VA's two cash-out refinance types and the protections each one carries
The two definitions
Classification
VA Circular 26-18-30 defines a Type I cash-out refinance as one where the loan amount, including the funding fee, does not exceed the payoff of the loan being refinanced. A Type II is one where the loan amount exceeds that payoff. The comparison is between two dollar amounts, not about whether you walk away with cash.
Last reviewed against the primary sources listed below.
Side by side
| Type I | Type II | |
|---|---|---|
| New loan vs payoff | Equal or smaller | Larger |
| Typical purpose | Convert to VA, change terms | Take equity |
| Funding fee counted | Yes, in the loan amount | Yes, in the loan amount |
Type questions
Is a Type I cash-out really cash-out?
It uses VA's cash-out program, but the new loan does not exceed the payoff.