If you currently have a conventional mortgage but qualify for a VA home loan, it’s in your best interest to explore a refinance to the latter. You could lower your interest rate, say goodbye to private mortgage insurance, and, if you choose, liquidate home equity.
Find out if a refinance from a conventional mortgage to a VA home loan is right for you by reading this helpful guide, which covers the pros and cons of this move, what you’ll need to qualify, and what’s involved with the process.
- To qualify for a VA refinance, you’ll need a Certificate of Eligibility (COE) and must meet VA loan requirements, including property standards and financial criteria. Be prepared for costs like the VA funding fee and closing expenses.
- A VA cash-out refinance offers flexibility, whether you want to reduce monthly payments, shorten your loan term, or fund significant expenses by leveraging your home equity.
About The VA Cash-Out Refinance
Own a home that you financed using a conventional loan? If you made less than a 20% down payment, you’re likely paying private mortgage insurance premiums that can be costly.
And, depending on when you closed on that purchase loan, your interest rate may be pretty high.
But if you are an active duty military member, veteran, or surviving spouse, you should qualify for a VA home loan. These generous loans often charge among the lowest interest rates and do not require mortgage insurance or a down payment. Let’s take a look at how VA loan refinance rates are trending compared to conventional loans:
How we source rates and rate trends
Rates based on market averages as of Dec 02, 2025.Product Rate APR 15-year Fixed Refinance 5.37% 5.42% 30-year Fixed Refinance 6.35% 6.37% 15-year Fixed Va Refinance 5.30% 5.52% 30-year Fixed Va Refinance 5.68% 5.82%
If you are eligible, you can refinance your conventional mortgage loan and replace it with a new VA cash-out refinance loan, even if you don’t plan to tap into your equity and take any cash out a closing.
Quick note: If you already had a VA loan, you could fast-track the refi process by opting for what’s called a VA streamline refinance, also referred to as an Interest Rate Reduction Refinance Loan (IRRRL). Currently, however, the only way to refinance a non-VA loan into a VA-backed loan is by choosing a VA cash-out refinance loan.
Pros and cons of this strategy
Consider the benefits of refinancing from a conventional loan to a VA cash-out refi loan. Doing so can:
- Lower your interest rate if rates have decreased, leading to substantial savings over the life of your loan. VA loans often offer lower interest rates compared to conventional loans, which can save you significant money over the life of the loan.
- Eliminate monthly PMI payments. VA loans, unlike conventional loans for which you put down less than 20%, do not require PMI, which can result in substantial savings.
- Refinance to a shorter loan term, such as moving from a 30-year to a 15-year mortgage, to build home equity faster and save significantly on overall interest.
- Switch from an adjustable-rate mortgage to a fixed-rate mortgage for greater stability and predictability in your payments.
- Lock in a lower rate and/or extend your loan term to decrease your monthly payments, freeing up cash for other expenses or investments.
- Liquidate home equity, if you choose, for major expenses like home improvements, education, or debt consolidation.
However, there are a few drawbacks.
Refinancing to a new VA loan will use up part or all of your VA loan entitlement, potentially limiting future VA loan eligibility if you, for example, want to purchase another home in the future.
Also, just because VA loans tend to charge lower interest rates than other home loans doesn’t mean you are guaranteed to lock in at a lower rate than you are paying today. Additionally, borrowing cash can increase your total debt over time.
In addition, refinancing will require paying a VA funding fee, which is currently 2.15% to 3.3%. The good news is that the VA funding fee can be rolled into the mortgage rather than paid in cash at closing.
Lastly, as with any refinance loan, you’ll have to pay closing costs. These can average 2% to 5% of your loan amount.
Refinance Requirements
Your lender will scrutinize your three-digit FICO credit score, which is a reflection of your creditworthiness. The VA technically doesn’t set a minimum credit score for a VA loan, but many lenders require a score of 620 or higher. Refi.com requires a minimum credit score of 620.
Credit Score
Your lender will scrutinize your three-digit FICO credit score, which is a reflection of your creditworthiness. The VA technically doesn’t set a minimum credit score for a VA loan, but many lenders require a score of 620 or higher.
Income/Assets
There is no minimum income requirement to refinance from a conventional mortgage to a VA cash-out refinance mortgage, but the lender will scrutinize your earnings and job stability nonetheless to assess your ability to repay.
Borrowers must demonstrate stable and sufficient income to cover the loan payments. The lender will review income documentation, such as pay stubs, W-2s, and bank or tax statements.
DTI Ratio
Your debt-to-income (DTI) ratio helps lenders assess your ability to handle monthly payments and repay debts. It compares your total monthly debt payments to your gross monthly income.
To calculate your DTI, first sum up all your monthly debt obligations, including mortgage payments, car loans, credit card payments, student loans, and other recurring debts. Next, determine your gross monthly income, which includes your salary, wages, bonuses, and any other consistent earnings before taxes and deductions.
Divide your total monthly debt payments by your gross monthly income, then multiply the result by 100 to get your DTI percentage.
The VA does not stipulate a maximum DTI ratio, but it advises lenders to apply extra financial scrutiny to borrowers whose DTI ratio exceeds 41%, although higher ratios may be accepted with compensating factors.
LTV Ratio
Your loan-to-value (LTV) ratio helps evaluate the risk of lending by comparing the loan amount to the appraised value of your property. A higher LTV ratio signifies greater risk for the lender.
To calculate your LTV, first determine the total loan amount and the property’s appraised value, which typically requires a professional appraisal. Next, divide the loan amount by the appraised value and multiply the result by 100 to obtain the percentage.
Some lenders will permit up to 100% LTV for a VA cash-out refinance loan, but many lenders will cap the maximum LTV at 90%.
Property Details
Your home must be your primary residence and can be a single-family residence, duplex, triplex, or fourplex property. Your home cannot be used solely for investment or rental purposes; that means if you own a multi-unit property, one unit must be your primary residence.
Also, your property must meet VA minimum property requirements, ensuring that it is safe, sanitary, and structurally sound.
Other Requirements
Because this is a VA loan, you must obtain a Certificate of Eligibility (COE) from the VA. This is a document issued by the U.S. Department of Veterans Affairs that verifies you qualify for a VA-backed home loan.
Additionally, the new loan must meet the VA’s net tangible benefit rules. These ensure that you will achieve a significant financial advantage from VA loan refinancing, such as a lower monthly payment, a shorter loan term, or increased payment stability.
If taking cash out, the funds must be used for beneficial purposes like home improvements or paying off high-interest debt.
Steps involved with refinancing
The process of refinancing a conventional mortgage loan into a new VA cash-out refinance loan will be similar to what you experienced when you obtained your original purchase loan. Expect to complete the following steps:
- Check your credit and financials. Ensure your credit score is in good shape, and gather necessary financial documentation, including recent pay stubs, bank statements, tax returns, and W-2 forms.
- Research and select a refinancing lender by obtaining and comparing multiple rate quotes and loan offers from VA loan-participating lenders.
- Complete and submit your loan application along with the required documentation.
- Arrange for a professional appraisal of your home, which the lender will likely require and charge you for.
- Wait for the underwriting decision as the lender reviews your application, documents, and appraisal report. If you are approved, you will receive a commitment letter outlining the terms of the new loan.
- Close on the refinance loan by reviewing and signing all necessary documents and paying any associated closing costs. If you are opting to tap equity, prepare to receive cash out at closing.
- Start making payments on your new loan, typically beginning one month after closing.
The Bottom Line
Shifting from a conventional loan to a new VA cash-out refinance loan can pay off, especially if you can lower your rate and do away with PMI.
Ready to explore your refinancing options? At Refi.com, we specialize in helping homeowners refinance into the loans that best fit their financial goals. Whether you’re looking to eliminate PMI, lower your monthly payment, or access your home equity, we’re here to guide you through every step of the process. Start your refinance application today and discover how much you could save.
