A VA cash-out refinance is the more powerful, more heavily underwritten sibling of the IRRRL — it can tap real equity and it can bring a non-VA loan into the VA program, but it requires full documentation to do it.
Type I vs. Type II
- Type I: the new VA loan amount is less than or equal to the payoff amount of the loan being refinanced. Cash to the veteran, if any, is minor.
- Type II: the new VA loan amount is greater than the payoff amount — meaningful cash is being taken out of the home's equity.
Loan-to-value
The VA itself permits cash-out refinancing up to 100% loan-to-value. In practice, most lenders cap their own cash-out refinances at 90% LTV as an overlay, so the number you can actually borrow against will typically be set by your specific lender's policy rather than the VA ceiling.
Refinancing a non-VA loan into VA financing
This is one of the biggest differences from the IRRRL: a VA cash-out refinance can refinance a non-VA loan — conventional or FHA — into a new VA loan, as long as the veteran meets VA eligibility requirements. This is a common path for a veteran who bought with conventional or FHA financing and later wants to move into VA financing to eliminate monthly mortgage insurance and access equity in the same transaction.
What it takes to qualify
Unlike the IRRRL, a cash-out refinance is underwritten like a full VA purchase loan:
- Full appraisal required.
- Full income and credit documentation required.
- A net tangible benefit test and a VA loan comparison disclosure must be provided at both application and closing, so the veteran can see exactly how the new loan compares to the old one.
The funding fee
- 2.15% on a first-use cash-out refinance
- 3.30% on a subsequent-use cash-out refinance
Unless the veteran is exempt (service-connected disability compensation, Purple Heart, or qualifying surviving spouse status — see our funding fee guide for the full exemption list).
What veterans use it for
- Consolidating higher-interest debt
- Funding home improvements
- Refinancing out of an FHA or conventional loan to eliminate monthly mortgage insurance
- Accessing equity for major expenses
Because it's fully underwritten and appraised, a cash-out refinance takes longer and costs more upfront than an IRRRL — but it's the only VA refinance option that can put real cash in a veteran's hands or convert a non-VA loan into VA financing.
Sources: VA Lenders Handbook M26-7; va.gov/housing-assistance/home-loans/refinancing/; 38 CFR Part 36.