VA to conventional refinance

[Oscar Leon]

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?

[Chris Mason]

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.