The VA cash-out refinance is one of the most powerful equity-access tools available to any homeowner — and for disabled veterans, it comes with a benefit that no conventional loan or home equity line of credit can match: a complete waiver of the funding fee for veterans with a 10% or higher service-connected disability rating. That waiver alone can save $7,500 on a $350,000 refinance. Add in the VA's unique 100% loan-to-value allowance — meaning you can borrow against the full appraised value of your home, not just 80% or 90% as conventional lenders require — and the math becomes compelling for veterans who have built substantial equity and need access to it.
A VA cash-out refinance replaces your existing mortgage — whether it is a VA loan, FHA loan, conventional loan, or any other type — with a new VA-guaranteed loan. The new loan is larger than the amount needed to pay off the existing mortgage, and you receive the difference in cash at closing.
This is fundamentally different from the VA IRRRL (streamline refinance), which exists solely to lower your rate. The cash-out refinance is a complete re-underwriting of the loan. Your income is verified, your credit is pulled, your home is appraised, and you are essentially taking out a new mortgage — one that gives you access to your accumulated home equity in the form of cash.
The VA cash-out refinance is authorized under 38 U.S.C. § 3710(a)(5) and regulations at 38 C.F.R. § 36.4306. It is available to eligible veterans, active duty service members, National Guard and Reserve members who meet service requirements, and eligible surviving spouses.
The VA distinguishes between two types of cash-out refinance transactions, a distinction introduced by VA Circular 26-18-30 in 2018:
The new loan amount is less than or equal to the payoff amount of the loan being refinanced. You are not increasing your loan balance. This applies when you simply want to convert a non-VA loan to a VA loan, or access equity while keeping your balance the same.
The new loan amount exceeds the payoff amount of the existing loan. Your loan balance increases. This is the "true" cash-out transaction where you are borrowing against your equity and receiving cash at closing.
Both types require a full appraisal, income verification, and credit check. The distinction matters primarily for regulatory and lender compliance purposes. From the veteran's standpoint, the mechanics are similar: you end up with a new VA loan at today's interest rate, and the question is whether your new balance is higher than your old one.
Note: A Type I transaction may still result in some cash at closing if the payoff amount is slightly less than the new loan (for example, when financing closing costs), but the defining characteristic is that the new principal does not exceed the payoff amount.
To qualify for a VA cash-out refinance, you must meet all of the following:
Loan-to-value ratio (LTV) is the ratio of your new loan amount to the home's appraised value. A conventional cash-out refinance typically caps at 80% LTV — meaning if your home is worth $400,000, you can borrow no more than $320,000. An FHA cash-out refinance allows up to 80% LTV as well.
The VA cash-out refinance allows up to 100% LTV. On that same $400,000 home, you could borrow up to $400,000. If your existing mortgage balance is $250,000, you could theoretically receive $150,000 in cash (less closing costs and the funding fee, if applicable).
This is not an invitation to borrow the maximum. More debt means higher monthly payments and more interest paid over time. But the 100% LTV allowance removes a ceiling that stops many homeowners cold when they try to access equity through conventional channels. For veterans who need funds for home modifications, medical expenses, education, or debt consolidation, the ability to tap full home value without refinancing into a different loan type is significant.
While VA allows 100% LTV, many individual lenders cap their VA cash-out offerings at 90% LTV to manage their own risk exposure. Shop multiple VA-approved lenders if you need to access equity above 90% of your home's value.
The VA cash-out refinance carries the same funding fee as a VA purchase loan — and it is significantly higher than the IRRRL's 0.50%:
| Borrower Type | First Use | Subsequent Use |
|---|---|---|
| Regular Military (no disability) | 2.15% | 3.30% |
| National Guard / Reserves (no disability) | 2.15% | 3.30% |
| Surviving Spouse (no DIC) | 2.15% | 3.30% |
| Veteran with 10%+ SC Disability | $0 (Exempt) | $0 (Exempt) |
| Surviving Spouse Receiving DIC | $0 (Exempt) | $0 (Exempt) |
| Purple Heart Recipient (active duty) | $0 (Exempt) | $0 (Exempt) |
On a $350,000 cash-out refinance, a non-exempt veteran pays:
A veteran with a 10% or higher service-connected disability rating pays exactly $0. That is a substantial difference that should weigh heavily in any refinancing decision. If you are currently unrated or rated below 10%, filing or upgrading a disability claim before refinancing could eliminate this cost entirely.
The funding fee can be rolled into the loan amount rather than paid at closing, but doing so increases your loan balance and the total interest you pay over the life of the loan.
Beyond the funding fee waiver, the VA cash-out refinance offers specific advantages that align with the financial realities many disabled veterans face:
Home accessibility modifications rank among the most common uses of a VA cash-out refinance for disabled veterans. Common projects include:
These projects can easily cost $20,000 to $80,000 or more depending on scope. A cash-out refinance can fund them at mortgage interest rates — typically far lower than personal loan or credit card rates — using equity the veteran has already built.
Before using a cash-out refinance to fund home modifications, disabled veterans should determine whether they qualify for the VA's Specially Adapted Housing (SAH) grant program. The SAH grant provides up to $109,986 in 2025 for home modifications or construction for veterans with severe service-connected disabilities — and unlike a loan, it does not need to be repaid.
The SAH grant is available to veterans with specific qualifying disabilities including loss or loss of use of lower extremities, severe burn injuries, and blindness with limb loss. The SHA (Special Housing Adaptation) grant provides up to $22,036 for less severe adaptations. For full eligibility criteria, see our VA SAH Grant guide.
The key point: if you qualify for the SAH grant, you may be able to fund modifications without touching your home equity at all. Veterans who do not qualify for the full SAH amount, or who need more than the grant covers, can use the grant in combination with a cash-out refinance to maximize both benefits. The VA's loan guaranty program and the SAH grant program are administered independently and can be used together.
Many homeowners consider a home equity line of credit (HELOC) as an alternative to cash-out refinancing. Here is how the two compare for eligible veterans:
| Feature | VA Cash-Out Refi | HELOC |
|---|---|---|
| Interest rate | Fixed, typically lower | Variable, tied to prime rate |
| Maximum LTV | Up to 100% | Typically 80%–85% |
| Funding fee | 0% (disabled veteran) or 2.15%/3.30% | None, but has origination fees |
| Payment structure | Fixed P&I immediately | Interest-only draw period, then repayment |
| Rate risk | None (fixed rate) | High in rising rate environment |
| Access to funds | Lump sum at closing | Draw as needed (flexible) |
For most disabled veterans who need a specific, defined amount for a purpose like home modifications or debt payoff, the VA cash-out refinance is the superior product: lower and fixed interest rate, higher LTV, and the potential for a full funding fee waiver. The HELOC's flexibility (draw only what you need, when you need it) is its primary advantage and matters most for ongoing or uncertain expenses rather than defined projects.
Note: HELOCs are a separate product not backed by VA and are subject to conventional lender credit and equity requirements.
Cash received from a refinance is not taxable income. Whether you receive $20,000 or $200,000 in cash from a VA cash-out refinance, the IRS does not treat it as income because it is borrowed money — a loan, not a windfall. You do not report it on your tax return.
However, a few tax considerations are worth understanding:
Consult a tax professional for guidance specific to your situation before making major financial decisions based on expected tax treatment.
In 2025, 30-year fixed VA loan rates are generally in the 6.25%–7.00% range. Veterans who purchased homes or refinanced at 3%–4% rates in 2020–2021 face a difficult calculation: accessing home equity through a cash-out refinance means replacing a historically low rate with a significantly higher one.
Consider a veteran with a $250,000 balance at 3.25% (about $1,088/month principal and interest). If they cash-out $100,000 for home modifications at 6.75% on a new $350,000 loan, their payment jumps to approximately $2,270/month — an increase of $1,182/month, or $14,184/year. Over 10 years, that rate difference costs roughly $142,000 in additional interest even before accounting for the larger balance.
This math does not mean the refinance is wrong — if the $100,000 in modifications dramatically improves quality of life, reduces care costs, or prevents the need to move to a care facility, the financial case can absolutely justify the higher payment. But veterans should go in with clear eyes about the long-term cost of replacing a low-rate mortgage with a higher one.
Alternatives to consider if preserving a low first mortgage rate matters: a HELOC or home equity loan that leaves the first mortgage untouched, the SAH grant if eligible, or other VA grants and programs for adaptive housing.
If you have an existing VA loan at a rate below 5% and need cash, speak with a HUD-approved housing counselor before proceeding with a cash-out refinance. The rate differential could mean tens of thousands of dollars over the life of the loan. Exhaust grant options (SAH, HISA from VA healthcare) before increasing your mortgage balance in a high-rate environment.
The VA cash-out refinance application process closely mirrors a purchase loan:
Work with VA-approved lenders and compare at least three offers. Our VA Loan tools and VA Home Loan Guide can help you understand your starting point before speaking with lenders.
For disabled veterans with significant home equity, the VA cash-out refinance is a powerful financial tool — but one that warrants careful analysis before pulling the trigger in 2025's rate environment. The funding fee waiver alone can save thousands, and the 100% LTV allowance provides access that conventional lenders simply do not match. Whether for home modifications, debt consolidation, or other major needs, the product delivers real value when the numbers work.
If you have not yet filed for disability compensation or believe your rating understates your conditions, filing — or filing for an increase — before refinancing could eliminate the funding fee entirely and potentially qualify you for additional monthly income. Use our guided claim builder to start that process.
A 10% service-connected rating means $0 in funding fees on any VA loan. Start your claim today — and get the rating your service earned.
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