VA Cash-Out Refinance Explained

How much equity can I take out with a VA cash-out refinance?

By Kyle Melvin · NMLS #1486450 · REV Mortgage · Published Sep 17, 2026

Short answer

VA allows a cash-out refinance up to 100% of the home's appraised value, including the funding fee, but most lenders overlay a lower maximum — commonly around 90% — so the practical answer depends on the lender. The loan is fully underwritten: appraisal, income, credit and residual income, plus a net tangible benefit test and, when the loan being refinanced is itself a VA loan, the same 210-day/six-payment seasoning rule as the IRRRL. It pays the purchase-level funding fee, and it is also the product used to refinance a non-VA loan into a VA loan even when no cash is taken.

The VA cash-out refinance is the program's full-underwrite refinance, and it does three different jobs that get lumped together: taking equity out of a VA-financed home, refinancing a VA loan that does not qualify as an IRRRL, and converting a conventional or FHA loan into a VA loan. VA's rules separate those into Type I and Type II, and the difference matters for the tests you have to pass.

Type I and Type II

Under Chapter 6 of the VA Lenders Handbook:

Type I — the new loan amount, including the financed funding fee, does not exceed the payoff of the existing loan. Closing costs must fit inside that ceiling or be paid outside closing; financing them above the payoff makes it a Type II. No cash to the borrower beyond minor adjustments. This covers a conventional-to-VA conversion and a VA-to-VA refinance that fails IRRRL eligibility.
Type II — the new loan amount exceeds the payoff plus costs. This is a cash-out refinance in the ordinary sense, and it also covers paying off a second mortgage or HELOC.

Both are fully underwritten — appraisal, income, credit, residual income under the VA loan guidelines — and both require you to occupy the home. The IRRRL's no-appraisal, no-income shortcut does not apply here.

How the tests differ

Requirement	Type I	Type II
Maximum loan-to-value	VA: 100% including funding fee; lender overlays common	Same
Appraisal	Required	Required
Full underwriting	Required	Required
Seasoning (VA-to-VA)	210 days from first payment due and six payments made	Same
Net tangible benefit	Must meet the tests — for a VA-to-VA Type I, the rate-reduction and recoupment rules similar to the IRRRL apply	Must meet at least one of VA's listed benefits (lower rate, lower payment, shorter term, ARM to fixed, payoff of a lien, cash for a stated purpose, and others)
Disclosures	Loan comparison and home equity disclosures at application and closing	Same
Funding fee	Purchase-level fee — first or subsequent use — unless exempt	Same
Occupancy	Required	Required

The loan-to-value question

VA's regulation allows the new loan to reach 100% of the appraised value, with the funding fee included inside that figure. Almost no lender goes there. Overlays at or around 90% are common, and some lenders set lower caps for larger loan amounts or lower credit scores. The practical maximum cash-out is therefore the lender's cap, minus the payoff, minus costs and the fee. Ask for the cap first.

What it costs

The funding fee on a cash-out refinance is the purchase-level fee — first-use or subsequent-use percentage of the loan amount — not the IRRRL's 0.5%. For a veteran without an exemption that is a meaningful cost on a large loan, and it is the reason a cash-out refinance has to be compared against a HELOC or a fixed second mortgage rather than assumed. The funding fee page has the schedule; a veteran with a compensable rating pays nothing, which changes the comparison substantially.

When it makes sense, and when it does not

Makes sense: consolidating a first mortgage and a HELOC into one fixed-rate VA loan; funding a major expense against a home with a lot of equity when the existing rate is near the current market; converting an FHA loan with permanent mortgage insurance into a VA loan with none.

Does not make sense: taking a small amount of cash from a home whose existing rate is far below the market — the whole balance reprices, and a HELOC or second mortgage leaves the first loan alone. Or using the cash-out to buy a rental; VA requires occupancy of the refinanced home, and a DSCR loan on the rental is usually the cleaner structure.

A VA-to-VA refinance that is not eligible as an IRRRL — because the rate reduction is too small, for instance — is a Type I cash-out and a full underwrite; the IRRRL page covers the eligibility tests. And because a cash-out refinance charges entitlement against the new loan amount, a Type II that raises the balance charges more entitlement than the old loan did — which shrinks your remaining entitlement for a future purchase until this loan is paid off and the entitlement restored.

Questions people also ask

What is the maximum LTV on a VA cash-out refinance?

VA's rule permits up to 100% of appraised value, inclusive of the funding fee. Lenders set their own maximum, and overlays around 90% are common. Ask the lender for its cap before assuming the VA figure.

What is the difference between a Type I and Type II cash-out refinance?

A Type I cash-out is one where the new loan amount, including the funding fee, does not exceed the payoff of the loan being refinanced — for example refinancing a conventional loan into a VA loan with the costs paid outside closing. A Type II is any cash-out whose new loan amount exceeds that payoff, whether the extra is cash in hand or financed closing costs.

Can I refinance my conventional loan into a VA loan?

Yes. VA classifies it as a cash-out refinance — Type I if no cash is taken — even though it is really a conversion. It requires full underwriting, an appraisal, and the purchase-level funding fee unless you are exempt, and you must occupy the home.