Type I
A Type I cash-out refinance has a new loan amount, including the funding fee, that does not exceed the payoff of the loan being refinanced. It can be used to refinance a non-VA loan into VA financing.
Type II
A Type II cash-out refinance has a new loan amount that exceeds the payoff. It provides cash or pays additional costs.
How VA classifies cash-out refinances and why the distinction matters.
Appraisal
Both require a VA appraisal and a Certificate of Eligibility.
Net tangible benefit
VA requires the refinance to provide a net tangible benefit, such as eliminating mortgage insurance or moving to a fixed rate.
Comparison disclosure
Lenders must provide a comparison of the old and new loans within three business days of application and at closing.
Use the calculator
Enter your value and payoff to estimate proceeds, then confirm with a Loan Estimate.
Choosing between them
Most veterans do not choose a type directly; it follows from whether the new loan exceeds the payoff. If you only want to move an FHA or conventional loan into VA financing to remove mortgage insurance, keeping the new amount at or below the payoff makes it a Type I, which brings the recoupment test into play. If you need cash for repairs or debts, it will be a Type II. Ask your lender to show how each structure would look, including the funding fee and closing costs, so you can decide what best fits your goal.
Sources
Sources checked 10/23/2026. General education only; confirm current rules with official sources and a licensed lender.