The Quick Read: The cash you walk away with is the new loan minus your old payoff, minus the funding fee, minus closing costs. The new loan can reach 100% of the appraised value, and the financed fee sits inside that ceiling. So the fee shrinks your cash dollar for dollar. Exempt borrowers keep more. Your final Closing Disclosure shows the true number.
Key Takeaways
- The ceiling is the appraiser’s value times the loan-to-value (LTV) cap. LTV is the loan amount divided by the home’s value. Everything else comes out of that ceiling.
- The funding fee is figured on the whole new loan, not just the cash you take.
- Appraised value swings your net more than any other single item.
- A cash-out must pass a net tangible benefit test, and some versions of it hand you no cash at all.
- Your own numbers go on a Closing Disclosure. Anything earlier is an estimate.
What Is a VA Cash-Out, and Why Is “Net” the Real Question?
A VA cash-out refinance replaces your current mortgage with a new VA-backed loan, and you can take some of your equity as cash. VA describes it as a new loan on different terms. It also works to move a conventional, FHA or USDA loan into a VA loan. You must live in the home, and you need a Certificate of Eligibility (COE), the document from VA that confirms your service qualifies.
People hear “100% of your home’s value” and assume they will net 100% of their equity. They won’t. The Lendmire team places these files weekly through wholesale lenders, and the surprise at the end is almost always the same: the headline number is a ceiling, not a deposit.
Lendmire’s page on the VA cash-out refinance program covers eligibility. This article covers the arithmetic.
The Net-Cash Formula, Step by Step
Start with the largest loan the program allows, then subtract what has to be paid or reserved. What remains is yours.
1. Find the value. The appraiser sets what VA calls “reasonable value.” Online estimates and tax assessments don’t count.
2. Apply the LTV cap. The wholesale programs Lendmire works with reach 100% of the appraised value, including the financed fee. Some lenders set a lower cap of their own.
3. Subtract the payoff. That means your current first mortgage, any second liens, and interest owed through payoff day.
4. Subtract the funding fee if you finance it.
5. Subtract closing costs. These include the appraisal, title work, recording charges, and whatever the lender charges.
6. What is left is your cash.
VA Circular 26-19-05 spells out the ceiling rule. VA will not guarantee a refinance above 100% LTV, and the LTV counts the funding fee. A financed fee can’t push the loan past the home’s value. It has to fit under the ceiling, which is why it comes straight out of your cash. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
What Does the Funding Fee Actually Cost?
The funding fee is a one-time charge VA assesses on the loan. On a cash-out refinance it is 2.15% for a first use of the benefit and 3.3% for later use. A larger down payment cannot lower it here, because the cash-out tiers turn on prior use alone. That differs from a purchase, where 5% or 10% down lowers the fee. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Two points trip people up:
- The fee is figured on the entire new loan. Taking only a little cash doesn’t shrink it. A loan of 90% of value carries the fee on that whole 90%.
- You can finance it or pay it in cash. Financing keeps your cash at closing low. It also raises the balance you owe.
Veterans receiving compensation for a service-connected disability are exempt, as are certain other groups, such as some surviving spouses. For an exempt borrower the fee line is zero. That is the biggest single swing between two otherwise identical files.
One House, Three Fee Situations
Here is a hypothetical home, with every figure a percentage of its appraised value. The assumptions are modeled, not market data. The home appraises at 100%. The existing payoff is 55% of that value. Call closing costs “C,” because yours come from your own Loan Estimate. The loan goes to the full 100% ceiling with the fee financed. The table treats the fee as 2.15% or 3.3% of that total, which is close enough to see the pattern.
| Fee situation | Fee (% of value) | Payoff | Net before closing costs |
|---|---|---|---|
| Exempt | 0% | 55% | 45% − C |
| First use | 2.15% | 55% | 42.85% − C |
| Subsequent use | 3.3% | 55% | 41.7% − C |
Read it this way. On the same house, a subsequent-use borrower nets about 3.3 points of value less than an exempt one. Closing costs then come off every row equally.
Now check what happens under a lender’s lower cap. Say a lender stops at 90% of value instead of 100%. The ceiling drops 10 points. The fee, calculated on a smaller loan, drops slightly. A first-use borrower nets noticeably less cash than in the 100% case, before closing costs, and that has nothing to do with VA’s rules. It is a lender overlay, meaning a stricter limit than the program requires. Ask for the cap in writing before you plan around a number.
Which Costs Come Out of Proceeds and Which Get Financed?
Many closing costs can be rolled into the new loan, but everything financed still has to fit under the LTV ceiling. At the cap, financing a cost is the same as paying it out of your proceeds. If the loan sits below the cap, you have room to finance more.
The costs fall into four groups:
- Lender charges. VA limits the flat fee a lender may charge as a percentage of the loan, so lender fees can’t be open-ended. Per VA’s fee circular, itemized charges sit outside that flat fee. Costs add up in layers, so the flat charge is not the whole story.
- Third-party costs. These cover the appraisal, title, and recording.
- Prepaids and escrow setup. These are taxes and insurance paid in advance. They are the line people forget.
- The funding fee. Financed or paid in cash, unless you’re exempt.
The VA page itself warns that closing costs can add up to thousands of dollars. Treat any worksheet that shows only one or two of these lines as incomplete.
Hidden Deductions People Miss
Four items reduce your cash without appearing in the quick math:
- Payoff-day interest. Your old loan accrues interest until it’s paid, and the payoff figure includes it.
- Second liens and other liens. A home equity loan or a lien on the title must be cleared at closing, out of your proceeds.
- Escrow and prepaids. The new loan needs a fresh escrow account.
- Value risk. A lower appraisal shrinks the ceiling, and the payoff doesn’t move.
What Happens if the Appraisal Comes In Low?
The ceiling moves with the appraisal, but the payoff stays put, so a small value miss becomes a larger cash miss. Take the same hypothetical house with an appraisal 5% below what you expected. Value falls from 100% to 95% of your expectation. The payoff stays at 55%. Under the same 2.15% fee, the first-use net falls from about 42.85% to about 38%, before closing costs.
So a 5-point value miss costs you nearly 5 points of cash. Don’t spend the cash until the appraisal is back. Appraised value is the largest swing factor on the entire file.
How Do You Work Backward From the Cash You Need?
Add up what must be covered, then solve for the loan. The target cash plus the payoff plus closing costs is the amount you need after the fee. Because the fee is a percentage of the loan, the loan has to be a bit larger than that sum.
In plain terms, divide the total you need by one minus the fee percentage. For a first-use borrower, that means dividing by 0.9785. Taking the maximum is optional. If you need less cash, ask for a smaller loan. You pay the fee on what you borrow, and you carry interest on the balance.
The Two Types of Cash-Out (Where “Cash-Out” Can Mean No Cash)
VA sorts these loans into two kinds. In Circular 26-19-05, a Type I cash-out has a loan amount, fee included, that doesn’t exceed the payoff of the loan being refinanced. A Type II exceeds the payoff. Only Type II puts equity in your hands.
So “cash-out” describes the structure of the loan, not a promise of cash. A Type I can still make sense. You might want to move from a conventional or FHA loan into VA, or end monthly mortgage insurance. A Type I faces an additional test that fees and charges must be recovered over a set period, called recoupment.
The Gatekeepers: Underwriting and Net Tangible Benefit
A VA cash-out gets a full file review. That includes credit, income, an appraisal and a COE. VA sets no minimum credit score. The wholesale programs we place with start at a 580 decision score, though some lenders set a higher floor. Residual income is the controlling test: what you have left each month after debts and living costs. The 41% debt-to-income figure is a guideline rather than a cap, but a higher ratio needs residual income well above the table.
The loan also has to show a net tangible benefit, meaning it must make you measurably better off. VA’s rule lists several ways to meet that, such as ending monthly mortgage insurance, shortening the term, or lowering the monthly principal and interest payment. It isn’t a formality.
If you are refinancing a VA loan into another VA loan, seasoning applies as well. That means the later of 210 days after the first payment and the sixth payment. The seasoning wait does not apply when you move from a non-VA loan into VA.
Where the General Rules Break
- Lender cap below 100%. The program allows 100%. Individual lenders may not. Your net follows the cap you actually get.
- Exempt borrowers. The exemption has to be documented, usually on the COE, by closing. If a disability rating arrives after closing, ask your loan officer whether a refund applies. It is a separate question from the closing math.
- No existing lien. A cash-out refinances an existing loan. A home owned free and clear generally does not fit the product.
- Not for rentals. The home must be one you occupy, so a cash-out doesn’t work for a rental or investment property.
- IRRRL confusion. The interest rate reduction refinance loan (IRRRL) is a streamlined option for existing VA loans. It carries a 0.5% fee unless you’re exempt, and it needs no VA appraisal. It also needs no cash-out and no equity. If you want cash, it won’t deliver.
- Loan size. With full entitlement there is no VA loan limit. With remaining entitlement a down payment may be required, so speak with a loan officer.
Is the Cash Worth the Cost?
Compare the net against what the loan resets. The new loan restarts the term and changes the payment, and a financed fee adds to the balance. Here is how the choices stack up:
| Option | Cash to you | Fee | Appraisal |
|---|---|---|---|
| VA cash-out | Yes, Type II | 2.15% / 3.3% unless exempt | Yes |
| VA IRRRL | None | 0.5% unless exempt | No |
| Keep current loan | None | None | No |
A fair test: would this cash earn more, or save more, than it costs over the years you’ll hold the loan? Spending it on something that raises the home’s value or retires costlier debt is different from spending it on things that fade. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
How Do You Verify the Real Number?
The Closing Disclosure is the true figure. It shows Estimated Closing Costs and Estimated Cash to Close in its Costs at Closing table. The CFPB’s guide explains that you receive the Loan Estimate after applying. The Closing Disclosure must reach you ahead of closing, giving you a review window.
Use that window. Compare the two documents line by line. Confirm the funding fee shows zero if you’re exempt. Check the payoff figure and any lien payoffs.
Key Terms Defined
LTV (loan-to-value): The loan amount, including a financed funding fee, divided by the appraised value.
Funding fee: A one-time VA charge on the loan, which you can finance. Exempt borrowers don’t pay it.
Reasonable value: The value the VA appraiser assigns to the home. It is the denominator for LTV.
Type I / Type II cash-out: Type I doesn’t exceed the payoff of the old loan. Type II does, which is the only version that gives you cash.
Net tangible benefit: VA’s test that the new loan must leave you better off in a measurable way.
Seasoning: The waiting period before a VA loan can be refinanced into another VA loan.
Overlay: A lender’s own limit that is tighter than the program rule.
Weighing It
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. Every figure here is subject to lender guidelines and a full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Is the funding fee charged on the cash I take or on the whole loan?
On the whole new loan. Borrowing only a small amount of cash doesn’t shrink it, because the fee is a percentage of the full balance. That is why a larger payoff makes the fee dollar amount larger.
Does a down payment lower the fee on a cash-out?
No. On a cash-out the fee depends on whether you’ve used the benefit before: 2.15% for first use and 3.3% after. The 5% and 10% down-payment tiers apply to purchases. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Can I borrow 100% of my home’s value and keep it all?
You can borrow up to 100% on the wholesale programs we place with, but the funding fee and closing costs come out of that amount. Some lenders also set a lower cap. Your cash is whatever remains after the payoff, the fee and the costs.
What if I’m exempt from the funding fee?
The fee line is zero, so more of the ceiling becomes cash. The exemption has to be documented by closing, usually through the COE. Check your Closing Disclosure to confirm.
Can a VA cash-out give me no cash at all?
Yes. A Type I cash-out doesn’t exceed the payoff. People use it to move from a conventional or FHA loan into VA, or to change terms, rather than to take equity.
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 Circular 26-19-05 (Cash-Out Refinancing)
3. VA Circular 26-10-01 (Fees and Charges)
4. CFPB Guide to Loan Estimate and Closing Disclosure
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.