The Quick Read: The two loans share most closing costs but differ in a few that matter. A VA cash-out carries a funding fee and no monthly mortgage insurance, while a conventional cash-out carries neither a funding fee nor a guarantee, and it may add mortgage insurance and pricing adjustments at higher leverage. Eligible veterans with high loan-to-value needs tend to land on VA. Borrowers with plenty of equity, or without VA eligibility, often land on conventional. Both are subject to lender guidelines and full file review.
The Honest Answer on Who Each Loan Is For
A VA cash-out is built for veterans, service members and others with a Certificate of Eligibility who want to reach a lot of equity. It can go up to 100% of the appraised value, including the financed funding fee. A conventional cash-out is built for borrowers who have a good amount of equity left over after the loan, and who may not have VA eligibility at all.
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.
Neither loan is “cheaper” in every case. Costs show up in different places. One loan puts a fee up front. The other may put insurance or pricing adjustments into the structure. Your job is to compare the full Loan Estimate for each, not one line.
Lendmire is a mortgage broker, so it arranges these loans through wholesale lenders rather than lending directly. Borrowers often fixate on one fee and miss the bigger structural difference, which is where the funding fee and mortgage insurance sit.
Side-by-Side
| Factor | VA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | Up to 100% of appraised value | Capped well below 100% |
| Mortgage insurance | None monthly | May apply at higher LTV |
| Government-specific fee | VA funding fee (unless exempt) | None |
| Occupancy | Owner-occupied | Varies by occupancy |
| Credit floor | 580 decision score on our wholesale programs | Set by lender and agency matrix |
| Key test | Residual income, net tangible benefit | DTI, reserves, LTV |
| Eligibility | Certificate of Eligibility | None |
The table leaves out pricing on purpose. Rate and points move by borrower and lender, and they appear on the Loan Estimate, not here.
The Costs Both Loans Share
The CFPB defines closing costs as the upfront costs of getting the loan and transferring ownership, and both products list them on the same Loan Estimate. Think appraisal, title work, recording, and lender charges. These vary by lender and by where the home sits.
Two points can save you money. First, you can shop third-party services in many cases, so compare the Loan Estimates side by side. Second, the VA advises borrowers to contact several lenders because terms and fees vary. Good advice. Follow it.
The VA Funding Fee: The Cost Only VA Has
The funding fee is the biggest structural difference. VA says you pay the fee on a refinance unless you meet an exemption. You can pay it at closing or finance it into the loan.
On the VA cash-out, the fee is 2.15% for first use of the benefit and 3.3% for later use. Because a refinance has no down payment, those two figures are the ones that apply. Veterans who receive compensation for a service-connected disability are exempt, along with other exempt groups. Check VA’s funding fee page for the full list.
Here is the trade. The funding fee replaces monthly mortgage insurance, which VA loans do not carry. So you pay once, up front or through the balance, instead of paying monthly.
One caution on financing the fee. A financed fee counts toward your total loan amount. Under VA Circular 26-19-05, VA no longer guarantees refinances above 100% loan-to-value, and the financed fee cannot push you past the appraiser’s reasonable value. So financing the fee eats into the cash you walk away with.
What Conventional Brings Instead
A conventional cash-out has no funding fee. That matters most to a borrower who is not exempt and would owe the 2.15% or 3.3%.
But conventional has its own cost levers. Fannie Mae’s LLPA matrix shows that pricing adjustments vary by credit score, LTV, loan purpose and occupancy. It also notes that VA, FHA and RD loans are generally excluded from those adjustments. So a conventional cash-out at high leverage with a middling credit score can carry more adjustments than the same borrower on VA.
Mortgage insurance is the other lever. It may apply above certain LTVs. The CFPB explains you can ask to cancel PMI when the balance is scheduled to reach 80% of the home’s original value, and the servicer generally must end it automatically at 78%. That is a real advantage. But it applies only to conventional loans. Insurance that ends is still insurance you pay along the way.
Paying From Proceeds vs. Rolling Costs In
On either loan, costs paid from the loan reduce the cash you receive. That is simple math, not a rate or a price.
Run it as a picture. Say your home appraises at a certain value and you want a set amount of cash. If you roll the closing costs and the VA funding fee into the new balance, the loan grows by those amounts. On VA, the total still has to stay at or below 100% of appraised value. On conventional, it has to stay under a lower leverage cap. So the conventional loan hits its ceiling sooner, and costs may come out of your cash.
Alternatively, you can pay costs out of pocket and keep the full cash-out. Many borrowers choose one or the other depending on how much liquid cash they have on hand.
When the VA Cash-Out Is the Better Fit
VA tends to win in these situations:
- You need to reach more equity than a conventional cap allows.
- You want no monthly mortgage insurance in the budget.
- You are exempt from the funding fee, which removes the one VA-specific cost.
- Your credit score is lower and conventional adjustments would stack up.
- You hold a conventional or FHA loan and want to move it into VA. VA treats a non-VA loan refinanced into VA as a cash-out.
On the underwriting side, VA looks at residual income first. The 41% debt-to-income figure is a guideline, not a cap. A borrower above it needs residual income well above the table. That flexibility helps many veterans whose debt ratios look tight on paper.
Every VA cash-out also needs a net tangible benefit, meaning the loan must give you at least one of VA’s listed benefits. The VA Lenders Handbook spells it out. The half-percent rate-reduction and fee-recoupment tests belong to the IRRRL, VA’s streamline, and do not apply to the cash-out. For a deeper look at how the refinance types differ, see Lendmire’s piece VA Cash-Out Refinance vs. Conventional Cash-Out Under VA Type 1 and Type 2 Refinance Rules.
When Conventional Cash-Out Is the Better Fit
Conventional tends to win in these situations:
- You are not VA-eligible, or you are not exempt and the funding fee looks heavy for your loan size.
- You have a large equity cushion and only want a modest amount of cash. Leverage caps then stop mattering.
- You expect to cancel mortgage insurance down the road, or your leverage keeps you out of it entirely.
- Your credit is strong, so pricing adjustments stay light.
Fannie Mae’s Eligibility Matrix sets cash-out LTV limits by occupancy, units and product, and it applies minimum reserves when DTI runs above 45%. Read it for the exact tiers. Those limits are why equity-rich borrowers do fine here and equity-light borrowers do not.
Where VA Cash-Out Is Not the Answer
Be honest about the limits. VA cash-out requires owner occupancy, so a second home or rental does not fit. The home must be yours, or a spouse’s or dependent’s if you are on active duty. If you only want a lower rate on an existing VA loan and no cash, the IRRRL is a different product. It has a 0.5% fee unless you are exempt, requires no VA appraisal, and does not need a new COE.
Seasoning also applies. A VA cash-out carries the same seasoning as the IRRRL: the later of 210 days from the first payment and the 6th payment. Check this against your timeline before you plan around it.
Last, a caution straight from VA: be careful with refinance offers that sound too good. VA links to a page on misleading offers. Any promise of a “no-cost” refinance deserves a close read. The costs are built into the rate or the balance somewhere. They do not vanish.
Key Terms Defined
Funding fee: A one-time VA charge on most VA loans, which can be financed or paid at closing, and which exempt borrowers do not owe.
Net tangible benefit: A requirement that a VA refinance give the veteran at least one of VA’s listed benefits.
Loan-to-value (LTV): The loan amount divided by the home’s appraised value.
Residual income: The money left each month after major obligations and living costs, which VA treats as the controlling test.
Certificate of Eligibility (COE): The VA document confirming you qualify for the benefit.
PMI: Private mortgage insurance, a monthly cost on many conventional loans at higher leverage.
How to Compare Two Loan Estimates
Put both Estimates on the table. Check these in order:
1. Total closing costs and cash to close.
2. Whether the funding fee or mortgage insurance appears, and how it is handled.
3. Whether costs are paid out of pocket or financed from the loan amount.
4. Cash you actually receive after everything.
Then compare the Closing Disclosure to the Loan Estimate before you sign. The Closing Disclosure is the statement of final terms, and Regulation Z tells you to compare it with the Loan Estimate. Look for any change.
The Balanced Verdict
Neither loan wins on closing costs alone. VA adds a funding fee but removes monthly mortgage insurance and reaches higher leverage. Conventional drops the funding fee but may add insurance and pricing adjustments, and it stops at a lower leverage cap. If you are fee-exempt and need a lot of equity, VA usually fits. If you have deep equity, want modest cash and have strong credit, conventional can be the cleaner path. Everything 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. Start with Lendmire’s VA cash-out refinance program page.
Frequently Asked Questions
Do VA loans really have no closing costs?
No. VA’s own page says there are closing costs and a funding fee. You still pay for things like the appraisal and title work. What VA removes is monthly mortgage insurance and the down payment requirement.
Can I roll closing costs into a VA cash-out?
Yes, in part. The funding fee can be financed. Other costs can come from your proceeds or your pocket. The total loan, including the financed fee, cannot exceed 100% of the appraised value, so more financing means less cash.
Who skips the VA funding fee?
Veterans who receive compensation for a service-connected disability are exempt, as are other groups VA lists. Check VA’s funding fee page for the current list before you assume you qualify or do not.
Does refinancing a conventional loan into VA count as a cash-out?
Yes. VA treats a refinance from a non-VA loan into a VA loan as a cash-out refinance, even if you take no cash. That means the net tangible benefit and cash-out disclosures apply.
Does a conventional cash-out charge a funding fee?
No, the funding fee is VA-only. A conventional cash-out may carry pricing adjustments and, at higher leverage, mortgage insurance. Those depend on your credit, loan-to-value, loan purpose and occupancy.
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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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
2. VA.gov – Cash-out refinance loan
3. VA.gov – Funding fee and closing costs
5. LLPA matrix
6. CFPB: When Can I Remove Private Mortgage Insurance PMI from My Loan
8. Fannie Mae Eligibility Matrix
9. Regulation Z
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: VA Cash-Out Refinance Requirements on a Home You Own · VA Cash-Out Refinance vs Conventional Cash-Out Under VA Type 1 and Type 2 Refinance Rules · VA Cash-Out Refinance Requirements to Cover College Costs and Aging Parent Expenses
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- 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.