How a VA cash-out refinance works
The new VA loan pays off your current mortgage in full. Whatever is left after the payoff, closing costs and the funding fee (if you don't roll it in) comes to you as cash. You end up with one loan and one payment, rather than a first mortgage plus a second lien.
- You apply, and the lender reviews your eligibility, credit, income, assets and current mortgage
- A VA appraisal sets the home's value, which decides how much you can borrow
- Underwriting confirms occupancy, seasoning, the VA residual income test and a net tangible benefit
- You receive a loan comparison disclosure within three business days of application and again at closing
- At closing, the new loan pays off the old one, and on a primary residence you have a three-business-day right to cancel before the funds are released
From application to closing commonly takes 30 to 45 days, with the VA appraisal usually the main variable. Our guide on how refinancing a mortgage works covers each step in more detail.
VA cash-out refinance eligibility
The VA sets the core rules. Lenders then add their own requirements on top, which is why the same veteran can be approved at one lender and declined at another.
- Certificate of Eligibility. Your COE shows the VA will guarantee the loan. Most veterans, service members, Guard and Reserve members and some surviving spouses qualify; we can request it with your permission.
- Primary residence. You must occupy the home as your primary residence and certify that at closing. A rental or second home doesn't qualify.
- Seasoning. When the loan being refinanced is a VA loan, at least 210 days must have passed since its first payment was due, with six consecutive monthly payments made. Lenders may require more, and set their own rules on non-VA loans.
- Credit and residual income. The VA sets no minimum credit score, but lenders do. The VA's residual income test checks what's left each month after major expenses, alongside your debt-to-income ratio.
- Net tangible benefit. The lender must show the refinance is in your interest, for example by lowering the rate, moving from an adjustable to a fixed rate, removing mortgage insurance or shortening the term.
It's a full-documentation loan: expect recent pay stubs, W-2s or tax returns, bank statements, your current mortgage statement, ID and homeowners insurance. The VA loans page explains how entitlement and the COE work.
The VA funding fee on a cash-out refinance
VA loans carry no monthly mortgage insurance. In its place, the VA charges a one-time funding fee, set by the VA rather than the lender. You can pay it at closing or roll it into the loan, which raises the balance.
- On a cash-out refinance, the fee depends on whether this is your first use of the VA benefit or a subsequent use
- It is higher on a cash-out refinance than on an IRRRL
- It is waived for veterans receiving VA compensation for a service-connected disability
- It is also waived for eligible surviving spouses receiving Dependency and Indemnity Compensation, and for certain other borrowers under VA rules
- Your Loan Estimate shows the exact amount for your file
If you're exempt, keep proof of your VA disability compensation handy; the lender confirms the exemption during underwriting.
Type I vs. Type II VA cash-out refinance
The VA sorts every cash-out refinance into one of two types, based on how the new loan amount compares with the payoff of the loan being refinanced. The type changes which tests the lender has to apply.
A summary of the VA framework, not an offer. Lenders can add their own requirements.
| Item | Type I | Type II |
|---|---|---|
| New loan amount | Doesn't exceed the payoff | Larger than the payoff |
| Typical use | Moving a conventional or FHA loan into VA | Taking equity out as cash |
| Net tangible benefit | Required | Required |
| 36-month recoupment of costs | Required | Not required |
| Appraisal and full documentation | Yes | Yes |
A veteran paying monthly FHA mortgage insurance can use a Type I to move into a VA loan without taking any cash, if the numbers clear the recoupment test.
For illustration only. Not a commitment to lend, a rate lock or an offer of credit. Terms vary by lender, by property and by file.
How much cash you could take out
The math: appraised value × the lender's maximum loan-to-value, minus what you owe. Closing costs, and the funding fee if you don't roll it in, come out of that figure. The example below uses round, hypothetical numbers to show the arithmetic.
Hypothetical figures, chosen to show the math. They don't reflect any lender, rate or file, and they leave out closing costs and the funding fee.
| Appraised value | $400,000 |
|---|---|
| Hypothetical lender maximum (90%) | $360,000 |
| Current mortgage payoff | $250,000 |
| Gross cash available, before costs | $110,000 |
Taking less than the maximum keeps more equity in the home and a smaller balance going forward. A veteran exempt from the funding fee keeps more of the proceeds.
For illustration only. Not a commitment to lend, a rate lock or an offer of credit. Terms vary by lender, by property and by file.
To run your own numbers, use the cash-out refinance calculator with the value, balance and pricing you've been quoted.
VA cash-out vs. IRRRL vs. conventional cash-out
Three different tools. The right one depends on what loan you have now and whether you need cash.
A general comparison, not an offer. Caps, credit minimums and costs vary by lender and by file.
| Item | VA cash-out | VA IRRRL | Conventional cash-out |
|---|---|---|---|
| Current loan | Any mortgage | Must be a VA loan | Any mortgage |
| Cash to you | Yes | No, beyond small adjustments | Yes |
| Common cap | Up to 100% under VA rules; lenders often lower | Based on the existing VA balance | 80% (1 unit) |
| Appraisal | Required | Not required by the VA | Usually required |
| Income documents | Full documentation | Not required by the VA; lenders may ask | Full documentation |
| Occupancy | Primary residence now | Lived there at some point | Primary, second home or rental |
| Upfront cost | VA funding fee unless exempt | Lower VA funding fee unless exempt | No funding fee |
If you have a VA loan and only want a lower rate, the IRRRL is usually the simpler route. If you need cash and want to keep more than 20% equity, compare VA and conventional cash-out on total cost.
For illustration only. Not a commitment to lend, a rate lock or an offer of credit. Terms vary by lender, by property and by file.
See VA refinance for the IRRRL in detail, FHA & VA streamline refinance for how streamlines work, and cash-out refinance for conventional and FHA cash-out.
Steps to a VA cash-out refinance
- Decide how much cash you actually need, and check whether a HELOC or home equity loan would leave a low first-mortgage rate in place
- Get your Certificate of Eligibility, or let your broker request it
- Gather pay stubs, W-2s or tax returns, bank statements and your current mortgage statement
- Compare Loan Estimates from more than one lender, looking at total cost and the funding fee
- Order the VA appraisal and complete underwriting
- Review the loan comparison disclosure, sign at closing, and wait out the three-business-day right to cancel
Costs and trade-offs to weigh
- Closing costs apply, as on any refinance; our guide to the cost to refinance breaks them down
- Rolling the funding fee and costs into the loan raises the balance and reduces your equity
- A new 30-year term restarts the clock on a loan you may have been paying for years
- Borrowing close to 100% of the value leaves little cushion if home values soften
- A cash-out refinance reprices your whole balance, so a low current rate is worth protecting
See the cost to refinance a mortgage for a line-by-line look at fees and a worked break-even example.
Before you apply
8Twelve is a mortgage broker, not a lender. We compare your file across lenders in our network, put VA cash-out side by side with an IRRRL, conventional cash-out and a HELOC where they apply, and tell you if the numbers say not to refinance. A fit check takes a few minutes and starts with a soft-credit estimate.
