VA cash-out refinance: What it is and how it works

A VA cash-out refinance involves taking out a VA loan for more than your existing mortgage and receiving the difference in cash.¹

While this offers some generous terms if you’re looking to access equity for any purpose, there are some specific requirements, and not everyone is eligible.² We’ll take you through what you need to know.

Key takeaways:

• VA cash-out refinances are used not only to access home equity but also any time you’re going from another mortgage type to a VA loan.
• When you do take cash out, VA loans allow you to convert 100% of your equity into cash.
• You have to be eligible based on military service. You can prove this with a Certificate of Eligibility.

What is a VA cash-out refinance?

While the involvement of the Department of Veterans Affairs might lead some to mistake this as a veterans’ cash-out refinance, eligibility is broader than that.

A VA cash-out refinance allows eligible veterans, active-duty servicemembers, and qualified surviving spouses to get a loan for up to 100% of the appraised value of their home. Loans obtained with the VA program can be used to:

• Make home improvements
• Pay off liens and debts
• Fund education expenses
• Refinance a non-VA loan into a VA loan, which often comes with better terms than a conventional loan

In a nutshell, a VA cash-out refinance loan allows you to replace your current mortgage with a government-backed VA loan or transfer home equity into cash. You can then apply this cash toward paying off other expenses.

Technically, there are a couple of VA cash-out refinances, one of which has nothing to do with actually taking cash out:

• Type I: In this type of refinance, you go from another loan type to a VA loan without increasing your balance. You might think of this more traditionally as a rate-and-term refinance.
• Type II: You’re taking a bigger loan balance and getting cash back after closing. When most people think “cash out,” this is probably what they’re thinking.

The reason for the distinction is that instead of a traditional rate-and-term option, the VA has the Interest Rate Reduction Refinance Loan (IRRRL or VA Streamline refinance).³ But the catch is that one of the requirements to be eligible for a VA Streamline, you have to have an existing VA loan. Going from any other loan to a VA loan is a cash-out refi.

For the rest of this post, when we refer to “VA cash-out refinances,” we mean loans involving balances bigger than your current one.

How does a VA cash-out refinance work?

A VA cash-out refinance involves taking a bigger balance than you have on your existing mortgage. You get the difference in cash. Lenders will analyze your credit, capacity to pay the loan, cash (savings), and collateral, or the value of your home.

VA loans are backed by the government. These and other government loans are seen as less risky by participating lenders. Those who qualify can borrow under favorable mortgage loan terms.

Equity accessed in a cash-out refinance is based on your loan-to-value ratio (LTV). LTV is the percentage of your home value that’s being financed with a loan. Typically, you have to leave a portion of the existing equity untouched. VA max cash-out LTV is 100%. So if your home is worth $275,000, that’s the amount of cash you can take out.⁴

How do you apply for a VA cash-out refinance?

The process of applying for a VA cash-out loan is like that of applying for any other mortgage. This typically involves the following steps:

1. Meet eligibility requirements. That means you must be an active-duty service member, a reservist, a member of the National Guard, a veteran with an honorable discharge, or a qualified surviving spouse. With some exceptions for surviving spouses or veterans discharged because of a service-related disability, you have to meet minimum service time requirements.
2. Submit a loan application. This is frequently done online or over the phone at your convenience. As part of the process, expect lenders to pull your credit and ask you to share income and asset information through W-2s, 1099s, account statements, and tax returns. VA loans also require a Certificate of Eligibility (COE) to verify service time.
3. Research VA lenders. Try to compare offers among several different lenders to find the best cash-out refi loan deal. A “rate shopping” exception allows you to apply with several lenders for mortgage financing within about 14 days, it all counts as a single credit inquiry, so you don’t have to worry as much about your score dropping. The exact timeline varies based on the credit scoring model.
4. Review loan conditions. Thankfully, the VA cash-out refinance process allows applicants to refinance mortgages of various types into a new VA loan – even if you choose not to receive cash at closing. But keep in mind that a VA cash-out refinance can only be used on your primary residence, not on investment properties or second homes.
5. Select a lender. Once you’ve figured out the loan you want to move forward with, it’s common for lenders to charge a credit report fee or appraisal fee at this point to cover some of their costs. Assuming your loan closes, this is applied as a credit toward your closing costs.
6. Go through underwriting. Your lender will verify that you can afford the loan through any documentation you’ve submitted. If your lender asks for additional information, you can speed the process by having it ready. At the same time, the lender will schedule an independent appraiser to verify the value of your home. This may take a few days or several weeks, depending on availability. While every refinance is different, it can take 15 – 60 days from application to close.
7. Close on your approved loan. This is where you sign the paperwork and pay the closing costs. Typical closing costs are 3% – 6% of the loan amount. The VA funding fee can be built into the loan amount. Other costs may be rolled in as well, depending on how the loan is structured. Otherwise, you may be able to lower upfront costs with negotiated lender credits in exchange for a slightly higher rate.

Who is eligible for a VA cash-out refinance?

Again, not everyone can qualify for this refinance opportunity. You have to be a current active-duty service member, veteran, or qualifying surviving spouse.

You verify this with your Certificate of Eligibility. Additionally, these can only be used for your primary residence. Lenders also have their own criteria for you to meet.

Service requirements

Minimum service time varies based on when you served:

• Have served on active military service duty for a minimum of 24 continuous months or been mobilized for 90 days for the time frame from August 1, 1990 – present
• Be mobilized before August 1, 1990, for at least 181 continuous days or serve 24 months
• For National Guard personnel, 90 days of non-training active-duty Title 10 service or 90 days of active-duty service with at least 30 of those days being consecutive or 6 years of creditable service
• For reservists, 90 days of non-training active-duty service or 6 years of creditable service
• Be the spouse of a service member who died in the line of duty

Service time requirements can be waived if you were medically discharged. Regardless of service time, the discharge must be honorable in all cases.

Certificate of Eligibility

Your Certificate of Eligibility verifies that you’ve met service time requirements based on when you served. Beyond that, it also lists your entitlement, which is a dollar amount you would be eligible for. You only really need to worry about this number if you’ve had a default in the past, leading to impacted entitlement. Your lender can also help you get this if you have other documentation like your DD214.

In most cases, the VA doesn’t set a maximum loan amount. But lenders may have their own rules.

Lender requirements

In addition to the requirements the VA imposes, lenders may have their own. Here are some examples of a few things that may be evaluated. These factors are important to lenders whether you’re considering a 15-year vs. 30-year mortgage, an FHA loan, a USDA loan, or an adjustable-rate mortgage (ARM).

• Credit score: Although the VA sets no minimum credit score, lenders have their own policies. At Rocket Mortgage, you can get cash out starting at 580 if you leave 10% equity or are doing a debt consolidation. Financing for any purpose up to the full property value starts at 620. You may be able to qualify with more debt or for a VA jumbo loan at 640 or higher.
• Debt-to-income ratio (DTI): This looks at your minimum monthly debt payments compared to your pretax monthly income. There’s also a measurement that looks at your house payment compared to your gross income. DTI may be limited based on credit score.
• Residual income: VA loans have this concept wherein you may qualify for relaxed DTI standards if you make above a certain amount based on your area and household size. Talk to your lender for details.
• Loan limits: Although the VA itself doesn’t set loan limits in many cases, lenders often set them. If your loan is above the local conforming loan, that’s a VA jumbo loan at Rocket Mortgage. The limit for these loans is $2.5 million.

Pros and cons of a VA cash-out refinance

Let’s drill down further into the benefits and drawbacks of VA cash-out refinancing.

Pros

• Interest rates are often lower than what conventional refinances charge. That’s because VA loans are considered less risky by lenders.
• You can use the funds as you see fit for any legal purpose.
• It’s a solid way to consolidate high-interest debt charged by credit cards or other accounts.
• It allows you to access a significant portion of your home equity – up to 100% – which is more lenient than the conventional cash-out refinance standard of 80%.
• Unlike other VA refinancing options, a VA cash-out refi can be pursued whether your existing mortgage is a VA loan.
• No private mortgage insurance (PMI) is required.

Cons

• You’ll have to pay a funding fee that equates to 2.15% of the loan amount if you are a first-time user of the VA loan benefit and 3.3% if you have used it before. This fee can be paid upfront or included in the loan amount. This can be paid upfront at closing or rolled into your loan, adding to the overall cost of your mortgage over its lifespan.
• There are closing costs involved. These can equate to 3% – 6% of your loan amount.
• You may owe more than your home is worth if its value drops after you take cash out.
• Your home must be appraised, which determines the amount of equity that can be accessed and ensures your property meets the VA’s minimum property requirements.
• This isn’t true everywhere, but pest inspections may be required based on your area. Regardless of where you live, the appraiser can order other inspections if a problem is suspected.
• If you can’t make the payments, you risk losing your home to foreclosure.

How much does a VA cash-out refinance cost?

The cost of a VA cash-out refinance depends on the amount of your loan and your personal financial profile. Your income, credit history, and numerous other factors affect the actual cost of the loan. These impact the interest rate you can expect.

Closing costs are often between 3% – 6% of the loan amount. The VA funding fee is worth calling out. Ranging from 2.15% to 3.3% of the loan amount based on equity and whether it’s a first-time VA loan. There are exemptions for disabled veterans, Purple Heart recipients who have returned to active-duty and eligible surviving spouses.

VA cash-out refinance vs. standard cash-out refinance: What’s the difference?

VA cash-out refinances are generally considered less risky by lenders because the VA guarantees up to 25% of the loan amount. As a result, rates are typically lower than they are for cash-out refinances on conventional home loans. Be sure to check out today’s refinance rates to get the latest information.

To get an idea of VA rates vs. conventional loans, let’s look at a 20-year conforming loan for $275,000 vs. the same parameters with a VA loan refinance. The rate for the conventional loan is 5.875%.⁵ In contrast, the rate for the same VA loan is 5.75%.⁶

VA cash-out refinance vs. VA Streamline refinance: What’s the difference?

A VA cash-out refinance is your only option if you don’t already have a VA loan. If you already have a VA loan, you may want to consider a VA Streamline refinance or Interest Rate Reduction Refinance Loan (IRRRL) instead. It must be used for a rate/term refinance with a minimum rate and payment reduction. No cash out allowed.

Alternatives to a VA cash-out refi

Here are a few common alternatives to a VA cash-out refi.

• VA Streamline refinance: As mentioned earlier, this is an alternative for those who already have an existing mortgage with the VA. You would do this on a rate/term refinance when you have a net tangible benefit.
• Conventional cash-out refinance: This option might come with a higher interest rate and more stringent requirements. But if you don't qualify for a VA cash-out refinance, this could be your best alternative. It allows you to refinance vacation homes and investment properties.
• FHA cash-out refinance: This lets you replace your existing mortgage – whether it’s a VA, conventional, or FHA loan – with a new FHA loan while converting some of your home’s equity into cash.⁷ You can usually borrow up to 80% of your home’s current appraised value. This is the way to go if you don’t have qualifying military service.
• Home equity loan: A home equity loan also allows you to extract your home’s equity. Typically, you can get a fixed-rate home equity loan that provides a lump sum. You use this if interest rates make it prohibitive to change the rate on your current mortgage. The VA, however, does not back home equity loans.⁸
• Home equity line of credit (HELOC): A home equity line of credit works like a credit card, meaning you only repay and pay interest on the amount of the loan that you use. Like a home equity loan, this is a second mortgage that you would use when you want the opportunity to replenish the funds for multiple projects. Rocket Mortgage doesn’t offer HELOCs.

FAQ

Now that we’ve touched on the ins and outs, let’s go over other questions you might have.

If I do a VA cash-out refinance, do I have to take out cash?

No, you are not required to take out cash. If you have a preexisting VA mortgage loan and don’t want to take out any cash at closing, a VA Streamline refinance is the quickest and easiest solution. But if you’re going from another type of loan to a VA loan, the VA technically considers this a cash-out refinance.

What are the VA cash-out refinance credit score requirements?

This depends on your lender and the amount of lending risk they’re willing to accept, although the VA imposes no minimum credit requirement. Rocket Mortgage accepts applicants with a credit score as low as 580.

Can I do a 100% VA cash-out refinance?

Yes. You can cash out up to the full value of your home if you meet lender requirements.

Is an appraisal required for a VA cash-out refinance?

An appraisal is required because the amount of cash you can take out is based largely on your home value.

The bottom line: A VA cash-out loan can be a helpful tool

A VA cash-out refinance loan allows you to access up to the full value of your home for everything from debt consolidation to home improvements. In fact, a cash-out refinance is what’s used to go from one type of loan to a VA loan. You do have to be eligible based on your military service.

These loans also feature lower rates than other loan types given the government guarantee the only downsides are the eligibility limitations, along with the fact that it can only be used to refinance a primary residence.

If you think this might be the right option for you, you can get started by reaching out to Rocket Mortgage and applying online.

¹ Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

² Refinancing may increase finance charges over the life of the loan.

³ The VA Streamline program may have stricter requirements in some states. In order to qualify for the VA Streamline program, you must have a VA loan. The VA Streamline is only available on primary residences. Cash-out transactions are not allowed. In order to qualify for a VA Streamline, a 0.5% minimum reduction in interest rate on the previous fixed-rate loan must occur if the new loan will be a fixed rate or a 2% minimum reduction in interest rate on previous adjustable rate mortgage loan must occur; a minimum of 6 months of consecutive mortgage payments must be paid on the current loan at the time of application. Some states may require an appraisal. Additional restrictions/conditions may apply.

⁴ Any figures, interest rates, loan examples, and market data referenced in this article are hypothetical or aggregated for educational purposes only. They are not intended to reflect current pricing, available terms, or personalized loan options for any consumer. This content does not constitute an advertisement of credit terms, a solicitation or offer to extend credit, or a rate quote under federal or state lending laws. Actual mortgage rates and terms are determined by individual financial qualifications, property characteristics, market conditions, and other factors, and are subject to change without notice.

If you are seeking current, real-time mortgage rate information please refer to the official live rate information and product details published at RocketMortgage.com/mortgage-rates, where current pricing and various loan terms are made available.

⁵ The payment on a $275,000 20-year fixed-rate loan at 5.875% is $1,950.41. The annual percentage rate (APR) is 6.241% and the loan-to-value ratio (LTV) is 60% for the cost of 1.75 points ($4,812.50) due at closing. One point is equal to one percent of the loan amount. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. Rates shown valid as of June 11, 2026. Some state and county maximum loan amount restrictions may apply.

⁶ The payment on a $275,000 20-year fixed-rate loan at 5.75% is $1,930.73. The annual percentage rate (APR) is 6.38% and the loan-to-value ratio (LTV) is 60% for the cost of 1.625 points ($4,468.75) due at closing. One point is equal to one percent of the loan amount. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. VA loans do not require PMI. The VA loan is a benefit of military service and only offered to veterans, surviving spouses and active duty military. Rates shown valid as of June 11, 2026. Some state and county maximum loan amount restrictions may apply.

⁷ Rocket Mortgage is not acting on behalf of FHA or HUD

⁸ Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 11/19/25 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Ameriprise products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher‑priced loans in the State of New York are subject to additional regulatory requirements. Additional restrictions apply. This is not a commitment to lend.

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