How to Refinance a Conventional Mortgage to a VA Loan
VA home loans offer several advantages, including no private mortgage insurance, lower interest rates, and flexible terms. If you're an eligible veteran or service member with a conventional mortgage, you can refinance your home with a VA home loan, typically a cash-out loan, to take advantage of the program’s benefits.
On This Page
- Can I Refinance a Conventional Loan Into a VA Loan?
- Requirements for Refinancing a Conventional Loan to a VA Loan
- Pros and Cons of Refinancing a Conventional Loan into a VA Loan
- Steps To Refinance a Conventional Mortgage Into a VA Loan
- Costs Associated With Refinancing to a VA Loan
- VA Cash-Out Refinance vs. Other Refinance Options
- When Should You Consider Refinancing to a VA Loan?
- Common Questions About Refinancing a Conventional Loan to a VA Loan
- Take Control of Your Mortgage by Refinancing into a VA Loan
Can I Refinance a Conventional Loan Into a VA Loan?
You can refinance your conventional mortgage with a VA home loan. Most veterans who do so use a VA cash-out loan. However, while a cash-out loan gives you the flexibility to take cash out of your home’s equity, you are not required to do so.
Requirements for Refinancing a Conventional Loan to a VA Loan
Obtaining a VA loan to refinance a conventional loan has the same requirements as any VA home loan. Those requirements include the following:
- Minimum service requirements: Generally, you must have completed 90 days of active duty service or 24 months of continuous service, though exceptions apply.
- Certificate of Eligibility: The VA loan eligibility criteria for refinancing are the same as for other VA loans. If you only have a partial entitlement listed on your Certificate of Eligibility, you are subject to VA loan limits.
- Primary residence requirement: Your VA loan must be for your primary residence, not for an investment property or a vacation home.
- Loan-to-value guidelines: While the VA will guarantee loans for up to and including 100% of the appraised value, it generally prefers that the amount of the loan be no more than 90% of the appraised value. On the other hand, conventional loans often require an LTV of 80% or less.
- Seasoning requirements: The VA won’t certify a refinancing loan if you’ve had the original loan for fewer than six months.
In addition to meeting VA eligibility requirements, you must also meet the requirements of your private lender, which may include minimum credit and income requirements.
Pros and Cons of Refinancing a Conventional Loan into a VA Loan
Should you refinance your home into a VA loan? There’s no one right answer; it depends on your financial situation and priorities.
Benefits of VA loan refinancing include the following:
- No private mortgage insurance, or PMI: While conventional loans typically require PMI if your equity is less than 78%, VA loans generally don’t require PMI, which can save you money on your monthly payment.
- Better loan-to-value ratio: The VA will guarantee loans up to 100% of your LTV if you meet other requirements.
Because they are backed by the VA’s guarantee, VA loans generally have lower interest rates than conventional loans, along with no repayment penalties and built-in foreclosure protections.
Refinancing isn’t the right fit for every situation. Some of the things you need to consider are:
- VA funding fee: Every VA loan comes with a funding fee.
- Appraisal: You will likely be required to get an appraisal of your property, which could adjust the value.
- Closing costs: You may be required to pay for an appraisal, title insurance, or other related
If you’re using a cash-out loan to take equity out of your home, you may wind up taking longer to pay off your mortgage.
Steps To Refinance a Conventional Mortgage Into a VA Loan
The VA loan refinance process is similar to securing your original home loan, but with a few extra steps.
Step 1: Check Your Financial Readiness
Start the process by checking your credit score and debt-to-income ratio and assessing your overall financial situation. Contact a financial advisor if you need help.
Step 2: Find a VA Lender
Check with veterans’ groups for recommendations on lenders with a track record of offering VA mortgages, as not all lenders issue them.
Step 3: Apply for a VA Cash-Out Refinance
As part of the application process, you can expect to submit your COE, proof of income, bank statements, and documents from your original loan.
Step 4: Order an Appraisal
You must obtain a new appraisal for your property to determine its value and verify it meets the VA’s minimum property requirements.
Step 5: Underwriting and Approval
Underwriters will review the documents you submitted, along with the appraisal. If the loan meets their standards, you will be approved.
Step 6: Closing
If you receive VA loan approval for refinancing, you’ll schedule a closing, where you’ll pay the funding fee along with any additional closing fees. Then you’ll finalize the loan and sign your documents. Congratulations!
Costs Associated With Refinancing to a VA Loan
While refinancing to a VA loan may save you money in the long run, there are a few upfront costs.
The VA funding fee is a one-time fee that helps fund the VA home loan program, allowing it to keep operating. You can pay it in a lump sum at the closing, or choose to roll it into your loan and pay it off over time.
The amount of the funding fee depends on the amount of your down payment and whether you’ve had a VA loan before. First-time borrowers pay less, as do those with larger down payments. The maximum funding fee is 3.3% of your loan amount.
You’ll also have to pay closing costs, which can include the VA appraisal fee, origination fees, title insurance, and other charges. You can roll some of these costs into your loan.
VA Cash-Out Refinance vs. Other Refinance Options
Eligible veterans have the following refinancing options:
- VA cash-out loan: Allows you to take cash out when converting a conventional mortgage to a VA loan
- VA Streamline loan: Allows you to refinance an existing VA loan to take advantage of lower interest rates, but you cannot take cash out
- Conventional refinancing: Allows you to secure refinancing without meeting VA requirements, but you may have to pay PMI and meet stricter credit standards
Consult with your lender or financial advisor if you need assistance determining which option is best for you.
When Should You Consider Refinancing to a VA Loan?
Refinancing is a big decision and comes with upfront costs, but moving to a VA loan can save you money in the long run. It’s key to understand when refinancing to a VA loan makes sense. VA loans typically have lower interest rates, better terms, and no PMI requirements.
You can roll some of the upfront closing costs into your loan, as well as your VA loan fee. Your lender or a financial advisor can explain your options.
Common Questions About Refinancing a Conventional Loan to a VA Loan
Here are some common questions we receive about refinancing with a VA home loan. Do you have additional questions about VA mortgage refinancing? Contact us to learn more.
Can I Refinance From a Conventional Loan to a VA Loan Without Taking Cash Out?
Yes. While a VA cash-out loan allows you to get cash out, you don’t have to.
How Long Do I Need To Have My Conventional Loan Before I Can Refinance?
The seasoning period for a loan depends on the terms, although it’s typically six months or more. The VA won’t guarantee a refinance loan until you’ve made six monthly payments on the original loan.
What Is the VA Funding Fee, and Can I Avoid It?
The VA funding fee is a one-time fee due at the closing of your VA-backed loan. It’s used to defray the costs of VA lending and is based on your down payment and the number of VA loans you’ve had. You can avoid the funding fee by getting a conventional refinancing loan, though that means you lose the benefits of a VA loan.
Take Control of Your Mortgage by Refinancing into a VA Loan
If you’re a veteran with a conventional mortgage, you’re missing out on the great benefits of a VA loan. By refinancing with a VA cash-out loan, you can get better terms and lower interest rates. You also won’t have to pay for PMI.
If you’re thinking about refinancing your conventional mortgage to a VA loan, get in touch with a trusted VA lender. They can help you check your eligibility and connect you with trusted VA lenders. Don’t wait to start saving money.
