Making the Switch: How and Why to Refinance Into a VA Loan

If you are a veteran, active-duty service member, or eligible surviving spouse, you have access to one of the most powerful financial tools in America: the VA loan. But what if you already bought a home using a standard, conventional loan or an FHA loan?

The good news is that you are not locked into that commercial mortgage forever. You can refinance into a VA loan and start saving money. Here is a simple guide on how it works, why it is a smart move, and what you need to know to get started.

Refinancing into a VA loan simply means trading your current non-VA mortgage for a brand-new VA mortgage. Your new VA loan pays off your old bank loan completely. Moving forward, your monthly payments go through the VA loan program, unlocking special perks that are reserved exclusively for the military community.

Before choosing a specific refinance path, it can help to compare the different VA home loan refinance options, including IRRRL and Cash-Out Refinance.

To make this switch, you will use a program called the VA Cash-Out Refinance. If you want to understand how this program works, including its requirements, rates, costs, and maximum loan-to-value rules, see our guide to [VA Cash-Out Refinance].

Do not let the name confuse you. While this loan allows you to take cash out of your home’s equity to pay off debt or remodel the kitchen, you do not actually have to take any cash out. You can use this exact same program purely to swap your conventional or FHA loan into a VA loan to lower your interest rate or change your loan terms.

Switching into a VA loan can be attractive, but refinancing still needs to make financial sense after accounting for your new rate, closing costs, loan term, and other expenses. Our VA refinancing options guide can help you evaluate the decision.

• Goodbye, Monthly Mortgage Insurance: Standard loans usually force you to pay Private Mortgage Insurance (PMI) if you put down less than 20% when you bought the house. FHA loans charge mortgage insurance for the entire life of the loan. VA loans never require monthly mortgage insurance. Removing this fee can instantly save you hundreds of dollars every single month. If you're comparing the costs and benefits of these mortgage types, see our VA loan vs. conventional and FHA loans comparison.

• Lower Interest Rates: Because the government guarantees a portion of VA loans, lenders view them as lower risk. As a result, VA loans historically offer lower interest rates than conventional mortgages.

• Borrow Up to 100% of the Value: Many conventional refinance programs require you to leave a certain amount of equity in the home. The VA cash-out program allows you to refinance up to 100% of your home's current appraised value.

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To pull off this switch, you will need to meet a few basic requirements. You can review the full VA home loan requirements before starting the refinance process.

• Military Eligibility: You must have a valid Certificate of Eligibility (COE) proving your qualifying military service.

• Credit and Income: While the VA is lenient, lenders will still check your credit score and steady income to ensure you can afford the new payments.

• Primary Residence: You must currently live in the home you are refinancing. You cannot use this specific program for a rental property or a secondary vacation home.

Before making the switch, make sure you account for VA loan closing costs and determine whether the monthly savings justify the upfront expense.

Don't let your hard-earned military benefits go to waste while paying higher rates or unnecessary mortgage insurance fees. Contact our team of qualified VA loan specialists today for a free mortgage review, and let us help you maximize your monthly savings!