Short answer: A VA cash-out refinance lets you pull up to 100% of your home's appraised value in cash, minus the existing mortgage balance and closing costs. It's the highest-LTV cash-out program available anywhere — conventional and FHA cash-outs cap at 80%. VA cash-out is available to eligible veterans on either a VA-to-VA refinance or a Type II non-VA-to-VA refinance (converting a conventional or FHA loan into VA). Seasoning rules apply (210 days from first payment), and the Net Tangible Benefit test must be satisfied.
What Makes VA Cash-Out Different.
Every major loan program allows a cash-out refinance, but only VA lets you pull equity down to zero. Conventional cash-out is capped at 80% loan-to-value (Fannie Mae B2-1.3-03). FHA cash-out was capped at 80% LTV in 2019 (was previously 85%). Jumbo cash-out varies but rarely exceeds 80%.
VA cash-out permits 100% LTV under the underlying VA rule. In practice, individual lenders often set overlays capping cash-out at 90% for risk management reasons — but the veteran can shop for a lender whose overlays match the true VA maximum.
The practical implication: a veteran with a $500,000 home and a $200,000 remaining mortgage balance can potentially pull $300,000 in cash out via a VA refinance (subject to funding fee, closing costs, and lender overlays). On a conventional cash-out capped at 80%, the same veteran could only pull $200,000 — because 80% of $500,000 is $400,000, minus the $200,000 existing balance.
Type I vs. Type II VA Cash-Out.
VA classifies cash-out refinances into two types based on the loan being replaced:
- Type I: refinancing an existing VA loan into a new VA cash-out. The new loan replaces the old VA loan and may or may not include additional cash back to the veteran.
- Type II: refinancing a non-VA loan (conventional, FHA, USDA) into a VA cash-out. This lets veterans who originally bought with a non-VA loan (perhaps because the seller wouldn't accept VA at the time) convert to a VA loan and access equity in the same transaction.
Both types follow the same seasoning, NTB, and funding fee rules. The distinction matters mostly for how VA analyzes the borrower's benefit — Type II conversions from FHA (which carry lifetime MIP) into VA (no PMI) almost always pass NTB by eliminating the monthly PMI payment alone.
Seasoning: The 210-Day Rule.
In 2019, Congress passed changes to VA refinancing rules that added seasoning requirements to prevent loan-churning practices that had harmed some VA borrowers. Two seasoning conditions must be satisfied for a VA cash-out refinance:
- 210 days must have passed from the first payment on the loan being refinanced
- At least 6 monthly payments must have been made on time
Practical example: if you closed on a VA purchase in March and your first payment was May 1, you can refinance no earlier than approximately December (210 days = 7 months after first payment). Both conditions must be met — six payments in five months doesn't cut it either.
These rules apply to Type I refinances specifically. Type II refinances (converting a non-VA loan) have slightly different treatment because you weren't previously in a VA loan.
The Net Tangible Benefit Test.
Every VA refinance must demonstrate a Net Tangible Benefit (NTB) to the veteran. For cash-out refinances, VA specifies acceptable NTBs including:
- Reducing the interest rate by 0.5% or more
- Switching from an adjustable-rate mortgage to a fixed-rate mortgage
- Materially reducing the monthly payment
- Shortening the loan term
- Consolidating debt in a way that produces overall payment savings
The NTB test on a Type I VA-to-VA refinance is stricter. The NTB test on a Type II (conventional-to-VA) refinance is more lenient because the shift from paying PMI to no-PMI VA financing almost automatically demonstrates benefit.
Your lender documents the NTB analysis in the loan file. If the file can't clearly demonstrate NTB, VA won't guarantee the loan.
The Funding Fee.
VA cash-out refinances carry a funding fee (unless the veteran is exempt). Current fee schedule for cash-out:
- First-time VA loan use: 2.15% of the loan amount
- Subsequent VA loan use: 3.3% of the loan amount
Exemptions:
- Veterans with a VA service-connected disability rating of 10% or higher — funding fee waived entirely (see our article on the VA disability funding-fee waiver)
- Surviving spouses receiving Dependency and Indemnity Compensation (DIC)
- Purple Heart recipients (added by 2021 legislation)
The funding fee can be rolled into the loan balance rather than paid in cash at closing. For a $400,000 cash-out on a subsequent-use loan (3.3% funding fee = $13,200), the effective loan balance becomes $413,200 with the fee financed.
When VA Cash-Out Makes Sense.
Consolidating high-rate debt. A veteran with $60,000 in credit card debt at 22-28% APR can consolidate into a mortgage-rate refinance — often producing $1,500-$2,500/month in freed cash flow.
Home renovation or addition. Financing a $150,000 addition through a mortgage cash-out (deductible interest on the acquisition-debt portion) beats putting it on a HELOC when the amount is large and you need certainty of the fixed rate.
Down payment on an investment property. Freeing $80K-$150K of primary-residence equity to bridge to the next real estate purchase — a common play for veterans building rental portfolios.
Business capital. Sometimes the lowest-cost capital available to a self-employed veteran. Rate is often 3-5% lower than an SBA loan or business line of credit, and it's tax-deductible mortgage interest.
Eliminating PMI on a conventional loan. Type II from conventional-with-PMI into VA cash-out often produces payment savings that easily justify the switch, even before accessing any equity.
When A HELOC or Second Mortgage Beats VA Cash-Out.
You're not sure how much you'll need. A HELOC gives you a credit line you draw from as needed and only pay interest on what you use. VA cash-out is a one-time lump sum.
Your current VA loan rate is already very low. If you locked at 3.25% in 2021, refinancing into a 6.5% cash-out to access equity may cost more in higher lifetime interest than you gain in the cash pull. A second-mortgage HELOC at 8-10% variable on $80K may still cost less in total interest than refinancing $500K from 3.25% to 6.5%.
You want flexible access over years. HELOCs typically have 10-year draw periods; VA cash-out is one shot.
Closing costs are prohibitive. VA cash-out has full closing costs (appraisal, title, origination, VA funding fee) — often $8K-$15K total. A HELOC typically has $500-$2K in setup costs.
Documents Needed.
- Certificate of Eligibility (COE) — pulled by the lender
- Current mortgage statement for the loan being refinanced
- Two years of W-2s + tax returns (or non-QM equivalents if self-employed)
- 30 days current paystubs
- Two months current bank statements
- Home insurance declaration page
- Property appraisal — ordered by the lender; typically $600-$900 for a standard single-family
- Signed occupancy certification — VA cash-out requires primary-residence occupancy
- Payment history from current servicer proving 6+ on-time payments (usually auto-verified through credit report)
Real Example: Type II Conventional-To-VA Cash-Out.
A veteran bought a home in 2020 for $450,000 with a conventional 5%-down loan ($427,500 loan, PMI ~$220/month). Now the home appraises for $580,000 and the loan balance is $395,000. The veteran wants to pull $100,000 for a home addition and eliminate the PMI at the same time.
- New VA cash-out loan amount: $495,000 (=$395,000 payoff + $100,000 cash-out) + $16,335 funding fee (3.3% first-time-VA, financed) = $511,335
- New LTV: $511,335 ÷ $580,000 = 88.2% — well under the 100% VA cap
- PMI eliminated: saves $220/month
- Net Tangible Benefit: PMI elimination alone satisfies the NTB test on a Type II conversion
The veteran walks away with $100,000 in cash, eliminates PMI, and consolidates into a single new VA loan. This is exactly the scenario Type II was designed for.
FAQ.
How much cash can I pull out with a VA cash-out refinance?
Up to 100% of the appraised value of your home, minus the existing mortgage balance and closing costs. This is the highest cash-out LTV available in any loan program — conventional and FHA cash-outs are typically capped at 80%. Some VA-approved lenders overlay a 90% cap for risk reasons, but the underlying VA rule permits 100%.
Is a VA cash-out refinance better than a HELOC?
Depends on the goal. VA cash-out gives you a lump sum at a fixed rate, replaces your existing first mortgage, and can access up to 100% LTV. A HELOC is a revolving line of credit that sits as a second mortgage — variable rate, lower upfront cost, only pay interest on drawn amounts. For a one-time large need (home renovation, debt consolidation, business investment) a cash-out often wins. For ongoing flexible access (kids' college over 10 years, contingency fund) a HELOC often wins.
Is there a waiting period before I can do a VA cash-out?
Yes. VA requires 210 days from the first payment on your current mortgage before you can refinance into a new VA loan. Additionally, you must have made at least six on-time payments. This "seasoning" rule was added in 2019 to prevent loan-churning that harmed VA borrowers.
What is the Net Tangible Benefit test?
The Net Tangible Benefit (NTB) test is a VA requirement that the refinance must provide a clear, documentable benefit to the veteran. For a Type I (VA-to-VA) cash-out, this typically means a rate reduction of at least 0.5%, a switch from adjustable to fixed rate, or a meaningful reduction in monthly payment. For a Type II (non-VA to VA) refinance — such as converting a conventional loan into a VA cash-out — the NTB analysis is more flexible and often satisfied by moving to a lower monthly payment or eliminating PMI.
What is the VA funding fee on a cash-out refinance?
For a cash-out refinance, the VA funding fee is 2.15% of the loan amount for first-time VA loan users and 3.3% for subsequent use, per the current VA fee schedule. Veterans with a service-connected disability rating of 10% or higher are exempt from the funding fee entirely. Surviving spouses receiving DIC benefits are also exempt. The fee can be rolled into the loan amount rather than paid at closing.
Can I refinance a non-VA loan (conventional or FHA) into a VA cash-out?
Yes — this is called a Type II VA cash-out refinance. It's a common path for veterans who bought with FHA or conventional financing (perhaps before establishing VA eligibility, or before the seller would accept a VA offer) and want to convert to VA to eliminate PMI, lower the rate, or access equity. All VA cash-out rules apply, including the seasoning rule and NTB test.
Sources & Primary References.
- VA Pamphlet 26-7 Chapter 6 — Refinancing loans (cash-out and IRRRL rules)
- Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (PL 115-174) — established 210-day seasoning and NTB requirements
- 38 CFR § 36.4306 — VA refinance loan requirements
- benefits.va.gov/homeloans — current VA funding fee schedule