Why some veterans switch
A VA loan is one of the best tools a veteran has. Still, there are times a conventional loan fits better. The most common reasons are:
- Freeing up VA entitlement to buy another home with a VA loan
- Your home has become a rental and you want a loan built for an investment property
- You want to add or remove a co-borrower who isn't a veteran or spouse
- You have enough equity to drop the VA funding fee from future refinances
What happens to your entitlement
Your VA benefit doesn't go away when you refinance. Once the VA loan is paid off, you can apply to restore your entitlement.
Full restoration usually requires that the loan is paid off and the home is sold. If you pay off the VA loan by refinancing and keep the home, the VA generally allows a one-time restoration. Rules can change, so confirm the details with the VA or your loan consultant.
The trade-offs to weigh
Conventional loans may require private mortgage insurance if you have less than 20% equity. With 20% equity or more, you can usually refinance to conventional without PMI. Conventional loans also tend to look more closely at credit scores and debt.
On the other hand, a conventional loan has no VA funding fee, and it can be a better fit for a rental or a co-borrower who isn't eligible for VA.
If the home is now a rental
You may not need to leave VA financing just because you moved out. A VA Interest Rate Reduction Refinance Loan (IRRRL) generally only needs you to have lived in the home before, not now. A VA cash-out refinance, by contrast, usually requires that you live there.
Compare both paths. Moving to conventional makes the most sense when you also want to restore entitlement for your next home.
What the process looks like
Refinancing to conventional works like most refinances. You apply, share income and asset documents, and the lender checks your credit. Many conventional refinances need an appraisal to confirm the home's value, which also determines whether PMI applies.
Refinancing with CapCenter
CapCenter offers conventional, VA IRRRL and VA cash-out refinances, all with ZERO Closing Costs (restrictions apply). You need a credit score of at least 620 for a CapCenter loan. A loan consultant can compare staying in a VA loan with switching to conventional.
