how the two compare on the points that change your decision. Both are subject to lender guidelines and full file review.
| Factor | VA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | Up to 100% of appraised value | Well below VA’s ceiling |
| Credit floor | 580 decision score on wholesale programs | Generally higher, set by lender |
| Mortgage insurance | None monthly | Possible, tied to LTV |
| One-time fee | 2.15% first use, 3.3% after | No VA-style fee |
| Occupancy | Primary home | Best leverage on a primary home |
| Documentation | Full file plus residual income | Automated underwriting, debt ratio |
| Eligibility | VA certificate of eligibility | Credit, income, equity, reserves |
Two things in that table need explaining. The first is the fee, and the second is why conventional insurance depends on LTV.
What Each Charge Actually Is
The VA funding fee is a one-time payment. VA’s rulemaking says the fee is collected at closing and sent to VA, not kept by the lender. It also says the fee is not like private mortgage insurance, which is a separate recurring charge in other programs. The fee exists because VA loans carry no down payment requirement and no monthly insurance.
For a cash-out refinance, VA News lists the fee at 2.15% on first use and 3.3% after first use. Both figures are percentages of the loan amount. Unlike on a purchase, a bigger down payment does not step the percentage down. Exempt borrowers pay nothing.
Conventional private mortgage insurance (PMI) is a monthly charge that protects the lender if you stop paying. An insurer prices it from your LTV tier and credit profile. Across the wholesale programs Lendmire places files with, PMI shows up when a borrower keeps a high share of the home’s value in debt. A borrower who stays well under that line often pays none.
That is the key point most comparisons miss. Many articles say conventional cash-out “has PMI.” The truth is narrower. Conventional cash-out caps sit well below VA’s ceiling, so many conventional cash-outs land in a range where insurance is not triggered. VA lets you borrow well past that range, and it does so without monthly insurance.
How the Fee Changes Your Loan
Financing the fee is common, and it has three effects.
- Your balance goes up. The fee is added to the principal, so you pay interest on it for as long as you keep the loan.
- Your cash goes down. The VA ceiling includes the financed fee. If you are borrowing near the top, the fee takes a bite out of the cash you walk away with.
- It ignores the appraisal test. The federal regulation says the fee may be included in the loan without regard to the reasonable value of the property. The ceiling on the whole loan still applies, so do not read that as extra room.
Paying the fee in cash at closing avoids the added interest. It also needs cash on hand, which defeats the purpose of many cash-outs.
Picture a homeowner who wants to take out a meaningful share of their equity. On a first-use VA cash-out, a 2.15% fee gets added to the balance. The homeowner sees less cash than the headline equity suggests. That is not a flaw in the loan, only arithmetic you should see on the Loan Estimate before you commit.
When VA Cash-Out Is the Better Fit
VA wins when leverage, credit or insurance are your constraints. These are the situations where it tends to come out ahead:
- You need to reach more equity. The VA ceiling is higher than conventional cash-out. If you are not sitting on much equity, VA may be a strong option that gets you the amount you want.
- Your credit is thin. VA sets no minimum score itself. The wholesale programs Lendmire places VA loans with start at a 580 decision score. Conventional underwriting generally expects more.
- You are exempt. If VA pays you compensation for a service-connected disability, you owe no funding fee. Then the VA loan has no upfront charge and no monthly insurance. That is a very hard combination to beat.
- You are leaving another loan type. A homeowner carrying an FHA or conventional loan with monthly insurance can refinance into VA. The new loan has no mortgage insurance, so the old loan’s insurance goes away with the payoff.
- Your budget is tight but your income is steady. VA uses residual income as the controlling test, which is what is left after your major obligations and living costs. The 41% debt-to-income figure is a guideline, not a cap. A higher ratio is possible with residual income well above the table.
VA also comes with rules. You need a certificate of eligibility. A VA-to-VA refinance has to be seasoned, meaning the later of 210 days from the first payment or the sixth payment. And the loan must show a net tangible benefit, a real, measurable gain for you. VA’s cash-out quick reference walks through these checks.
When Conventional Cash-Out Is the Better Fit
Conventional can win when you borrow modestly, have strong credit and are not exempt. The case for it looks like this:
- You are not taking much equity. If you borrow well under the conventional cap, you may pay no mortgage insurance at all. Then you also skip the VA fee. For a first-use borrower, 2.15% on the loan is a real cost to avoid.
- You may use VA again later. A funding fee is lower on first use than after, so some veterans save their entitlement. That is a strategy question for you and a loan officer.
- You will keep the loan a long time. A financed fee earns interest for the life of the loan. A small cash-out with no insurance can cost less over many years.
- You are not a veteran. Then VA is simply off the table, and the choice is conventional versus other conventional-style options.
Conventional is not free of strings. It uses automated underwriting, a debt-to-income check and, in some files, cash reserves. Seasoning applies as well. In the wholesale programs Lendmire sees, the existing first mortgage generally has to be at least a year old, and conventional guidelines also look at how long you have owned the home. If you are over the insurance line, conventional insurance is a recurring charge. It is cancellable, but it will cost you every month until then.
How Mortgage Insurance Ends
This is where the one-time and recurring charges really differ. Per the Consumer Financial Protection Bureau, conventional PMI ends in a few ways:
- You can ask to cancel when your balance falls to a set share of the home’s original value.
- The servicer must end it automatically a little later, if you are current on payments.
- It also ends after the midpoint of the loan term, which is year 15 on a 30-year loan.
The clock runs from the original value, not today’s market value. A rising market does not shorten it by itself. A second lien or a drop in value can also complicate cancellation.
The VA fee has no such clock. It is paid once, and what you owe on it is interest if you financed it. So the comparison is not “fee versus premium.” It is “one charge you may carry as extra balance versus a monthly charge that stops later.”
Which Costs Come Out Cheaper?
There is no single winner, and anyone who names one without knowing your equity, credit and entitlement status is guessing. Here is how the usual cases tend to fall.
| Your situation | Tends to favor |
|---|---|
| Exempt from the funding fee | VA |
| Need to borrow near 100% of value | VA |
| Credit near the lower end | VA |
| Small cash-out, strong credit, first-use VA | Conventional |
| Already carrying monthly insurance | VA, if eligible |
| Want to preserve VA entitlement | Conventional |
Two refinements are worth knowing. First, the longer you keep a loan with a financed fee, the more interest you pay on it. Second, the shorter your horizon, the less a one-time fee has time to “pay back” relative to a monthly charge. These shift the answer at the margins. Your loan officer can run the numbers for your file, and the Loan Estimate will show the fee line by line.
Key Terms Defined
Funding fee: a one-time charge on a VA loan, paid at closing or added to the balance, that is waived for exempt borrowers.
Private mortgage insurance (PMI): a recurring charge on some conventional loans that protects the lender, not you.
Loan-to-value (LTV): the loan amount divided by the home’s appraised value.
Residual income: the money left each month after your major obligations and a living-cost allowance. It is the controlling test for VA underwriting.
Net tangible benefit: a clear gain for the borrower, such as a shorter term or the end of monthly insurance, that VA requires in a refinance.
Seasoning: the waiting period before you can refinance a VA loan into another VA loan.
The Verdict
VA is usually the stronger tool when you need more equity, have a modest credit score or are exempt from the fee. Conventional can be the cheaper path when you borrow lightly, have strong credit and want to keep your VA entitlement fresh. Neither is the answer for everyone. 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. Our VA IRRRL vs cash-out comparison is also useful if you already hold a VA loan and only want to change the terms. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Is the VA funding fee the same as mortgage insurance?
No. The fee is a one-time charge that goes to VA, not the lender. VA’s own rulemaking says it differs from private mortgage insurance. It helps offset the program’s cost, since VA loans carry no monthly insurance.
Can I roll the funding fee into a VA cash-out loan?
Yes, in most cases. The fee can be paid at closing or added to the loan amount. If you finance it, it counts inside the VA ceiling and accrues interest. That reduces the cash you receive.
Do I pay the fee if I receive VA disability compensation?
No. Veterans who receive compensation for a service-connected disability are exempt, as are the other exempt groups VA lists, such as certain surviving spouses. Your certificate of eligibility should reflect your status. Check it before comparing costs.
Does conventional cash-out always carry mortgage insurance?
No. Conventional insurance is tied to how much of the home’s value you borrow. A modest cash-out can stay in a range where none is charged. Taking more of the equity can trigger it, and the exact lines vary by lender and credit profile.
Does refinancing into VA end my current mortgage insurance?
Yes, the insurance on the old loan ends when that loan is paid off. A VA loan carries no monthly mortgage insurance. You would owe the funding fee instead, unless you are exempt, and that fee is subject to lender guidelines and full file review.
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.
For current guidelines, see VA loan programs.
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References
1. Federal Register – VA notice on the funding fee
2. VA News – Funding fee: who pays and who is exempt
4. VA Loan Guaranty – Cash-out refinance quick reference
5. CFPB – When can I remove PMI from my loan?
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: VA IRRRL Vs VA Cash-out: Choosing The Right VA Refinance · VA Cash-out Refinance To Pay Off A Non-va Loan: Type I Vs Type II Explained · VA Cash-out Refinance: How The 100 Percent Ceiling Really Works
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.