Can You Refinance A VA Loan?

The Department of Veterans Affairs loan is a popular loan program in the U.S. that lets eligible veterans, active-duty military service members and surviving spouses take advantage of exclusive benefits such as lower rates and no down payment when buying a home.

But VA loans also offer holders helpful options to refinance their mortgage. This can help them change the terms their mortgage, take cash out or refinance up to 120% of the value of their home.

However, those who qualify often have questions about the rules and requirements, such as if and when you can refinance a VA loan. Let’s break down the refinancing options for VA loans and explore what each has to offer.

Can You Refinance Your Home With A VA Loan?

Yes! You have several options for a VA home loan refinance. We’ll take a look at each of these loan types, the kind of borrower each option is best suited for and each option’s benefits.

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Benefits Of A VA Loan Refinance

For qualified borrowers with strong credit history and an anticipated long-term stay in their home, refinancing a VA loan can make a lot of sense. But why exactly should you refinance with a VA loan? Here are some of the benefits:

Lower-than-average interest rates: Because VA loans are specifically for military personnel, interest rates are often lower compared to other loan types.
Potential for a lower monthly payment: A lower interest rate could mean a lower mortgage payment.
No mortgage insurance requirement: On the other hand, Federal Housing Administration loans and conventional loans with less than a 20% down payment both require mortgage insurance.
Relaxed limits on a cash-out refinance: A VA loan lets you take out up to 100% of your home’s value in a cash-out refinance, whereas other loan types limit how much you can borrow.
The ability to refinance up to 120% of your home’s value: A VA loan is one of the few loan products that can offer this benefit. This can help you refinance even if you currently owe more on your mortgage than your home is worth.
Relaxed credit score requirement: The VA has no set minimum credit requirement, which can make refinancing easier for VA loans. But remember, lenders can set their own credit score requirements. Some lenders require a minimum credit score of 580.
No prepayment penalties: You won’t face a penalty for paying off your loan early.
Foreclosure assistance: Homeowners who end up in default can work with the VA for assistance in finding alternatives to foreclosure.
Ability to roll the funding fee into the refinancing amount: In addition, there’s no funding fee for disabled veterans, eligible surviving spouses and active-duty Purple Heart recipients.

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VA Refinance Options

With a VA loan refinance, you’ll have two options to choose from. You can reduce the interest rate on your loan with an interest rate reduction refinancing loan or get cash-out financing. We’ll also touch on when you may be better off refinancing to a different type of loan.

Let’s dive deeper into these three types of mortgage refinance possibilities so you can find the one that best suits you and your financial needs:

VA Streamline Refinance

The VA Streamline refinance – also known as an interest rate reduction refinance loan, or IRRRL – is available for homeowners who have a VA loan and want to lower their interest rate. This type of refinance typically allows for little or no out-of-pocket costs, a faster closing and less documentation than the average home loan.

While the VA doesn’t have specific occupancy requirements for this type of loan, lenders set their own policies.

Benefits Of An IRRRL:

It’s possible to refinance up to 120% of your home’s value.
You’ll pay a reduced funding fee.
Entitlement requirements don’t apply.
An appraisal may not be needed.
A Certificate of Eligibility (and other documentation) isn’t required.
You may be able to lower your interest rate.
You may be able to stabilize your monthly payments if switching from an adjustable or variable loan to a fixed-rate mortgage.

IRRRL Program Requirements

You may qualify for an IRRRL If all of the following statements are true:

You have an existing VA-backed home loan.
You’re using the IRRRL to refinance that existing VA-backed home loan.
You currently live in or used to live in the home secured by the loan.

Additionally, if you have a second mortgage on your home, the holder must agree to make your new VA-backed loan the primary mortgage.

VA Cash-Out Refinance

A VA cash-out refinance is a great option for many veterans, active-duty service members and surviving spouses looking to refinance their mortgage. It not only lets current VA loan homeowners take cash out of their home’s equity for a variety of reasons – to cover liens, bills or emergency expenses, or to pay for home renovations, etc. – but it enables qualified homeowners to refinance other types of loans into a VA loan.

It’s also the only cash-out loan that allows you to utilize 100% of your equity. Other cash-out options generally require you to leave at least 20% equity in the home after the refinance. A VA cash-out refinance should allow you more financial flexibility.

While it may sound like a home equity loan, a VA cash-out refinance is different. Instead of adding to your current loan, a VA cash-out refinance replaces your current loan – usually with better terms than other loan types.

Cash-Out Refinance Requirements

Minimum requirements for a VA cash-out refinance loan include:

Obtaining a VA-backed home loan Certificate of Eligibility
Meeting the VA’s – and the lender’s – standards for credit and income, plus any other requirements
Living in the home being refinanced with the loan

A cash-out refi is a smart option for borrowers who may need funds to pay for school, cover debts, make home improvements or take care of unexpected expenses.

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Refinance VA Loan To Conventional Or FHA Loan

Although a less desirable option than refinancing to another VA loan, refinancing your current VA loan to a conventional loan or FHA mortgage is a possibility worth mentioning.

Depending on your situation, it may make sense to switch from your VA loan to a conventional loan. Here are a few instances when it may be financially wiser to move to a different type of loan.

You Want A Rental Property

If you’re interested in owning a primary and secondary residence, you typically aren’t allowed to take out multiple VA loans to fund both properties. It’s not uncommon for qualified VA loan borrowers to therefore move from one home to another, use the VA loan to finance their newer primary residence, and switch the property they intend on renting out to a conventional loan. This can be a smart way to generate passive income while making the most of your VA benefits.

You Have Stellar Credit And Want Better Terms

Although VA loans are renowned for their attractive interest rates, if you already have excellent credit and are eligible for a conventional loan, you may be able to refinance into terms that are better than those of a VA loan.

You Don’t Qualify For An IRRRL

The VA’s IRRRL loan is a strong contender for many qualified VA borrowers, but for those who don’t qualify, refinancing into a conventional or FHA loan may be the best way to get lower interest rates.

Conventional Loan Requirements

Although conventional loans are harder to qualify for than other loan options, it’s possible to meet their requirements if you have:

A down payment of at least 3% to qualify. If you have a down payment lower than 20%, private mortgage insurance is required and added to your monthly payment.
A minimum credit score of 620.
A debt-to-income ratio lower than 50%.
A loan within the limits set by Fannie Mae and Freddie Mac. In 2024, the limit for one-unit properties is $766,550, with exceptions in high-cost areas like Alaska and Hawaii.

FAQ

Let’s take a brief look at some of the most commonly asked questions regarding VA loan refinancing:

Can I refinance a VA loan to a non-VA loan?

In many cases, you can turn your existing VA loan into a conventional loan by refinancing. This might be necessary, for instance, if you wish to turn your primary residence into a rental property. You can’t do that when the residence is under a VA loan, but you can refinance your current mortgage into a different loan type and then start renting out your home.

How soon can I refinance a VA loan?

To refinance a VA home loan, you’ll have to meet the required waiting period of 212 days or six payments’ worth of time – whichever period is longer. You can expect this required waiting period regardless of which VA refinancing option you choose.

Do I pay a funding fee on a VA refinance?

Whenever you take out a new loan or refinance an existing VA loan, you will likely need to pay the VA funding fee. Depending on your situation, you may be able to roll this fee into the refinance amount or loan amount. In some instances, you will not be required to pay a funding fee at all, such as if you are a surviving spouse of a veteran, the recipient of a Purple Heart, or were disabled in the course of your duty.

What’s the max cash-out on a VA loan?

When performing a cash-out refinance on a VA loan, you can get up to 100% of the home’s appraised value, plus the amount of the funding fee. For example, if your home is valued at $200,000 and you paid a funding fee of 2.5%, you could get a cash-out refinancing of up to $205,000. One additional caveat is that you may be limited by your available VA entitlement.

The Bottom Line

While VA loans might seem a little confusing at first, the refi process doesn’t have to feel overwhelming as you gain a deeper understanding of the VA refinance options available to you. Most important is choosing the option that fits and benefits you most.

Holly Shuffett

Holly Shuffett is a writer who writes with a focus on homeownership and personal finance. She has a bachelor's degree in public relations from Oakland University and enjoys creative writing and reading in her free time.

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