If you’re a veteran or active-duty service member who purchased your home with a conventional mortgage, you may be wondering whether it’s possible to refinance into a VA loan. The short answer is yes; you can. Refinancing to a VA loan can help you eliminate private mortgage insurance, lower your interest rate, and take advantage of one of the most flexible and affordable mortgage programs available.
Many homeowners initially use conventional financing because they are unaware of their VA loan eligibility or believe they need to use a VA loan only for a first purchase. The good news is that if you qualify, you can refinance your existing conventional mortgage into a VA loan at almost any time.
Understanding VA Refinance Eligibility
To refinance into a VA loan, you must meet the same basic eligibility requirements as those applying for a VA purchase loan. Generally, you may qualify if you meet one of the following conditions:
- You served 90 consecutive days of active service during wartime
- You served 181 days of active service during peacetime
- You have more than six years of service in the National Guard or Reserves
- You are the surviving spouse of a service member who died in the line of duty or from a service-related cause
You will also need to obtain a Certificate of Eligibility (COE) from the Department of Veterans Affairs, which confirms your entitlement to the VA loan benefit. A VA-approved lender such as Mutual of Omaha Mortgage can help you secure this document as part of your refinance application.
Why Refinance from a Conventional Loan to a VA Loan?
The VA loan program offers several unique benefits that can significantly improve your financial position. Here are some of the main reasons veterans choose to make the switch.
Eliminate Private Mortgage Insurance (PMI)
- Conventional loans typically require private mortgage insurance when the borrower puts less than 20 percent down. VA loans never require PMI, regardless of your down payment or equity position. Removing PMI can save hundreds of dollars each month.
Access Lower Interest Rates
- VA loans often offer lower interest rates compared to conventional loans, which can translate into substantial long-term savings. Lower rates also mean more affordable monthly payments.
Flexible Credit and Debt Guidelines
- VA loans are known for their flexible credit requirements and willingness to consider the full financial picture of the borrower. This can be especially helpful for veterans rebuilding credit after active service or deployment.
Option to Tap into Equity
- If you have built equity in your home, you may qualify for a VA cash-out refinance, which allows you to refinance up to 90 percent of your home’s value and access funds for debt consolidation, home improvements, or other expenses.
Streamlined Refinance Options in the Future
- Once you have a VA loan, you may later qualify for a VA Streamline Refinance (IRRRL), a simplified process that makes it easy to lower your rate again if market conditions improve.
For example, a veteran purchased a home for $400,000 with a conventional loan and a 5 percent down payment. Because the down payment was less than 20 percent, the homeowner pays about $250 per month in private mortgage insurance.
By refinancing into a VA loan with a lower interest rate, the veteran not only eliminates the PMI but also reduces their interest rate from 6.75 percent to 5.75 percent. This could lower their monthly payment by several hundred dollars while providing long-term savings over the life of the loan.
What to Expect During the Refinance Process
Refinancing from a conventional loan into a VA loan is similar to other refinance processes, but with a few key differences. Here’s what to expect.
Check Eligibility and Obtain Your COE
- Work with a VA-approved lender to confirm your eligibility and request your Certificate of Eligibility.
Submit a Loan Application
- Your lender will help you complete the refinance application and review your income, credit, and property details.
Appraisal and Underwriting
- Unlike a VA Streamline Refinance, this process usually requires a new appraisal. Once completed, underwriting reviews the file to ensure the loan meets VA guidelines.
Closing and Funding
- After approval, you’ll sign the new loan documents, pay any applicable closing costs (which may be rolled into the loan), and officially transition to your new VA loan.
Considerations Before Refinancing
While refinancing to a VA loan can be a smart financial move, it is important to weigh all factors before deciding. Consider your long-term plans, the interest rate environment, and how long you intend to stay in your home. Keep in mind that VA loans include a one-time funding fee, which helps keep the program sustainable. Some veterans, including those with service-connected disabilities, may be exempt from paying this fee.
The Value of Partnering with the Right Lender
Working with a lender experienced in VA financing is crucial. The VA loan process has unique requirements, and not all lenders are equally familiar with them. Mutual of Omaha Mortgage specializes in VA loans and understands the unique needs of military families. Our team makes the process smooth, transparent, and supportive from start to finish.
Refinancing a conventional loan into a VA loan can be an excellent way to save money, eliminate mortgage insurance, and take full advantage of your well-earned benefits. With lower rates, flexible guidelines, and no PMI, a VA refinance could help you achieve greater financial freedom and stability.
Want to find out if you qualify? Contact Mutual of Omaha Mortgage today to connect with a VA loan expert and explore how refinancing to a VA loan could work for you.
