Can you refinance a VA loan?

Whether you’re looking to borrow your home equity to pay for home repairs or you need a more affordable monthly payment,¹ refinancing your VA loan could make sense. If you have a mortgage backed by the Department of Veterans Affairs,² it’s reasonable to ask: Can I refi a VA loan? The answer is yes.

When you refinance a veteran home loan, there’s no single path. Whether you go with a VA loan or a conventional mortgage, there are programs to meet the goals of any qualifying homeowner.

How does refinancing a VA loan work?

Refinancing a VA loan involves replacing your existing VA mortgage with a new one. This new loan, whether another VA loan or a conventional loan, will have its own terms.

When you refinance, the new loan is used to pay off your current mortgage, resulting in a single monthly payment for your new loan moving forward.

The process of applying for a refinance is often the same, though this depends on the type of refinance you choose. You can expect to complete an application, document your finances, and pay closing costs. Additionally, you need to meet specific seasoning rules, meaning you must wait a minimum amount of time after buying a house or your previous refinance before you can refi again.

If you're refinancing into another VA loan, one of the most important rules is that your lender must prove the new loan provides a tangible net benefit. This means the refinance must measurably improve your financial situation. The idea here is to make sure the lender has your best interests in mind. Examples include:

• Securing a lower interest rate to decrease your monthly principal and interest payments.
• Switching from a VA adjustable-rate mortgage (ARM) to a fixed-rate mortgage.

Something unique to VA loans is that there’s usually no minimum down payment, which means you can refinance with little to no equity.

Why would you want to refinance your VA loan?

Some of the most common reasons to refinance a VA loan include:

• Getting a lower interest rate. Locking in lower VA refinance rates can save you a lot of money in interest over the life of your loan.
• Changing the interest rate structure. Transitioning from a fluctuating ARM to a predictable fixed-rate loan provides long-term peace of mind.
• Changing the monthly payment amount. A lower interest rate or an extended term can reduce your mortgage payment.
• Changing the loan term. You can shorten your loan term to pay off your home faster or extend it to reduce the monthly payment.
• Borrowing home equity. You can convert your home equity into cash to pay for renovations, consolidate high-interest debt, or cover educational expenses.

What are common VA loan refinance options?

You’ll find several common VA and non-VA options available. These refinance types vary heavily by their core purpose, eligibility requirements, up-front costs, and perks. Let's break down the most popular paths.

VA Streamline refinance

The VA Interest Rate Reduction Refinance Loan (IRRRL), most commonly known as the VA Streamline refinance³, is designed exclusively for homeowners with an existing VA loan. Its primary purpose is to help homeowners reduce or stabilize their monthly mortgage payments by getting a lower interest rate or switching from an ARM to a fixed-rate loan.

Because you already hold a VA loan, this program features a simplified application process. In most states, lenders do not require a new property appraisal, extensive income verification, or a hard credit review. This makes it an accessible option, even if you need to refinance a mortgage with bad credit.

Similar to an FHA Streamline refinance^{4, 5}, an IRRRL can be used to refinance an underwater mortgage.

Furthermore, you have flexibility in how the property is used. You can use a VA Streamline on a primary residence, a second home, or an investment property, provided the home was once your primary residence.

Typical requirements

Referencing VA sources, you must meet the following rules and requirements to qualify for an IRRRL:

• You must meet the service requirements and have a valid VA Certificate of Eligibility.
• You cannot close on your refinance until 210 days after the first payment date on your current mortgage.
• You add less than 10 years to the original loan’s term.
• You must undergo the standard underwriting process if the monthly payment on the new loan is 20% or more than your current payment.
• Most borrowers must pay a 0.5% VA funding fee, which can be rolled into the loan balance. Disabled veterans, active-duty military personnel who have received the Purple Heart, and qualified surviving spouses are exempt.
• You must have previously occupied or plan to occupy the home.
• You must have made on-time payments for the last 6 months.
• You must pay closing costs, which often are rolled into the new loan.
• You cannot take more than $500 in cash out of the home.

Pros and cons

VA cash-out refinance

If you need to borrow money, a VA cash-out refinance allows qualified VA borrowers to cash out of their home equity.

Unlike the IRRRL program, this option requires the property to be your primary residence. It also involves a full home appraisal to determine the property's current value, as well as a thorough underwriting process that verifies your income, assets, and creditworthiness.

A major benefit of this program is that it allows eligible borrowers to borrow up to 100% of the house's value, though this limit can vary by lender. This could give you the flexibility to use your equity to consolidate debt or finally get to home improvements.

Rocket Mortgage allows clients to access the full value of their home.

Typical requirements

To be eligible for a VA cash-out refinance, you will need to meet the following criteria:

• You must meet the VA loan service requirements and have sufficient VA loan entitlement, whether that is full entitlement or partial entitlement.
• You cannot refinance until after 210 days from the first payment date on your current loan.
• You must meet the lender’s requirements, such as a minimum credit score and maximum debt-to-income (DTI) ratio.
• You must pay a VA funding fee of 2.15% for the first use and 3.3% thereafter. This amount can be rolled into the loan balance.
• You must use the home as your primary residence.
• You must pay closing costs, which often are rolled into the new loan.

Pros and cons

Refinance to a conventional loan

A conventional loan is a mortgage that is not backed or insured by a government agency, such as the VA. If you are comparing a VA loan vs. a conventional loan, one of the biggest differences is private mortgage insurance (PMI). If you refinance to a conventional loan and you don't have at least 20% equity in your home, you'll be required to pay for PMI as part of your monthly payments.

So why make the switch? Borrowers might consider refinancing to a conventional loan to avoid paying the VA funding fee. Additionally, refinancing out of a VA loan can help restore your full entitlement for future use, freeing you to buy a new primary residence with your VA benefits later.

This option may appeal to someone who no longer plans to use the home as their primary residence, offering greater flexibility for renting the property. Keep in mind that conventional rate-and-term and cash-out refinance options are available.

Typical requirements

To make the transition from a VA to a conventional loan, you must meet standard refinance mortgage requirements:

• Must be below the maximum loan-to-value ratio (LTV) with substantial home equity.
• Must pay PMI as part of the mortgage payments if you have less than 20% equity.
• Meet credit guidelines. Fannie Mae and Freddie Mac rely on a holistic evaluation of risk factors, but lenders may have their own requirements for what credit score is needed to refinance.
• You must be below the maximum debt-to-income ratio (DTI). For the best chance of qualifying, keep it at 43% or less.
• Must have a stable and sufficient income.
• Must have a satisfactory property appraisal completed.
• Must meet typical seasoning requirements.
• Must pay closing costs.

Pros and cons

Pros and cons of VA loan refinancing

Before moving forward with an application to any lender, it is wise to review the overall pros and cons of refinancing to ensure it aligns with your long-term goals.

Pros

There are significant benefits to refinancing your mortgage, including, but not limited to:

• Possible lower mortgage interest rates. Securing a lower rate can lead to massive interest savings over time.
• Opportunity for lower monthly payments. This can free up cash for other investments and living expenses.
• Ability to access cash from home equity. Using a home equity calculator can help you estimate how much cash you could access.
• Flexible requirements and terms. For VA-backed loans, credit and income requirements are often more lenient than those for conventional loans.
• May involve minimal upfront out-of-pocket costs. Borrowers can often take advantage of a no-closing-cost refinance structure.
• No prepayment penalty is involved. VA loans do not charge you a penalty for paying your mortgage off early.

Cons

You should also be heavily aware of the drawbacks, including, but not limited to:

• Likely fees over the loan term. Extra costs, such as PMI or VA funding fees, are paid over the life of the loan.
• Closing costs. These fees must be paid either upfront or added to the loan, increasing your overall refinancing costs.
• Various eligibility requirements. You still must navigate seasoning periods and unique lender rules.
• Risk of higher costs over time. Depending on interest rates, extending the term could mean you pay more in total interest.
• Risk of overborrowing. Tapping into too much equity could lead to an underwater mortgage if housing values decline quickly. 

Should you refinance your VA loan?

With the pros, cons, and options laid out, should you refinance right now? Whether now is a good time to refinance depends heavily on your unique situation.

Refinancing a VA loan makes sense when:

• You can lock in a better interest rate that meaningfully reduces your payments.
• You can comfortably meet the requirements for your desired loan.
• You plan to stay in the house long enough to break even regarding the refinancing costs.
• You need to cover an important expense, like a major home renovation.
• You are okay with paying extra costs, such as the funding fee, for long-term benefits.

On the flip side, if you plan to move within a year, the closing costs will likely outweigh the benefits. To see your specific numbers and potential savings, we strongly encourage readers to use the Rocket Mortgage refinance calculator.

If you’re looking to save money on the monthly payment, refinancing makes sense if the monthly savings outweigh the closing costs. To determine that, divide the closing costs by your monthly savings. This gives you a number of months. If you plan to stay in the home longer than that, refinancing can make sense. If not, skip it.

How to refinance your VA loan

The exact process to apply for a mortgage will depend on the chosen refinance program. However, you can expect to navigate a few typical steps, with a brief explanation for each:

1. Choose a lender. Shop around to find a lender experienced with VA loans who offers competitive rates and terms.
2. Request a VA Certificate of Eligibility. If you are pursuing a VA-backed refinance, you or your lender will need to obtain your COE to prove your entitlement.
3. Gather necessary documents and information. Pull together items like pay stubs, W-2s, bank statements, and tax returns. (Note: The IRRRL program requires much less documentation.)
4. Submit your refinance application. Officially apply with your chosen lender. Your file will then move into underwriting, where the lender verifies your financial profile.
5. Close on the loan. Review your closing disclosures, sign your new loan documents, and pay any required closing costs.

Bottom line: A VA loan refinance may be right for your needs

Refinancing your VA loan can allow you to lower your monthly payment, adjust your loan terms, or access the equity you've built up in your home. Before making a final decision, consider your goals, the specific requirements of the different options, and the overarching pros and cons.

Ready to see your specific numbers and options? Apply to refinance today.

¹ Refinancing may increase finance charges over the life of the loan.

² Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

³ The VA Streamline program may have stricter requirements in some states. In order to qualify for the VA Streamline program, you must have a VA loan. The VA Streamline is only available on primary residences. Cash-out transactions are not allowed. In order to qualify for a VA Streamline, a 0.5% minimum reduction in interest rate on the previous fixed-rate loan must occur if the new loan will be a fixed rate or a 2% minimum reduction in interest rate on previous adjustable rate mortgage loan must occur; a minimum of 6 months of consecutive mortgage payments must be paid on the current loan at the time of application. Some states may require an appraisal. Additional restrictions/conditions may apply.

⁴ Rocket Mortgage is not acting on behalf of FHA or HUD.

⁵ The FHA Streamline program may have stricter requirements in some states. In order to qualify for the FHA Streamline program, an immediate .5% minimum reduction in interest and mortgage insurance premium is required. Some states may require an appraisal.

Rocket Mortgage is a trademark or service mark of Rocket Mortgage LLC or its affiliates.