VA Cash-Out Refinance

A VA cash-out refinance replaces your existing mortgage — whether it's a VA loan, conventional loan, FHA loan, or any other type — with a new VA-backed loan. If the new loan is larger than what you owe, you receive the difference as cash.

This is the only VA program that lets you convert a non-VA loan into a VA loan. If you currently have a conventional or FHA mortgage and want the benefits of VA backing (no PMI, competitive rates), a cash-out refinance is the path to get there.

The cash you receive can be used for anything: paying off high-interest debt, funding education, making home improvements, covering emergency expenses, or any other purpose. There are no restrictions on how you use the funds.

The VA classifies cash-out refinances into two types based on whether you actually take cash out:

Why does Type I exist? Because VA does not have a separate "rate-and-term refinance" product. If you want to refinance a non-VA loan into a VA loan without taking cash out, you still go through the cash-out refinance program — it is just classified as Type I.

• Certificate of Eligibility (COE): You must have a valid COE showing you have remaining VA loan entitlement. You can request one through your lender or through eBenefits.
• Primary residence: The home being refinanced must be your primary residence. You must certify that you currently occupy or intend to occupy the property.
• Full credit underwriting: Unlike an IRRRL, a cash-out refinance requires complete underwriting — income verification, credit review, debt-to-income (DTI) ratio analysis, and employment verification.
• VA appraisal: A VA appraisal is required to determine the current market value of your home. This sets the ceiling for how much you can borrow.
• Credit score: The VA does not set a minimum credit score. However, most lenders require a score of 620 or higher. Some lenders may go lower, but expect stricter terms.

The VA allows up to 100% loan-to-value (LTV) on a cash-out refinance. This means you can borrow up to the full appraised value of your home.

• No hard dollar cap on cash: The amount of cash you can take is not limited by a fixed number — it depends on how much equity you have and what your home appraises for.
• Funding fee and LTV: Your total loan amount, including the VA funding fee (if financed into the loan), cannot exceed the appraised value of the property.
• Lender overlays: Some lenders may set their own maximum LTV below 100% (for example, 90% LTV). This is a lender decision, not a VA requirement.

Example: If your home appraises at $350,000 and you owe $200,000, you could potentially borrow up to $350,000 and receive up to $150,000 in cash (minus the funding fee and closing costs).

Seasoning requirements depend on what type of loan you are refinancing away from:

VA-to-VA Cash-Out Refinance

• At least 210 days must have passed since the first payment on your current VA loan
• At least 6 monthly payments must have been made
• Both conditions must be met (per Public Law 116-33)

Non-VA-to-VA Cash-Out Refinance

There is no seasoning requirement when refinancing a conventional, FHA, USDA, or other non-VA loan into a VA cash-out refinance. You can convert to a VA loan at any time, regardless of how long you've had the existing mortgage. This is an important distinction that makes the VA cash-out refinance a flexible option for veterans who did not originally use their VA benefit.

The VA requires that every cash-out refinance provide a "net tangible benefit" to the veteran. The refinance must satisfy at least one of the following:

• Eliminates private mortgage insurance (PMI): Converting from a conventional loan that requires PMI to a VA loan with no PMI counts as a tangible benefit
• Shorter loan term: Refinancing from a 30-year mortgage to a 15-year or 20-year mortgage
• Lower interest rate: The new VA loan has a lower rate than the existing mortgage
• Receiving cash (Type II only): For Type II cash-out refinances, the cash proceeds themselves satisfy the net tangible benefit requirement

The VA funding fee for a cash-out refinance is higher than for an IRRRL or a purchase loan:

The funding fee can be financed into the loan so you do not have to pay it out of pocket. However, remember that financing the fee increases your total loan balance.

Funding Fee Exemptions

The following veterans and family members are exempt from the funding fee:

• Veterans with a service-connected disability rating (any percentage)
• Surviving spouses receiving Dependency and Indemnity Compensation (DIC)
• Veterans who received a Purple Heart and are still serving on active duty
• Veterans receiving VA disability compensation for a pre-discharge claim

Both are VA refinance options, but they serve very different purposes:

Bottom line: If you already have a VA loan and just want a lower rate with no cash, use the IRRRL. If you need cash, want to convert from a non-VA loan, or the IRRRL does not meet your needs, use the cash-out refinance.

• Higher funding fee: At 2.15% to 3.30%, the cash-out refinance funding fee is significantly higher than the IRRRL's 0.5%. On a $300,000 loan, that's $6,450 to $9,900 compared to $1,500 for an IRRRL.
• Underwater risk at 100% LTV: Borrowing up to 100% of your home's value means you have no equity cushion. If property values drop, you could owe more than your home is worth. This limits your options if you need to sell.
• Full underwriting means more documentation: Unlike the streamlined IRRRL process, expect to provide pay stubs, tax returns, bank statements, and employment verification. The process takes longer and is more involved.
• Consider whether taking equity is wise long-term: Home equity is a financial safety net. Pulling it out for short-term needs (especially consumer debt) can leave you financially vulnerable. Make sure the use of funds justifies the cost and risk.
• Closing costs add up: In addition to the funding fee, expect standard closing costs (title fees, appraisal, origination fees). These costs reduce the net cash you actually receive or increase your loan balance if financed.
• Shop multiple lenders: Rates, fees, and closing costs vary widely between lenders. Get quotes from at least three VA-approved lenders before committing.

• VA Cash-Out Refinance Overview
• VA Home Loans Program
• VA Funding Fee and Closing Costs