The Quick Read: Rarely does it save money. An FHA cash-out has no veteran requirement, so you can use it, but it trades the VA funding fee for FHA’s own upfront and annual mortgage insurance. It also stops at 80% of the home’s value. If you are exempt from the funding fee, FHA only adds a cost.
Does an FHA Cash-Out Really Avoid the Fee?
Not usually. It swaps one government-program charge for another. The VA funding fee is a one-time charge on a VA loan. FHA mortgage insurance has two parts: an upfront premium of 1.75% of the base loan, usually financed, and an annual premium paid through the monthly payment. Moving from one program to the other generally means paying for the government backing in some form, unless you are exempt from the VA funding fee, in which case the VA loan carries no such charge.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium 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.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
Think of it as changing toll roads. The toll booth looks different, and for most drivers the road isn’t free.
Plenty of veterans ask this question because the funding fee feels optional and the FHA premium feels invisible. Both are real. The better question is which charge is smaller for your situation, over the years you will actually keep the loan.
Three things drive the answer:
- Whether you are exempt from the funding fee.
- Whether you have used your VA benefit before.
- How long you expect to keep the new loan.
Each one gets its own section below.
Who Never Pays the VA Funding Fee?
Many veterans pay nothing. The VA waives the fee by federal law, not lender choice. Per VA.gov’s funding fee page, exempt groups generally include:
- Veterans who receive VA compensation for a service-connected disability.
- Veterans who are entitled to that compensation but receive retirement or active-duty pay instead.
- Active-duty service members who hold a Purple Heart.
- Surviving spouses who receive Dependency and Indemnity Compensation.
If you fit one of those groups, the “avoid the fee” premise falls away. A VA cash-out carries no funding fee for you. An FHA cash-out would add mortgage insurance that the VA loan would not have. That is a bad trade.
Confirm your status before you plan around it. A claim that is still pending may change the picture, and a veteran who is awarded a disability rating after closing may be eligible for a funding fee refund, according to VA.gov. If a decision is close, ask your loan officer whether waiting makes sense.
How Does an FHA Cash-Out Work for a Veteran?
It works exactly as it does for any other owner. Being a veteran neither helps nor hurts you on the FHA side. Across the wholesale programs Lendmire places FHA files with, the cash-out rules look like this, subject to lender guidelines and full file review:
- Occupancy. The home must be your owner-occupied principal residence. A rental or second home does not qualify, so occupancy decides this one fast.
- Seasoning. You generally need to have owned and lived in the home for 12 months before the case number is assigned. A case number is the FHA’s file identifier for your loan.
- Leverage. The loan reaches up to 80% of the home’s appraised value, as adjusted under FHA rules. Any second mortgage counts toward that 80%.
- Ratios. Underwriting runs your debts against your income. The base pair is 31/43 (housing costs and total debts as a share of income). Documented compensating factors can stretch that toward 40/50, and the automated finding governs most files.
- County limits. FHA loan limits are set by county and change every year, so your county’s limit applies to the first mortgage plus any other liens.
A cash-out also replaces your current loan with a larger one, as the federal consumer-finance regulator’s home equity guide points out. That means your payment can rise and your payoff date can move out. It also notes that lenders typically want you to keep some equity in the home.
What FHA mortgage insurance costs, mechanically
HUD’s mortgagee letter on FHA premiums restates the upfront premium at 1.75% of the base loan on FHA mortgages. The listed exceptions cover certain streamline and simple refinances of older FHA loans, and Hawaiian Home Lands. A veteran doing a cash-out is not in an exception.
The annual premium runs between 0.15% and 0.75% of the balance. The exact figure depends on term, loan amount and LTV (loan-to-value, the loan as a share of the home’s value). On a thirty-year loan above 90% LTV, the annual premium lasts the whole term. At or below 90% LTV it ends after eleven years. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
That detail matters for cash-out. Because FHA cash-out stops at 80% LTV, a thirty-year loan lands in the shorter-premium group. The annual charge does not last forever, but it is still a monthly cost for a decade. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
How Does the VA Side Compare?
A VA cash-out is a new VA-guaranteed loan with a funding fee unless you are exempt. The fee is a percentage of the loan. It is higher for repeat users, and the VA publishes the tiers on its page. Lender-side summaries also say that refinancing out of a non-VA loan, including an FHA loan, into a VA loan counts as a VA cash-out for fee purposes. Check that before you rely on it.
Two other points surprise people:
- You do not have to take cash. Calling it a “cash-out” describes the loan category, not a requirement. Some veterans refinance FHA into VA mainly to drop FHA mortgage insurance.
- The fee can usually be financed. That avoids a bill at closing, but it raises the balance you carry and pay interest on.
VA cash-outs also generally reach more of the home’s value than FHA’s 80%. For borrowers who need a lot of cash from equity, that gap can decide the matter on its own.
| Factor | FHA cash-out | VA cash-out |
|---|---|---|
| Upfront charge | 1.75% premium, usually financed | Funding fee unless exempt |
| Ongoing insurance | Annual premium in the payment | None |
| Veteran requirement | None | Yes, with eligibility |
| Exemptions | None for veterans | Statutory exemptions apply |
| Occupancy | Principal residence only | Occupancy rules also apply |
| Cash reach | Up to 80% LTV | Generally higher |
Which Veteran Profile Are You?
Your profile usually settles this. The table below shows the typical direction, not a promise. Each row depends on lender guidelines, appraisal and credit.
| Your situation | Usual direction |
|---|---|
| Exempt from the funding fee | VA cash-out; FHA adds cost |
| First-time VA use, not exempt | Compare both; VA fee is lower |
| Repeat VA use, not exempt | Run the FHA comparison seriously |
| Disability claim pending | Ask about timing before closing |
| Needs cash near the home’s full value | VA generally reaches further |
| Already holds an FHA loan | See the next section |
Repeat users are where FHA gets interesting
The VA fee is highest on cash-outs for veterans who have used the benefit before. This is where an FHA cash-out is most worth pricing. Even here, put the whole cost on the table. FHA brings the upfront premium plus the annual premium for roughly a decade. The VA brings one fee, financed or paid.
The shorter you expect to keep the loan, the more a one-time fee weighs against a monthly premium you stop paying when you sell or refinance. The longer you keep it, the more the premium adds up. Your lender can run both side by side on a Loan Estimate, the standard form that lists the loan’s terms and costs.
What if You Already Have an FHA Loan?
You have three realistic paths, and a cash-out is only one of them.
1. Keep the FHA loan. If you don’t need cash, this costs nothing new.
2. FHA Streamline. This refinances an existing FHA loan with no appraisal and a limited credit review. It requires a net tangible benefit, and the mortgage insurance continues. It does not pay you cash.
3. VA refinance. An exempt veteran with an FHA loan can swap into a VA loan and drop the monthly premium.
The third path is often the real answer to “how do I avoid paying for government backing.” It is the opposite of what the question assumes.
Your FHA loan also doesn’t block you from the VA program. If you are unsure how an FHA loan affects your remaining VA entitlement, confirm it with the VA before you decide.
When Does an FHA Cash-Out Actually Win?
Sometimes it does. A few situations tilt toward FHA, subject to lender guidelines:
- You are not exempt, you have used your VA benefit before, and you plan to sell or refinance again within a few years. The fee on a VA cash-out is a large one-time hit, while the FHA premium drops away when the loan does.
- Your credit or income picture fits FHA underwriting better than the VA loan you could get. FHA is flexible on documented compensating factors.
- You want the cash but only need a modest share of your equity. The 80% cap then costs you nothing.
- Your remaining VA entitlement is limited or uncertain, and you’d rather not use more of it.
None of these is a loophole. They are cases where FHA’s cost structure happens to fit your timeline better. Whether any of them applies to you depends on the appraisal, your payment history, and the numbers on your own Loan Estimate.
What Lenders Check Before an FHA Cash-Out
Underwriters look at a short list, whichever program you pick:
- Appraised value against your payoff plus the cash you want.
- Occupancy and 12 months of ownership.
- Payment history on the current mortgage. Some lenders add their own standards here, and those overlays vary.
- Credit and debt-to-income, run through FHA’s automated review.
- Equity left after closing.
The appraisal is the swing factor. A low value can shrink or erase the cash available, because the 80% cap applies to whatever the appraiser finds. Plan for that before you pay for the appraisal.
The CFPB’s report on cash-out refinance borrowers found that credit scores tend to improve first and then weaken later. That is a reminder that swapping short debts for a longer mortgage works only if the new balance stays under control.
Myths Worth Dropping
“Every veteran pays the funding fee.” Many are exempt by law.
“FHA cash-out goes as high as VA.” FHA stops at 80% LTV. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
“Cash-out means I must take cash.” On the VA side, a refinance from a non-VA loan carries the cash-out label even when you take none.
“The annual premium cut made FHA insurance small.” HUD’s cut applied to the annual premium. The upfront 1.75% did not change.
Key Terms Defined
Funding fee: a one-time VA charge, set as a percentage of the loan, that many veterans are exempt from.
Mortgage insurance premium (MIP): FHA’s insurance charge, paid once upfront and then yearly through the monthly payment.
LTV (loan-to-value): your loan balance divided by the home’s appraised value, shown as a percentage.
Cash-out refinance: a new, larger mortgage that pays off the old one and gives you the difference in cash.
Seasoning: the waiting period a lender wants between buying or occupying a home and refinancing it.
Entitlement: the amount of VA backing available to you for a loan.
Weighing Your Options
Most of the work is lining up the two paths on the same page. 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. Lendmire is a mortgage broker arranging consumer loans through wholesale lenders in 16 states, and any program is subject to lender guidelines and full file review. Nothing here is a commitment to lend. Reach the team at 828-256-2183.
Frequently Asked Questions
Can a veteran take an FHA cash-out loan?
Yes. FHA cash-out has no military requirement, so any eligible owner-occupant can use it. You need a principal residence you have owned and lived in for 12 months. The loan reaches up to 80% LTV, subject to lender guidelines.
Is the VA funding fee the same as FHA mortgage insurance?
No. The funding fee is a one-time charge that can usually be financed. FHA insurance has an upfront premium of 1.75% of the base loan plus an annual premium paid monthly. On a thirty-year loan at or below 90% LTV, the annual part ends after eleven years.
Do I pay the funding fee if I get VA disability compensation?
Generally no. Veterans who receive compensation for a service-connected disability are exempt, and the VA’s page lists the other exempt groups. Confirm your status with the VA before choosing a program, since an exempt veteran gains little from FHA.
Can I refinance an FHA loan into a VA loan?
Yes, if you are VA-eligible. Lender-side sources say the VA treats it as a cash-out refinance for fee purposes, even if you take no cash. For an exempt veteran this can end FHA mortgage insurance with no funding fee.
Does an FHA cash-out give me as much cash as a VA cash-out?
Usually not. FHA caps the loan at 80% LTV, and a second mortgage counts toward that cap. VA cash-outs generally reach further. Your appraisal and the lender’s guidelines decide the actual amount.
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
1. VA.gov, VA home loan funding fee and closing costs
2. CFPB, Using your home equity guide
3. HUD Mortgagee Letter 2023-05, FHA annual mortgage insurance premium revision
4. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Shop an FHA Cash-Out Through a Broker as a Retiree · How Much an FHA Cash-Out Lends a Veteran With Thin Credit · FHA Cash-Out vs Conventional Cash-Out for a Borrower Leaving FHA
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
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.