The Quick Read: For most veterans with thin credit, VA is the first loan to price, because it sets no minimum credit score and no monthly mortgage insurance. FHA earns its place when a lender’s own VA standards shut the door, or when the file is simple and you want the cash. The two loans differ most on how much equity they leave behind, what they charge for insurance, and how much leeway the lender has on a weak file.
- Equity: FHA cash-out stops at 80% of the home’s value. VA can reach much higher, though many lenders set their own lower cap.
- Cost structure: FHA charges an upfront premium plus a monthly premium. VA charges a one-time funding fee and no monthly insurance.
- Credit: VA has no program score floor, but lenders set their own. Across the wholesale programs Lendmire places FHA loans with, the starting point is a 580 decision score.
- Decision: “Thin credit” means different things, so identify which kind you have first. A short history usually points toward VA, while a lender-imposed score floor or a simple file with a clear need for cash can make FHA the better fit.
What Does “Thin Credit” Actually Mean for a Veteran?
Thin credit describes at least four different problems, and the loans react to each one differently. Before you compare programs, work out which one is yours.
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.
A low score. Your history exists, but late payments or collections have pulled the number down. FHA reads this through a minimum decision score. VA reads it through the lender’s standards, because VA itself sets no floor.
A short history. You have clean accounts, but not many years of them. Underwriters can often work with this on either loan, because they can look at your rent payments, utilities and other proof of steady payment.
Few accounts. Maybe you have one card and a car loan. A thin file leaves the automated review with little to chew on, which can push a file toward manual underwriting. That is a closer read by a person, and the lender will tell you if it applies.
Recent late payments. This is the most damaging version. A veteran with a low score and a clean last 12 months looks very different from one with a late payment last month. On a cash-out, payment history on the current mortgage matters most of all.
Here is the practical point. A short history on VA often works better than on FHA. A recent mortgage late hurts on both. A score under 580 limits FHA through the wholesale programs Lendmire works with, while the same score on VA depends entirely on which lender looks at it.
How Does an FHA Cash-Out Work?
An FHA cash-out is a new loan that pays off your current mortgage and hands you the difference in cash. It is for your primary residence only.
The core rules, as they run on the files Lendmire arranges:
- Equity: the new loan can reach 80% of the home’s appraised value. That leaves at least 20% equity in the house.
- Ownership: you have owned and lived in the home for 12 months before the case number is issued.
- Credit: a decision score of 580 or higher for the wholesale lenders in the network. HUD’s rules reach lower, but the network does not.
- Ratios: the base pair is 31/43, meaning housing costs and total debts as a percentage of income. Documented compensating factors, such as savings or a strong payment history, can stretch that to 40/50 at the top tier. The automated finding governs most files.
- Insurance: an upfront premium of 1.75% of the base loan, usually financed into the balance. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV.
Loan limits are set by county, so they depend on where the home sits. Every figure here is subject to lender guidelines and full file review.
HUD’s Handbook 4000.1 transmittal records the 80% cap. Old advice that FHA cash-out goes to 85% is out of date.
One detail that matters for your comparison: the upfront premium applies to the base loan, and the annual premium is a monthly charge. A larger new loan means a larger insurance charge every month. On a 30-year loan at or below 90% LTV, which includes every 80% cash-out, the annual premium ends after eleven years. Above 90% LTV it lasts the full term. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
How Does a VA Cash-Out Work?
A VA cash-out replaces your current loan with a new VA-backed loan, and you can take equity out in the process. You get it through a private lender, not from VA directly. VA’s cash-out loan page also confirms that a non-VA loan, such as an FHA loan, can be refinanced into a VA loan.
The rules that shape the comparison:
- Eligibility: it starts with a Certificate of Eligibility from VA, which also shows whether you are exempt from the funding fee.
- Equity ceiling: the VA Lenders Handbook caps the loan at 100% of the reasonable value VA determines from the appraisal. If you finance the funding fee, it counts inside that cap.
- Credit: VA’s buyer’s guide says VA sets no minimum credit score, but lenders still use scores to price and limit risk. VA also wants enough income left over each month after the mortgage and your other obligations.
- Funding fee: VA’s fee schedule shows 2.15% on a first-use cash-out and 3.3% on later use. The reduced tiers that come with a down payment do not apply to refinances.
- Insurance: no monthly mortgage insurance. The cost is the one-time fee, which is usually financed.
VA also applies tests to cash-out loans and sorts them into types. One type does not exceed the payoff of the old loan, and the other does. The lender will tell you which one yours is and which tests apply.
FHA vs VA Cash-Out Side by Side
| Factor | FHA Cash-Out | VA Cash-Out |
|---|---|---|
| Equity reached | Up to 80% of value | Up to 100% of reasonable value |
| Credit floor | 580 decision score in this network | None from VA; lender sets one |
| Upfront cost | 1.75% premium, base loan | 2.15% or 3.3% fee, or exempt |
| Monthly insurance | Yes, annual premium | None |
| Income test | Ratios, 31/43 to 40/50 | Residual income, plus ratios |
The table shows the trade. FHA costs you monthly and keeps your equity cushion. VA costs you once and can leave very little cushion.
Where VA Tends to Win for a Thin File
Several situations tilt toward VA.
You need more cash than 80% LTV allows. FHA stops at 80%. If your plan needs more equity than that, VA is the only one of the two that reaches it. That also means VA can leave you with almost no equity cushion, which is real risk if home values fall. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
You qualify for a funding-fee exemption. Veterans who receive VA disability compensation may be exempt from the fee. Your Certificate of Eligibility shows it. An exemption can change the cost comparison more than anything else on the page, because VA’s one big charge drops away.
You already have an FHA loan. Refinancing out of FHA into VA also gets rid of the annual FHA premium. That monthly line is often the reason a veteran starts the comparison.
Your income is steady but your history is short. VA’s residual-income test asks whether you have money left each month after the mortgage and your other obligations. A clean, steady paycheck can carry a short history.
Where FHA Can Beat VA
FHA wins in fewer cases, but they are real. Both involve lender behavior rather than program rules.
Lender standards on VA run higher than VA itself. Some lenders set a higher score floor or lower caps on VA cash-out than the program allows. If your score sits below what those lenders want, VA is open in theory and closed in practice. An FHA lender with a 580 starting point may be the one that says yes.
The one-time VA fee costs more than the insurance would. For a veteran who plans to move or refinance again in a few years, FHA’s annual premium might cost less over the time you actually hold the loan. This depends on your plans, the loan size and whether you are exempt. That is a comparison to run on paper, not a rule.
You want to preserve your VA entitlement. Using VA entitlement again on a second use triggers the higher fee tier. If you plan to buy another home with VA later, taking the FHA cash-out now may keep your options open.
Your file is simple and you want only modest cash. At a lower LTV you may not need what VA’s higher ceiling offers.
Honestly, this is a close call more often than the forums suggest. A veteran with disability-based fee exemption and a 620-range score tends to find VA a clear winner. A veteran with a 590 score and a recent late payment on a mortgage is in a different spot, and FHA with a 580 starting point may be the realistic path.
How to Compare the Total Cost Over Time
Compare the two loans on three lines, not on the first number you see.
1. The upfront charge. FHA’s premium is 1.75% of the base loan. VA’s fee is 2.15% on first use, 3.3% on later use, or nothing if you are exempt. Both are usually financed, so they raise the balance you owe.
2. The monthly charge. FHA carries an annual premium every month. VA carries none. This is where VA usually pulls ahead the longer you keep the loan.
3. The holding period. On FHA at 80% LTV, the annual premium ends after eleven years. On VA there is nothing to end.
Here is an illustration with percentages only. Take a home and a 75% cash-out balance. On FHA, you pay 1.75% upfront on the base loan, then the annual premium for up to eleven years. On VA, you pay 2.15% on first use, or 3.3% if you have used the benefit before, then nothing monthly. If you stay five years, VA usually costs less once the monthly premium adds up. If you sell in two years, the one-time fee may weigh more.
Ask each lender to show both loans on the Loan Estimate, then compare the full cost, not just the payment. A payment that looks lower can hide a bigger balance and a longer commitment.
Step by Step: What to Do Before You Apply
Work through these steps in order.
1. Pull your Certificate of Eligibility. It confirms your VA entitlement and any fee exemption. Check whether this would be first or later use.
2. Read your own credit reports. Find which kind of thin you are: score, history, tradelines or recent lates. Dispute errors before a lender sees them.
3. Gather proof of steady payment. For a thin file, rent history, utilities, insurance payments and a stable work record all help. Keep your last twelve months of mortgage payments clean and documented.
4. Check ownership and occupancy. For FHA cash-out, you need about a year of owning and living in the home. Confirm that before you spend money on an appraisal.
5. Ask two or more lenders about VA. Ask each one for its own credit standards and its cash-out cap on VA. Answers differ, and that gap can decide the file.
6. Compare the cost lines. Put FHA and VA side by side on upfront charge, monthly charge and holding period.
7. Decide on the cash itself. Take only what you need. Every dollar of cash-out raises the balance and, on FHA, the insurance base.
Where the General Rules Break
A few edge cases change the answer.
Streamline instead of cash-out. If your only goal is a lower payment on an existing loan, you may not need cash-out at all. An FHA streamline avoids the cash-out rules on an existing FHA loan. VA’s streamline carries a 0.5% fee, shown in the same fee schedule above. These are different programs with different rules.
Investment properties and second homes. Occupancy decides the leverage, and standard cash-out on both programs is for a primary residence.
A co-borrower who does not live in the home. FHA allows a non-occupant co-borrower on purchase loans, but the picture on cash-out is narrower. Ask the lender before you count on that income.
Recent credit events. HUD sets waiting periods after a Chapter 7 discharge (two years) and a foreclosure (three years). Those are HUD’s rules, not a promise from the network, and lenders can add their own.
Scam solicitations. Veterans get mailers promising big cash back and no out-of-pocket cost. Be careful with refinance offers like these. A cash-out always has costs. They are built into the balance, even when nobody says.
What If You Get Denied?
A denial is information, not a verdict. Ask the lender which factor drove it: score, recent payment history, income, ratios or the appraisal.
If the problem was a lender overlay on VA, ask another lender. Standards differ from one to the next, and the same veteran can get different answers. If it was your debt load, paying down a card or a car loan can move the ratios. If it was a score under the floor, a rebuild plan gives you a date to aim for.
Do not take the first no as the final answer, whether the loan is FHA or VA. A no from one FHA or VA lender is not a no from the program.
Key Terms Defined
Cash-out refinance: a new mortgage that pays off your current loan and gives you the leftover equity in cash.
Certificate of Eligibility: the VA document that confirms your entitlement and shows any funding-fee exemption.
Funding fee: the one-time VA charge on a loan, usually financed into the balance.
Annual mortgage insurance premium: the monthly FHA charge based on the loan balance, term and LTV.
Residual income: the money you have left each month after the mortgage and other required obligations, which VA reviews.
Decision score: the credit score a lender uses to decide on the file when more than one score is reported.
Overlay: a lender’s own rule that is stricter than the program’s.
Frequently Asked Questions
Does VA really have no credit requirement?
VA sets no minimum credit score, but the lender does. Most lenders use the score to price the loan and limit their risk, and they add their own floors. Lenders can give the same veteran different answers on the same VA loan.
Can I move from an FHA loan into a VA cash-out?
Yes. VA allows a non-VA loan to be refinanced into a VA loan, so a veteran with an FHA loan can do this. It also removes the annual FHA premium. You will need a Certificate of Eligibility, and this counts as a use of your entitlement.
Is the FHA upfront premium lower than the VA funding fee?
It depends on your situation, so neither program is automatically cheaper. FHA charges an upfront premium based on the base loan amount, while the VA funding fee varies with whether this is your first or a later use of the benefit. FHA also adds a monthly premium, and VA does not. Veterans with a disability-based exemption pay no VA funding fee at all. Compare the actual figures on your own loan estimates rather than assuming either program costs less.
How much equity do I have to leave in the home?
On an FHA cash-out you leave at least 20%, because the loan stops at 80% of value. On VA the ceiling is 100% of reasonable value, though many lenders choose a lower cap. Leaving less equity means more risk if values fall.
Will a recent late payment stop both loans?
It makes both harder, and it matters most on the current mortgage. A late payment in the recent past weighs more than an older one. Lenders look at recent history closely, and some will wait for clean months to pass.
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.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s FHA loan programs page.
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
1. HUD Handbook 4000.1 transmittal
2. VA cash-out refinance loan page
3. VA Lenders Handbook, Pamphlet 26-7, Chapter 6
4. VA Home Loan Guaranty Buyer’s Guide
5. VA Circular 26-23-06, Exhibit B (funding fee schedule)
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 Handle Extra Acreage in an FHA Cash-Out Appraisal · How a Thinner Credit File Shapes an FHA Cash-Out Draw · FHA Cash-Out Refinance Requirements to Go Fixed
Guides: FHA Cash-Out Refinance in Virginia
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- 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.