The Quick Read: The VA cash-out can stay in play, but it needs more support in the file. When residual income falls below the table, VA does not automatically decline the loan; the file needs a documented reason to approve it, and compensating factors carry that reason. A conventional cash-out has no residual income test, so a borrower strong on debt-to-income, credit and equity can pass there while missing on VA. The tradeoff is lower leverage and a different cost structure.
Here is the honest sort. The VA cash-out is built for a veteran with full entitlement who wants to reach the most equity, avoid mortgage insurance, and has residual income at or near the table. The conventional cash-out is built for a borrower whose file is strong on ratios, credit and equity, but whose household budget looks thin under VA’s test, or who has no VA eligibility at all. Neither one is better in the abstract. The file decides.
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.
Lendmire is a mortgage broker. It arranges both through wholesale lenders, and the lenders review and approve the loan. Every figure below is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Side-by-Side
| Factor | VA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Leverage | Up to 100% of appraised value, fee included | Lower; set by occupancy and unit count |
| Credit floor | 580 decision score on wholesale programs | Varies by lender, usually higher |
| Mortgage insurance | None | May apply at higher leverage |
| Occupancy | Primary residence | Primary, second home, or rental |
| Controlling test | Residual income, plus DTI | DTI, credit, reserves, LTV |
| Funding fee | 2.15% first use, 3.3% after | None |
| Eligibility | VA certificate of eligibility | No service requirement |
Two notes on the table. The conventional column stays general on purpose, because leverage and credit floors there move by lender and by occupancy. And “no mortgage insurance” on VA does not mean “no cost.” The funding fee is the cost, and it can be financed or paid in cash. Veterans receiving compensation for a service-connected disability, and the other exempt groups, do not pay it.
The details of the VA side come from Lendmire’s VA cash-out refinance program page. The conventional side is described in general terms here because lender overlays differ.
What “Below the Table” Actually Means
Residual income is what is left of a veteran’s monthly income after taxes, the new housing payment, debts and maintenance costs. VA sets a minimum by region, household size and loan amount. That minimum is the table. It sits in 38 CFR 36.4340, which also governs how underwriters apply it. This article does not reproduce the table, so check the live regulation for the numbers.
The rule has two standards, debt-to-income and residual income. Failing one does not automatically disqualify the veteran. The 41% debt-to-income figure is a guideline, not a cap. Above it, the file needs residual income well above the table. Per the regulation, a residual income of at least 20% above the guideline removes the second-level review and the statement of justification.
Now flip it. When residual income is below the table but DTI sits at or under 41%, the regulation allows approval with justification from the underwriter’s supervisor. That is the path for a thin file. It is slower to document, not closed.
Three file mechanics matter here:
- Only actual income counts for residual. Grossed-up tax-exempt income may help DTI if the analysis is documented. It never helps residual income.
- Meeting both tests is not approval. The veteran still has to be a satisfactory credit risk.
- Cash proceeds are not income or reserves. Cash from a regular cash-out cannot count toward required reserves or assets.
Why a Cash-Out Pushes Residual Income Down
A cash-out raises the loan balance. If the funding fee is financed, it raises the balance again. A bigger balance means a bigger housing payment, and the residual income test measures what is left after that payment. A household that sat comfortably above the table on its current loan can land right at the line on the new one.
Picture a veteran with a modest balance on a VA loan, taking out cash to clear card and auto debt. The housing payment goes up, but the old monthly debts disappear from the ratios. In that case the net effect on residual income can be a wash or a gain. Now picture the same veteran taking cash for a renovation with no debts to clear. The payment rises and nothing comes off the other side. Residual income drops. That is the file that ends up below the table.
This is why the use of proceeds matters on a VA file. Debt payoff can help the test. Cash taken for spending cannot.
There is also a benefit test layered on top. The VA cash-out needs a net tangible benefit, one of VA’s eight listed benefits. One listed test is that the veteran’s monthly residual income is higher as a result of the new loan. That is one option, not the only one. The half-percent rate-reduction and fee-recoupment tests are IRRRL rules and do not apply to the VA cash-out.
When the VA Cash-Out Is the Better Fit
The VA cash-out wins when leverage and mortgage insurance drive the decision. Across the wholesale programs Lendmire places files with, it reaches 100% of the appraised value including the financed fee. It refinances any loan type into VA, so a veteran stuck in a conventional or FHA loan with mortgage insurance can move into a VA loan with none. That is the practical reason many veterans choose it. For the full mechanics, see Lendmire’s piece VA Cash-Out Refinance vs. Conventional Cash-Out Under VA Type 1 and Type 2 Refinance Rules.
It fits best when:
- Equity is limited relative to the cash needed. Higher leverage reaches more of it.
- The current loan carries mortgage insurance. VA charges none.
- Residual income is at the table or above it. The file is clean.
- Residual income is thin but compensating factors are real. The regulation lists equity in refinancing loans, little or no increase in shelter expense, military benefits, satisfactory homeownership experience, high residual income and low DTI.
- DTI is higher than a conventional file could carry. VA treats 41% as a guideline, so a high-DTI veteran with strong residual income has room.
The costs are real too. The funding fee on a cash-out is 2.15% for first use and 3.3% for later use, as listed in VA Circular 26-23-06, Exhibit B. The reduced fee tiers for larger down payments apply only to purchase loans. Refinances do not get them. Confirm the current schedule on va.gov before relying on it.
A cash-out also needs an appraisal and full underwriting. It is not a streamline. Some marketing implies otherwise, and misleading refinance offers of that kind are worth treating with caution. The IRRRL is the streamlined product, and it is a different loan for a different goal.
When the Conventional Cash-Out Is the Better Fit
The conventional cash-out wins when the VA residual test is the obstacle and everything else is strong. There is no residual income table on a conventional file. Debt-to-income, credit, reserves and loan-to-value decide the outcome. A borrower with low debt, good credit and real equity can clear conventional underwriting even when the household budget reads thin under VA’s formula.
It fits best when:
- Residual income is below the table and compensating factors are weak. Supervisor justification needs something to stand on. If the file has little, conventional avoids the question.
- The borrower has no VA eligibility. No certificate of eligibility, no VA loan.
- The borrower wants to preserve entitlement. Some veterans prefer to keep VA entitlement untouched, though how that plays out depends on the situation.
- The property is not a primary residence. VA is for the borrower’s primary home. Conventional leverage differs by occupancy and unit count.
- Equity is large. The leverage ceiling matters less when the borrower is taking a modest slice.
The costs differ in kind. Conventional cash-out loans carry loan-level price adjustments tied to LTV and credit score, as Fannie Mae’s Selling Guide describes. At higher leverage, mortgage insurance may apply. That is the main cost VA avoids. Leverage is also lower, so the borrower reaches less equity.
Here is where thinking out loud helps. A veteran just below the table, with strong credit and a lot of equity, has a genuine toss-up. VA avoids mortgage insurance and keeps leverage high, but needs supervisor justification. Conventional avoids the residual question but costs more in adjustments and caps the cash.
Cross-Tests: Which File Fails Which Loan
A cash-out file can fail one loan and pass the other. The cases below are the ones that come up.
| File profile | VA cash-out | Conventional cash-out |
|---|---|---|
| DTI under 41%, residual at table | Clean | Likely clears on ratios |
| DTI under 41%, residual below table | Needs justification | No residual test |
| DTI over 41%, residual 20%+ above | Clean, no extra review | May struggle on DTI |
| DTI over 41%, residual below table | Hard to support | Likely out on DTI |
| Large family, modest income | Residual often tight | DTI may pass |
Read the table as direction, not outcome. Lender overlays can tighten both sides.
The mirror case matters too. A single borrower with high income, high DTI and strong residual can fail conventional on ratios and pass VA easily. Large households do the opposite. Family size raises the residual requirement, so a family of five on a moderate income can clear DTI and miss the table.
What Trips Files Up
The failure modes on these files are mostly documentation, not eligibility.
The payment comparison is incomplete. The CFPB’s order against a VA cash-out originator centered on net benefit worksheets that left taxes and insurance out of the new payment, making the new loan look cheaper than the old one. A real comparison uses the full payment on both sides. For the VA residual benefit test, the new tax and insurance amount is used on both sides when it changes before closing.
Use of proceeds is vague. When the cash is meant to pay off debt, the file should name the debts. Payoffs strengthen the residual picture. Open-ended cash does not.
The funding fee is missed in the balance. Financing it raises the loan amount and pushes residual down. Run the file both ways.
Income documentation is thin. Tax-exempt income needs documented gross-up analysis for DTI. And only actual income counts for residual.
Seasoning is assumed away. The VA cash-out carries a seasoning requirement of the later of 210 days from the first payment and the 6th payment. Files that skip this step get kicked back.
The cash is treated as a cushion. Neither loan lets cash-out proceeds count as income or reserves.
One practitioner habit helps. Run the VA residual number and the conventional DTI number on the same borrower before picking a path. Both numbers sit in the same income and debt documents. It takes little extra work to know which loan the file favors, and it prevents a late switch.
Cash-out borrowers also tend to use proceeds on other debt. CFPB research found card balances drifted back toward pre-refinance levels within a year, though not all the way. That is a reason to be honest about whether the debt payoff is a one-time reset.
Key Terms Defined
Residual income: The monthly income left after taxes, the new housing payment, debts and maintenance costs, measured against VA’s table.
Debt-to-income (DTI): Monthly debt payments divided by gross monthly income. VA treats 41% as a guideline, not a cap.
Net tangible benefit: A VA requirement that the cash-out refinance give the veteran a real, listed benefit.
Entitlement: The amount of VA guaranty a veteran has available, shown on the certificate of eligibility.
Funding fee: A one-time VA charge, financeable, waived for exempt veterans.
A Decision Order
Work through it in this order:
1. Confirm eligibility. Get the certificate of eligibility. No certificate, conventional is the lane.
2. Define the cash need. Name the purpose and the amount. Debt payoff and spending behave differently in the residual test.
3. Run the residual number. Use actual income, the new payment with the funding fee financed and not financed, and the household size.
4. Check DTI against 41%. Remember it is a guideline.
5. Inventory compensating factors. Equity, shelter expense change, homeownership history, military benefits.
6. Run the conventional ratio test. DTI, credit, reserves and LTV.
7. Compare the full cost side. Funding fee against mortgage insurance and price adjustments, with the full payment on both sides.
8. Pick the file that documents cleanly. The loan with fewer open questions is usually the better one.
The Verdict
Neither loan beats the other on every file. VA is the stronger tool when leverage, no mortgage insurance and a flexible DTI matter most, and residual income at or near the table supports it. Conventional is the stronger tool when residual income is the weak point but ratios, credit and equity are strong, or when the borrower lacks VA eligibility.
Below the table is not a dead end on VA. It is a documentation question. If compensating factors are real and the justification can be written, the file can still be reviewed. If they are not, conventional gives a different set of tests.
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 I get a VA cash-out if my residual income is below the table?
Possibly. With DTI at or under 41%, the regulation allows approval with justification from the underwriter’s supervisor. The file needs compensating factors and a documented reason. Approval depends on the lender, credit and full file review.
Is 41% DTI a hard cap on a VA cash-out?
No. It is a guideline. Per the regulation, residual income at least 20% above the guideline removes the second-level review and the statement of justification.
Does a conventional cash-out use residual income?
No. Conventional underwriting runs on DTI, credit, reserves and loan-to-value. That is why some files that miss the VA table can pass conventional. The tradeoff is lower leverage and possible mortgage insurance or price adjustments.
Does the VA cash-out need an appraisal?
Yes. It gets full credit and income underwriting and an appraisal. Only the IRRRL is streamlined. Offers that suggest otherwise on a cash-out deserve a second look.
Can I refinance a non-VA loan into a VA cash-out?
Yes, if you have a certificate of eligibility. The VA cash-out refinances any loan type into VA. It needs a net tangible benefit, and the same seasoning rule applies.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. 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 Circular 26-23-06, Exhibit B (funding fees)
3. Fannie Mae Selling Guide, B2-1.3-03 Cash-Out Refinance Transactions
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: How to Replace a Conventional Loan With a VA Cash-Out as a Veteran · VA Cash-Out Refinance vs Conventional Cash-Out on Closing Costs · How Lenders Underwrite a VA Cash-Out Refinance With High Equity and Low Income
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.