The Quick Read: Both routes replace your first mortgage and your HELOC (home equity line of credit) with one new loan. The VA route fits a veteran or eligible service member who lives in the home and wants to borrow the most against its value. The conventional route fits a homeowner who isn’t VA-eligible, or one with plenty of equity and strong credit who wants a familiar structure. Neither is better across the board. Your equity, your eligibility, and your current first mortgage decide it.
Key Takeaways
- A HELOC payoff counts as a cash-out refinance on the conventional side, even if you take no cash.
- A VA cash-out can reach 100% of the appraised value, with the financed funding fee included. Conventional cash-out generally stops at a lower share of value.
- VA loans carry no mortgage insurance. Conventional loans may require it, depending on equity and the program.
- VA uses residual income as its controlling test. Conventional leans on credit score and debt-to-income.
- Both routes replace your current first mortgage, so compare what you would give up.
For the program basics, see Lendmire’s VA cash-out refinance program page.
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.
Side-by-Side
The table below covers the structural differences. Every program figure is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
| Factor | VA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | Up to 100% of appraised value, fee included | Lower cap than VA |
| Credit floor | VA sets none; wholesale programs start at 580 | Generally higher than VA |
| Mortgage insurance | None | May apply, based on equity |
| Upfront government fee | Funding fee, financeable; exempt groups waived | None |
| Occupancy | You must live in the home | Primary residence plus other occupancy types |
| Main qualifying test | Residual income | Debt-to-income and credit |
| Pays off a HELOC? | Yes, any loan type | Yes, as a cash-out |
| Eligibility paperwork | Certificate of Eligibility | None beyond the file |
A few rows need a closer look. The VA funding fee for a cash-out refinance is 2.15% on first use and 3.3% after that. It is financeable. It is waived for veterans receiving compensation for a service-connected disability and the other exempt groups. Because the 100% cap includes the financed fee, the fee uses up some of your reach.
The credit floor row also needs context. VA itself sets no minimum score. Across the wholesale programs placed through Lendmire, VA loans start at a 580 decision score, and lenders may set a higher floor.
Why a HELOC Payoff Gets Treated as Cash-Out
Say your HELOC paid for a kitchen, tuition, or a business. That money did not buy the house. On the conventional side, Fannie Mae’s Selling Guide allows a limited cash-out only when the subordinate lien being paid off was used to purchase the property. A non-purchase HELOC therefore pushes your refinance into the cash-out category, even when no money lands in your pocket.
That surprises many borrowers. They hear “I’m just paying off the line” and expect the simpler refinance. Conventional underwriting doesn’t see it that way, so expect the cash-out equity limits.
VA works differently here. A VA cash-out refinance replaces your current loan with a new one on different terms. You can use it to take cash, pay off debt, or refinance a non-VA loan into a VA-backed loan. You need a Certificate of Eligibility (COE), the VA document that confirms you qualify for the benefit. The loan itself comes from a private lender, not from VA.
When the VA Cash-Out Is the Better Fit
The VA route usually wins when equity is thin and eligibility is in hand. Four situations stand out.
Your combined balances sit close to the home’s value. Conventional cash-out caps leverage lower than VA does. If your first mortgage plus the HELOC balance is a large share of the appraised value, the conventional route may not reach. The VA cash-out can reach up to 100% of the appraised value, including the financed fee. Some lenders set a lower cap of their own, so confirm yours.
Mortgage insurance would be a factor. VA loans carry no mortgage insurance of any kind. A conventional refinance at high leverage may require it. For a borrower with limited equity, that difference can matter more than anything else in the file.
Your credit is bruised but workable. VA sets no minimum score. The wholesale programs Lendmire places VA loans with start at a 580 decision score. A conventional cash-out generally asks for more. Picture a veteran whose credit took a hit during a rough patch. The HELOC payment then jumped, and the missed payments made it worse. That borrower often has a better shot at VA than at conventional.
Your income is uneven but your budget works. VA’s controlling test is residual income, meaning what’s left each month after taxes, debts, and living costs. The 41% debt-to-income figure is a guideline, not a cap. A higher ratio needs residual income well above the VA table. Conventional underwriting leans harder on the debt-to-income number.
Two cautions apply on the VA side. First, the loan must be for a home you live in. VA cash-out requires you to certify that you intend to occupy it. Second, there is seasoning, a waiting period tied to your current loan. When you refinance an existing VA loan, VA wants the later of 210 days from your first payment or your sixth payment. That doesn’t usually hold up a borrower whose current first mortgage is a non-VA loan, though a lender can add its own requirement.
Every VA refinance also needs a net tangible benefit, a measurable improvement for you. VA lists several ways to meet it in 38 CFR Part 36, Subpart B. Eliminating monthly mortgage insurance and improving residual income are examples. The half-percent rate-reduction and fee-recoupment tests belong to the IRRRL, VA’s streamline refinance. They don’t apply to a VA cash-out.
When the Conventional Cash-Out Is the Better Fit
Conventional wins when VA isn’t available, or when your equity is deep enough that VA’s extra reach doesn’t matter.
You aren’t VA-eligible. No COE means no VA loan. That is the simplest reason, and it settles the question for many homeowners.
You have strong equity and strong credit. Take a homeowner whose combined balances sit well under the home’s value, with a solid score. That borrower may avoid mortgage insurance on a conventional loan, and VA’s biggest advantage shrinks. The VA funding fee is also off the table, since conventional carries none. For a borrower with strong equity, that fee can tip the math.
The home isn’t your primary residence. VA cash-out requires you to live in the property. Conventional cash-out also covers second homes, at lower leverage tiers. Occupancy, in short, decides the leverage.
You want to keep your VA entitlement untouched. A conventional loan doesn’t use VA guaranty. Borrowers with a prior VA loan should ask a lender to check their remaining entitlement before choosing either path.
You prefer a conventional product’s flexibility. Conventional loans come as fixed or adjustable, and the choices differ by lender. VA loans offer fixed and adjustable options as well, depending on the lender. The structure question is mostly about what’s offered, not what’s allowed.
Conventional has real drawbacks. It uses the automated-underwriting and credit-score tiers of the secondary market. A thinner file can price higher or fall outside the guidelines. Some states add their own rules to cash-out loans, so check yours.
What Both Routes Have in Common
Both options pay off the HELOC at closing and close the line. The new first lien takes the place of the old first mortgage and the HELOC together. Your home secures the new loan, so missed payments can lead to foreclosure. That risk is the same on both routes.
The urgency comes from how the HELOC works. The CFPB explains that once the draw period ends, you can no longer borrow and the repayment period begins. The lender may set a schedule to repay the full balance, often over ten or 20 years. Monthly payments are often significantly higher. In some cases the whole balance can be due when repayment begins. That is a balloon structure, and it makes the refinance deadline the maturity date on your note.
The CFPB’s HELOC brochure adds that repayment starts whatever you paid during the draw period. It also says your payment can change even when you draw nothing more. So pull your HELOC agreement and recent statements now. Confirm the draw end date, the current balance, and whether the note is amortizing or a balloon.
One more trade-off belongs on the table. Both refinances replace your whole first mortgage, not just the HELOC. If your current first mortgage has favorable terms and your HELOC balance is small, replacing the first loan may cost you more than it saves. Compare keeping the first mortgage and handling the HELOC another way.
Mistakes Borrowers Make Here
- Assuming a VA streamline can pay off the HELOC. The streamline refinances the existing VA loan only. A HELOC calls for a cash-out.
- Assuming no cash means no cash-out. On the conventional side, a non-purchase HELOC payoff is still a cash-out.
- Waiting for the payment shock. Once the draw ends, the payment can jump before you’ve lined up a refinance. Start while the file is still clean.
- Treating the funding fee as unavoidable. Veterans receiving compensation for a service-connected disability, and the other exempt groups, don’t pay it.
- Ignoring the first mortgage. You’re replacing it too, so weigh what you’re giving up.
- Counting on a renewal. Whether a lender extends or renews a HELOC is the lender’s call. Don’t plan around it.
Key Terms Defined
HELOC draw period: The stretch when you can borrow against the line, often with smaller payments.
Repayment period: The stage after the draw ends, when you can’t borrow and must pay the balance down.
Residual income: The money left each month after taxes, debts, and living costs. VA’s controlling test.
Certificate of Eligibility (COE): The VA document confirming you qualify for a VA loan.
Seasoning: The waiting period a loan needs to age before you can refinance it.
The Balanced Verdict
Pick VA if you’re eligible, live in the home, and your combined balances sit close to its value. The VA cash-out refinance can reach up to 100% of the appraised value, including the financed funding fee, and it carries no monthly mortgage insurance. VA sets no minimum credit score, though the wholesale lenders Lendmire works with have their own floors. The funding fee still applies unless you’re exempt.
Pick conventional if you aren’t eligible, or if strong equity and strong credit let you avoid mortgage insurance and the funding fee. Conventional also works when the home isn’t your primary residence.
Either way, expect a full file review, an appraisal, and a comparison against what you’d give up on your current first mortgage. Tie the decision to your equity first and your preferences second.
Next Step
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
Can a VA cash-out refinance pay off a HELOC?
Yes. A VA cash-out can refinance any loan type into a VA-backed loan, which includes a first mortgage plus a HELOC. The new loan pays both off at closing and the line is closed. You need a Certificate of Eligibility and a home you’ll live in. A lender will review the file, and nothing here is a commitment to lend.
Does paying off a HELOC make a conventional refinance a cash-out?
Usually, yes. Conventional guidelines allow a limited cash-out only when the second lien paid off was used to buy the home. A HELOC used for anything else moves the loan into the cash-out category, even if you take no cash. That brings the lower leverage cap that cash-out carries.
Is there a minimum credit score for a VA cash-out?
VA sets none, but lenders do. Some lenders set a higher floor. Eligibility depends on the full file, including residual income.
Does the VA funding fee apply to a cash-out refinance?
Usually. The cash-out funding fee is 2.15% on first use and 3.3% after, and it can be financed. Veterans receiving compensation for a service-connected disability, and the other exempt groups, are waived. The financed fee counts toward the 100% cap on value.
What if my HELOC is a balloon that comes due at the end of the draw?
Treat that date as your deadline and begin a refinance well before it. The CFPB notes that the full balance can be due when repayment begins. Pull your note, confirm the structure, and talk to a lender while you still have time to compare options.
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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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
1. Fannie Mae Selling Guide B2-1.3-02 – Limited Cash-Out Refinance Transactions
2. U.S. Department of Veterans Affairs – Cash-out refinance loan
3. 38 CFR Part 36, Subpart B (eCFR)
4. CFPB: What Is a Home Equity Line of Credit HELOC
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 vs Conventional Cash-Out on a Duplex You Live in · How to Qualify and Apply for a VA Cash-Out Refinance as a Veteran
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
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.