Can You Refinance Your Conventional Mortgage Into A VA Loan?
There are a variety of reasons you might want to refinance your current mortgage. With a refinance, you can often get a lower interest rate and lower monthly payment. If your current mortgage is a conventional loan and you’re a veteran or active duty service member, you might be wondering if there’s a way to refinance your conventional loan into a VA loan. The answer? Yes, you can.
Conventional Loan to VA Cash Out Refinance Loan
The VA loan program offers two refinance options: The VA streamline refinance loan and the VA cash out refinance loan. Those who qualify can use the cash out refinance loan to get rid of their conventional mortgage. The VA cash out refinance loan is not a second mortgage or a home equity loan. This loan will replace your current home loan. You can refinance for up to 100 percent of your home’s appraised value.
Who is eligible for a VA cash out refinance loan? Active members of the military, reservists, veterans, National Guard members and surviving spouses of military members who died during active duty or because of a service-related disability.
Qualifying for a VA Cash Out Refinance Loan
Strive Lending CEO Corey Leonard explains that to qualify for the VA cash out refinance loan, your VA loan lender will order a home appraisal and run a credit check. This ensures that your credit score meets the minimum of 620 and that you’re financially stable. They will also check to make sure you’ve made the last 12 mortgage payments on time.
The lender will look at your debt-to-income (DTI) ratio, which is the total amount of your gross monthly income that goes toward debt. The VA typically accepts a DTI ratio of 41 percent or lower.
The documents you’ll need to present are proof of income, proof of homeowner’s insurance, credit report, monthly debt load and total assets.
The VA does collect a funding fee to refinance your mortgage, but it’s the only fee required. Regular military members pay a 2.15% fee for first-time use, which includes refinancing from a conventional mortgage. Reserve and National Guard members pay a 2.4% fee for first-time use. Veterans who receive disability benefits are exempt from the funding fee.
Even though this is called a “cash out” refinance loan, you don’t have to take any cash out when you refinance from a conventional loan.