By Matt Allen
Vice President, Portfolio Lending (NMLS #415037)

How to Refinance a VA Loan to a Conventional Conforming Loan

Jan 09, 2020

  • VA Refinance
  • Conventional Loan
  • VA Loans
  • Refinancing

VA loans are often the ideal option when those in military service when looking to purchase a home. They offer the best terms and are one of the few choices that allow you to buy a home with no money down. There are reasons why you may want to refinance your existing VA loan into a conventional loan.

Refinance Your VA Loan to Obtain Rental Property

A common reason for refinancing a VA loan to a conventional loan is to purchase a rental property. VA loans don’t allow you to use your eligibility to buy a second property for just any purpose. You can take your existing VA loan and turn it into a conventional loan so that you can use the property for rental. Then you can turn around and use your VA eligibility to purchase a new primary home.

There are a few things that you need to keep in mind before you do this. Since VA loans allow you the option of buying a home for no money down, if you refinance to a conventional loan, it could add private mortgage insurance into your monthly mortgage payments.

Conventional Conforming loans usually require that you put down 20% of the home's purchase price (have at least 20% equity in your home) to forgo paying PMI. If your home's value has significantly increased over the time you’ve lived there, it is possible that the home now has at least 20% equity.

Other Reasons to Consider Refinancing to a Conventional Conforming Loan

If you have owned your home for a long time and built up equity, you might be able to get a better interest rate now than what the VA offered back when you took out the loan. If you have multiple mortgages, there’s also the possibility that you may not qualify for the VA’s IRRRL program, so a conventional loan refinance may be a better choice.

Whatever the reason, make sure you are following the regulations and guidelines that are in place on these loans. You will also want to review and compare refinancing offers carefully before choosing a conventional refinancing lender.

Meeting Credit Qualifications for a Conventional Conforming Loan

Conventional loans can replace virtually any loan type, including FHA, option ARM, and VA loans. The credit qualifications and requirements are generally stricter on a conventional loan refinance over VA options. For instance, you will need at least a credit score of 640 to qualify for a conventional conforming refinance program.

If you don’t have at least 20% equity in your existing home, you will likely have the added cost of PMI. Your credit score plays a part in what your PMI premium will be. Expect to pay more PMI premium on a conventional loan if you have a lower credit score.

Additionally, your maximum debt-to-income needs to be below 45% and 50%. You will likely be required to have a new appraisal on the home and documented proof of your income when applying for a conventional conforming loan refinance.

How to Get a Conventional Conforming Loan Refinance

Conventional conforming refinances are a popular refinance option for borrowers. You will likely find several lenders in your city in addition to national and online-only lenders. Shop around to get a few different quotes. Once you’ve compared the offers, choose the lender that best suits your needs, and complete the loan application.