The Quick Read: On a Texas homestead, these two costs rarely compete for the same loan. The Texas Attorney General concluded that a VA cash-out refinance is generally not available on a Texas homestead, and Texas conventional cash-out loans are capped at 80% of value, which leaves the 20% equity that normally keeps PMI off the table. The funding fee and PMI belong to different loan structures, so the useful question is which structure fits your situation.
The Honest Answer First
Here is the short version for a Texas homeowner who is a veteran and wants cash from the home.
The VA funding fee is a one-time charge on a VA-backed loan. PMI is private mortgage insurance on a conventional loan with less than 20% equity. They are different things, paid to different parties, for different reasons.
For the homestead you live in, in Texas, the Texas Constitution’s home equity rules decide most of the outcome. A VA cash-out is generally off the table there. A conventional cash-out under those rules stays at or below 80% of value, so PMI normally doesn’t apply either. This is a general reading, not a guarantee. Lender guidelines and a full file review decide your case, and a licensed professional should confirm current VA and Texas treatment.
So the comparison in the title is really a comparison of where each cost lives. A VA loan with a funding fee fits a purchase, a streamline refinance, or a refinance outside the Texas homestead rules. A conventional loan with PMI fits a purchase or refinance with thin equity. A Texas homestead cash-out is its own category.
Side-by-Side
The table compares the VA cash-out refinance as the program works nationally against a conventional cash-out loan on a Texas homestead.
| Factor | VA cash-out (national program) | Conventional Texas homestead cash-out |
|---|---|---|
| Leverage | Up to 100% of appraised value, fee included | Capped at 80% of value |
| Mortgage insurance | None monthly | Normally none, since 20% equity stays |
| One-time fee | Funding fee, waived if exempt | No VA-style fee |
| Credit floor | 580 decision score on our wholesale programs | Varies by lender |
| Occupancy | Primary residence | Homestead required for these rules |
| Documentation | Certificate of eligibility, residual income test | Income and asset review per lender |
| Texas homestead | Generally not available | Available under Texas rules |
Read the last row first. Everything above it describes the programs in the abstract. That row describes your actual situation if the home is a Texas homestead.
What the Funding Fee Actually Is
Across the wholesale programs Lendmire places VA loans with, the funding fee runs from 1.25% to 3.3% of the loan amount, depending on use and down payment. On a cash-out refinance it is 2.15% for first use and 3.3% for subsequent use. The fee is waived for veterans receiving compensation for a service-connected disability and for the other exempt groups.
VA describes the fee as a one-time payment that helps offset taxpayer cost, since the program asks for no down payment and no monthly mortgage insurance. That is the key contrast with PMI. There is no monthly insurance line on a VA loan, but the one-time fee still applies unless you are exempt.
The fee can be financed. Financing it raises the loan balance, so it shows up as a larger balance rather than a separate monthly charge. On a cash-out that reaches 100% of value, the financed fee counts inside that ceiling.
What PMI Actually Is
The CFPB explains that PMI is insurance you may need on a conventional loan when your down payment, or your equity on a refinance, is under 20%. It protects the lender, not you. You can still lose the home to foreclosure. It can be paid monthly, upfront, or both.
PMI also has an end date, which the VA fee does not need. You can request cancellation when the balance reaches 80% of the home’s original value, subject to conditions such as a good payment history. Servicers must end it automatically at 78% of original value if you are current. The CFPB’s examination manual notes that this federal cancellation law does not cover title 38 loans, which is the VA statute. That is why PMI rules and the VA funding fee are separate worlds.
Why Texas Changes the Picture
Texas treats cash taken out of a homestead differently from most states. Under the Texas Constitution’s home equity provision, these loans carry strict limits. Texas Attorney General Opinion KP-0183 concluded that a VA cash-out refinance conflicts with that provision, in part because the VA guaranty counts as collateral beyond the homestead itself.
You may find web pages that say VA cash-out is allowed in Texas up to 80%, and others that say it is prohibited. The Attorney General’s opinion is the official source we can point to, and it says prohibited. Treat any claim of availability with caution, and ask a licensed professional to confirm current treatment before you plan around it.
On the conventional side, Freddie Mac’s Guide states that the maximum loan-to-value for a Texas Section 50(a)(6) mortgage must not exceed 80%. It also requires an appraisal and the Texas home equity uniform instruments. Since an 80% cap leaves 20% equity, PMI normally isn’t part of this deal. That is our reading of how the pieces fit, not a quoted rule.
Texas adds process, too. Expect a new appraisal, a required waiting period, a rescission window, and a closing at a specific type of office. Plan for those steps rather than assuming a standard refinance flow.
When the VA Funding Fee Is the Better Fit
The VA route is the stronger choice in these situations.
- You are buying a home. A VA purchase can reach 100% financing with no mortgage insurance of any kind, with the funding fee as the one-time cost. Compared with a conventional purchase that carries PMI, that structure can leave more cash in your pocket at closing.
- You hold a VA loan and want to refinance it. The VA streamline, known as the IRRRL, refinances an existing VA loan to a lower rate or from adjustable to fixed with no VA appraisal. The fee is 0.5% unless you are exempt, and it requires a net tangible benefit and seasoning of the later of 210 days from the first payment and the 6th payment. This is a different product from cash-out, and it is generally described as workable on Texas homesteads.
- The property sits outside the homestead rules. Texas Section 50(a)(6) governs homestead property. A property that is not your homestead is a separate eligibility question, and that question needs its own answer from a lender.
- You are fee-exempt. If you receive disability compensation, the fee disappears, and the cost side of the VA comparison shrinks.
- Your credit is thin or your ratios run high. The VA treats residual income as the controlling test. The 41% debt-to-income figure is a guideline, not a cap, though a higher ratio needs residual income well above the table. Our wholesale programs start at a 580 decision score. Some lenders set a higher floor, and conventional programs often do.
If you are curious how the national program works outside Texas, Lendmire’s VA cash-out refinance program page lays out the mechanics.
When Conventional Is the Better Fit
Conventional financing wins in a few clear cases.
- You own a Texas homestead and want cash. A conventional Texas home equity cash-out is the structure that exists for this. You keep at least 20% equity, which is also why PMI usually stays out of the picture. A second-lien home equity structure is another path to compare.
- You want to leave your VA entitlement untouched. Using conventional financing for the cash-out avoids the funding fee entirely. If you later want to buy another home with VA benefits, that can matter.
- Your equity is strong and the VA fee would be large. A subsequent-use cash-out carries the higher 3.3% tier. When you are not exempt and the loan is big, a conventional loan with no funding fee can look better on paper.
- You are leaving a loan that already carries PMI. If a refinance puts you at 80% or less of value, the PMI on the old loan goes away with it.
The flip point: if you are fee-exempt and the property is not a Texas homestead, VA usually has the cost edge. If you are not exempt and the home is a Texas homestead, the conventional structure is generally the one that is actually available.
A Borrower Scenario in Plain Words
Picture a veteran who bought a Texas home with a VA loan and has built meaningful equity. They want cash for a renovation. They assume a VA cash-out will reach 100% of value, as it does in many states.
On a Texas homestead, that assumption generally fails. The Attorney General’s reading blocks the VA cash-out. The realistic options are a conventional Texas home equity cash-out at no more than 80% of value, or a second-lien home equity structure. In either case, the funding fee is not part of the picture, and PMI normally is not either.
Now change one fact. Suppose the same veteran only wants a lower rate on the existing VA loan and no cash at all. The IRRRL fits that goal, and the 0.5% fee applies unless the veteran is exempt.
Same veteran, same home, two different goals, two different answers. Start with what you want the loan to do.
How the Costs Hit Your Budget
A financed funding fee raises the loan balance. That feeds into the payment indirectly, through a larger balance, and not as a separate insurance line. PMI shows up as its own line on the Loan Estimate and Closing Disclosure, as a monthly premium, an upfront premium, or both.
On a Texas conventional cash-out, you are not choosing between the two. The decision is about the loan structure, the appraisal, the waiting period, and how much equity you want to keep.
Common Mistakes
- Assuming “no mortgage insurance” means “free.” The one-time fee still applies unless you are exempt.
- Treating the funding fee as PMI. The fee goes to VA once. PMI is private insurance, usually monthly.
- Expecting PMI to cancel on today’s value. The federal cancellation timing is based on original value. An appraisal mainly checks that value hasn’t dropped.
- Believing Texas bans cash-out. It doesn’t. It regulates it tightly.
- Counting on 100% cash-out everywhere. That ceiling exists in the VA program nationally, but it doesn’t carry over to a Texas homestead.
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 on a VA-backed loan, paid to VA, that is waived for exempt veterans.
PMI: Private mortgage insurance that protects a conventional lender when equity is under 20%.
Homestead: The home you live in, which Texas protects with special lending rules.
Section 50(a)(6): The part of the Texas Constitution that governs home equity loans on a homestead.
IRRRL: The VA streamline refinance of an existing VA loan.
Residual income: The money left after major obligations, which is the controlling VA underwriting test.
Subsequent use: A second or later use of VA loan benefits, which carries a higher cash-out funding fee tier.
A Balanced Verdict
If the home is your Texas homestead and you want cash, the conventional 80% structure is generally the path that exists, and PMI is usually not part of it. If you are buying, streamlining an existing VA loan, or working outside the homestead rules, the VA program and its one-time funding fee deserve a serious look, especially if you are exempt.
Neither side wins in the abstract. Your goal, your current loan, your exemption status and the property’s classification decide it. Every program 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.
Frequently Asked Questions
Do VA cash-out loans have PMI?
No. VA loans carry no monthly mortgage insurance of any kind. The one-time funding fee is the cost that takes its place, and it is waived for exempt veterans. The fee can be financed into the loan balance.
Does a conventional cash-out on a Texas homestead require PMI?
Usually not. Texas caps these loans at 80% of value, which leaves 20% equity, the level at which PMI is typically no longer required. That is our reading of how the rules fit together, so confirm it with your lender.
Can I roll the funding fee into the loan?
Yes. The fee can be financed, which raises your balance. On a VA cash-out that reaches 100% of appraised value, the financed fee counts inside that ceiling, so it reduces room for cash.
Who is exempt from the funding fee?
Veterans receiving compensation for a service-connected disability are exempt, along with certain other groups such as some surviving spouses and Purple Heart recipients. VA’s certificate of eligibility shows exemption status, so it decides the question.
Can I use a VA streamline on a Texas homestead?
It is generally described as available. The IRRRL refinances an existing VA loan, adds no cash out, and carries a 0.5% fee unless you are exempt, plus a net tangible benefit and seasoning requirement. Confirm current treatment with a licensed professional.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA.gov: Funding fee and closing costs
2. CFPB: What is private mortgage insurance?
4. Texas Attorney General Opinion KP-0183
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 Cash-Out Seasoning and Fee Rules With Restored Entitlement · VA Cash-Out Cap Requirements for Reasonable Value and the Funding Fee · How Much More the Largest VA Cash-Out Releases Than Conventional
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.