The Quick Read: It depends on how long the deferment runs and how much equity you want. A VA cash-out can leave a long-deferred student loan out of your debt ratio entirely. A conventional cash-out still counts a placeholder payment on that loan. VA also reaches more of your home’s value, but it requires a Certificate of Eligibility from service.
Who each option fits comes down to eligibility first. If you have no VA eligibility, conventional is your path, and the deferred loan will still count against you on paper. If you do have VA eligibility, the VA cash-out is worth a close look, especially when the deferment runs well past closing or you want to reach more of your home’s value.
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
Across the wholesale programs Lendmire places files with, these are the differences that move a deferred-student-loan file. Every figure is subject to lender guidelines and full file review.
| Factor | VA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Max leverage | Up to 100% of appraised value, fee included | Lower ceiling; set by the investor’s matrix |
| Mortgage insurance | None | Generally required above 80% LTV |
| Deferred student loan | Can be excluded if deferred 12+ months past closing | Placeholder payment still counts |
| Credit floor | 580 decision score at the wholesale programs we use | Often higher; varies by lender |
| Occupancy | Primary residence | Varies by occupancy and unit count |
| Eligibility | Certificate of Eligibility required | No service requirement |
| Extra tests | Net tangible benefit, seasoning | Standard cash-out guidelines |
| Funding fee | 2.15% first use, 3.3% after (waived if exempt) | None |
How Each Loan Counts a Deferred Student Loan
This is the heart of the comparison, and the two programs split cleanly.
VA’s underwriting handbook says a monthly student loan payment does not need to be considered if you can show written evidence that the debt is deferred for a qualifying period beyond the closing date. That rule sits in Chapter 4 of the VA Lenders Handbook. VA Circular 26-17-02 repeats it.
Miss the deferment test and the picture flips. If repayment is set to start soon after closing, the lender must count an anticipated payment. VA’s method is simple: take 5% of the balance and divide by 12. Where the credit report shows a payment, that figure is generally used.
Conventional works differently. The Fannie Mae Selling Guide requires deferred installment debt to count in your monthly obligations. For a deferred student loan, the lender may use 1% of the outstanding balance or a fully amortizing payment based on documented repayment terms. So a loan showing $0 due today still shows up in your ratio.
One wrinkle is worth knowing. A documented zero-dollar payment on an income-driven plan is a different thing from deferment. Conventional guidelines may accept that figure when it is documented as your actual payment. Deferment and an income-driven plan with no payment due follow different rules, so a lender needs to know which one you have.
What the Documentation Looks Like
Plan on a short paper trail.
- Servicer letter. Written evidence of the deferment end date, showing how far past your closing date the deferment runs, as the lender and VA guidance require.
- Recent statements. VA guidance calls for servicer statements dated within 60 days of closing where a statement is used.
- Credit report. It shows what is reported, and underwriters read it first.
- Certificate of Eligibility. For VA, the COE comes before the appraisal, and the lender completes VA’s loan analysis form.
Forbearance is a different pause from deferment. The VA rule speaks of deferred debt with written evidence. Whether a given forbearance qualifies is a question for the lender and VA, so do not assume it does. Lenders can also add their own conditions on top of VA’s baseline, which is why two VA lenders can reach different answers on the same loan.
When VA Cash-Out Is the Better Fit
VA wins when three things line up: you have eligibility, your deferment is long, and you want maximum equity access.
Your deferment clears the 12-month test. Picture a veteran whose loan is deferred for the next two years. Under VA, that payment can drop out of the debt ratio. Under conventional, a placeholder of roughly 1% of the balance lands in the ratio anyway. On a large balance, that can be the difference between qualifying for the cash-out you want and a smaller one.
You want more of your equity. A VA cash-out reaches 100% of the appraised value, financed funding fee included. Conventional stops lower. There is no mortgage insurance on VA either. That matters if you are pulling out a lot of equity, because conventional above 80% LTV generally brings mortgage insurance with it.
Your current loan is not VA. A VA cash-out can refinance any loan type into a VA loan. You do not need an existing VA mortgage.
Your ratio runs high. VA treats residual income, the money left after your major obligations and living costs, as the controlling test. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
The tradeoffs are real. VA carries a funding fee, 2.15% on a first-use cash-out and 3.3% after, financed into the loan and waived if you are exempt, such as a veteran receiving compensation for a service-connected disability. It also requires a net tangible benefit, meaning the loan must satisfy at least one of eight benefits VA lists. Seasoning applies to VA-to-VA cash-outs. And because VA lets you borrow more, you leave less equity in the house.
VA does require lenders to hand you a cash-out disclosure and loan comparison by the third business day after application, and again at closing.
When Conventional Cash-Out Is the Better Fit
Conventional wins when you lack VA eligibility, or when your deferment will not survive the test.
You have no Certificate of Eligibility. Conventional has no service requirement. If VA is not available, this is the path, and the deferred loan still gets its placeholder.
Your deferment ends soon. Say your student loan leaves deferment within the year. VA’s exclusion then disappears, and the lender must count an anticipated payment. At that point VA’s advantage on the student loan shrinks, and the decision turns on equity, fees and leverage instead.
You are not borrowing much. A modest cash-out keeps your leverage low. Below 80% LTV, conventional avoids mortgage insurance, and you skip the funding fee entirely. For a smaller draw, that can make the total cost lighter than VA’s. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Your income-driven payment is documented at zero. Conventional guidelines may accept a documented actual payment of zero, which gives you a route even without deferment.
You want to keep more equity. Lower conventional leverage is a feature if you would rather not leave the house thinly cushioned.
The tradeoffs here run the other way. The leverage ceiling is lower. Credit floors at many lenders sit higher than VA’s. And the placeholder can trim how much you qualify to take out.
Pay Off the Student Loans or Keep the Deferment?
This is the question underneath the whole comparison, and it is a genuine toss-up for many borrowers. A cash-out can pay off student loans, which removes the payment from your ratio under either program. That can beat relying on a deferment exclusion.
But think before you convert. Federal student loans carry protections: deferment, income-driven plans and forgiveness paths. Roll them into a mortgage and those protections are gone. You also turn unsecured debt into debt secured by your home.
Keep a few facts in view from the Consumer Financial Protection Bureau. With subsidized federal loans, interest does not accrue during deferment. With unsubsidized loans, you are still responsible for interest. Unpaid interest can be capitalized, added to principal, when the deferment ends. The deferred balance may be larger than the one you started with.
Also plan for the day the payment returns. VA’s underwriting may not count it, but your budget will. A mortgage that fits only while the loan is paused is a risk you are choosing.
A rough order of operations helps:
1. Check how many months of deferment remain past your expected closing.
2. Run your debt ratio both ways: with the student loan excluded or placeholdered, and with it paid off.
3. Test how much equity you actually need.
4. Compare total cost, including the funding fee or mortgage insurance, not just the loan amount.
If you hold more than one student loan, one deferred and one in repayment, each is underwritten on its own facts. The one in repayment counts. Only the deferred one may qualify for exclusion.
Where Deferred Student Loans Trip Files Up
The same few snags show up again and again with deferred loans.
- A deferment that ends just inside the window. Eleven months past closing is not twelve. The loan counts.
- Missing paperwork. Written evidence of the end date is what matters. A borrower’s say-so is not enough.
- Hardship deferments. Some lenders will not treat these as excludable. That is a lender-level view, not a VA rule.
- Mixed signals between VA and the lender. VA sets the baseline, and individual lenders can add stricter conditions.
- Assuming “deferred” means “free.” Interest on unsubsidized loans keeps building.
A related warning about conventional: because the placeholder is a percentage of balance, a large balance can weigh on the ratio even when your real payment, once the loan leaves deferment, would be modest. Your loan officer should run both versions with you.
Other Ways These Choices Can Play Out
A few edge cases are worth a sentence each. Some states restrict cash-out leverage, so a state rule can narrow what you can take regardless of program. Other conventional investors and FHA may use different placeholders than Fannie Mae’s 1%, so a lender’s answer can vary by which program it uses. And if you are cashing out from a second home or rental, occupancy decides the leverage. VA is a primary-residence program, so that route points to conventional.
If your question is about different cash-out angles, Lendmire’s piece VA Cash-Out Refinance vs. Conventional Cash-Out Without Selling the House covers the equity side, and its piece VA Cash-Out Refinance vs. Conventional Cash-Out Without Restarting 30 Years covers the term question. For the program itself, Lendmire’s VA cash-out refinance program page lays out the mechanics.
Key Terms Defined
Deferment: A temporary pause in student loan payments for specific situations. You keep paying until the servicer confirms approval.
Forbearance: A different kind of pause, usually granted by the servicer. Interest generally keeps building.
Cash-out refinance: A new mortgage larger than your current payoff, with the difference paid to you in cash.
Net tangible benefit: A VA test requiring a cash-out refinance to satisfy at least one of eight listed benefits to the borrower.
Residual income: What remains of your monthly income after major obligations and living costs. It is VA’s controlling test.
Capitalization: Unpaid interest added to your loan principal, usually after a deferment or forbearance ends.
The Balanced Verdict
Neither option is simply better. VA is stronger when your deferment runs 12 or more months past closing, you want to reach more equity, and you want to avoid mortgage insurance. Conventional is stronger when you lack eligibility, your deferment is short, or you want to borrow modestly and keep more equity in place.
If your deferment is near the edge, the decision can turn on a few weeks of timing. Run the numbers both ways before choosing. Every figure here is subject to lender guidelines and full file review, and nothing 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. Reach the team at 828-256-2183.
Frequently Asked Questions
Does a deferred student loan count against me for a VA cash-out?
Not always. A loan that stays deferred 12 months or more past closing can be excluded, with written evidence of the deferment. If repayment starts sooner, the lender must count an anticipated payment, often 5% of the balance divided by 12 when no reported payment applies. Lender conditions can differ, so confirm early.
How does a conventional cash-out treat a deferred student loan?
It still counts. The lender may use 1% of the outstanding balance or a fully amortizing payment from documented repayment terms. A documented actual $0 income-driven payment is a separate route that may be accepted.
Can I use cash-out proceeds to pay off student loans?
Yes, under either program, since cash-out funds are yours to use. Paying them off removes the payment from your debt ratio. You also lose federal protections like deferment and income-driven plans, so weigh that first.
Does VA cash-out require an existing VA loan?
No. A VA cash-out can refinance any loan type into a VA loan. You still need a Certificate of Eligibility, and the net tangible benefit test applies.
Is the VA funding fee ever waived on a cash-out?
Yes. Veterans receiving compensation for a service-connected disability, and certain other exempt groups, do not pay it. Otherwise it is 2.15% on first use and 3.3% after, and it can be financed into the loan.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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. VA Pamphlet 26-7, Chapter 4, Credit Underwriting
2. VA Circular 26-17-02, Student Loan Debts and Obligations
3. Fannie Mae Selling Guide B3-6-05, Monthly Debt Obligations
5. Consumer Financial Protection Bureau
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 for Military Borrowers · VA Cash-Out Refinance Rules After a Title Change · How Much Cash Comes Out of a VA Cash-Out Refinance to Go Fixed?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- 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.