VA to conventional refinance

13 Replies

Hi BP,

I currently have my first house financed with a VA loan. I've been considering refinancing into a conventional loan with the equity I have.

Is this feasible? What are the pros/cons?

@Oscar Leon this is not my field but I think VA loans may be assignable.

If that is true, and if it is a low rate, it may be valuable if you sell when rates are higher. The more equity you have the less valuable assigning the loan becomes. This is because the buyer has to get a second loan or come up with the difference. 

@Oscar Leon I can only see this as practical if you were pulling money out and keeping PMI off. The VA loan is valuable for the purpose of 100%+ leverage and no PMI.

only other scenario I can think of is thay you are trying to use the VA loan for another PRIMARY residence. Or else, streamline the VA into another VA if yours is old and the rate is high.

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@Ned Carey

I will look into this, thank you!

As for my strategy, I plan to refinance to free up my VA loan for another primary residence. I could be wrong, but I think I can use the equity I've built up with this house to cover the 20% for the conventional mortgage and avoid PMI. Are there any flaws in my thought process? For example, of the market tanks will this backfire on me?

There are a few things you want to take a look at. The VA funding fee is going to be a deciding factor along with the rate. If you are not going to 100% and less than 80%LTV it may be beneficial to do a conventional vs VA. It would take a lender to compare the two for you. I just did this with another client and since his LTV was so low, and didn't need much cash it was better off to go with a conventional loan. Are you exempt from the funding fee? How many times have you used the VA benefits on a home loan?

Hi @Oscar Leon , Have you looked into IRRL loans? The interest rate reduction is a great tool to use when refinancing out of a VA loan. There has to be a net tangible benefit (like lower APR) for it to go through. It is all about getting your VA eligibility back. Most people do not know that you can have multiple VA loans out at the same time which could also be an option for you. Are you trying to use a conventional loan to be more competitive in the market?

@Ned Carey

The house I'm planning to refinance will have enough cash flow to be fine. I'm just curious if using the equity to maintain a 80 ltv will backfire if the price of the house drops.

@David Kelly

I don't think I'm exempt from the funding fee, however when I first used the VA loan I got the funding fee warped into the financing.

I've only used the VA loan once.

@Cris Normandt

The house I purchased used majority of my VA loan allotment, and where I live I don't have enough to purchase another house. Am I incorrect on how that works?

And I'm just trying to use the conventional mortgage to free up my VA allotment.

Originally posted by @Oscar Leon :

@Ned Carey

The house I'm planning to refinance will have enough cash flow to be fine. I'm just curious if using the equity to maintain a 80 ltv will backfire if the price of the house drops.

@David Kelly

I don't think I'm exempt from the funding fee, however when I first used the VA loan I got the funding fee warped into the financing.

I've only used the VA loan once.

@Cris Normandt

The house I purchased used majority of my VA loan allotment, and where I live I don't have enough to purchase another house. Am I incorrect on how that works?

And I'm just trying to use the conventional mortgage to free up my VA allotment.

Any time you use a VA loan, unless you're a disabled veteran, you will pay another funding fee. VA loans are amazing to get you into that first house with no down payment and no PMI. And, after you are in, after you've financed that fee, they will almost always have the lowest rates of any loan type out there, so in all probability you'd be refinancing into a higher interest rate if you went conventional instead of VA.

After that though, once 20% down is a realistic option on the table, VA loans aren't necessarily magic any more.

For example, you could do a VA cash out refi for the 20% down... but that refi would involve the funding fee again.

And you could refinance into conventional, to free up your VA entitlement... great, so you're "free" to pay another VA funding fee.

For your scenario, I'm guessing the best bet would be to leave your VA loan in place, get a HELOC, and boom now you have 20% down, and can once again buy with no PMI, except this time you also will not have that VA funding fee. In a competitive market where the seller has multiple options to choose from, Conv 20% down is #2 in line, #1 is of course cash buyer. VA, unfortunately, and it's stupid, and I could rant about this because I think it's immoral and wrong, is somewhere around 5th place, above down payment assistance but below Conv 5% down, hanging out with the FHA bad credit buyers.

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Originally posted by @Chris Mason :

Conv 20% down is #2 in line, #1 is of course cash buyer. VA, unfortunately, and it's stupid, and I could rant about this because I think it's immoral and wrong, is somewhere around 5th place, above down payment assistance but below Conv 5% down, hanging out with the FHA bad credit buyers.

Sad but true. So many misconceptions about VA loans.