The U.S. Department of Veterans Affairs backs mortgages for veterans and service members. These home loans come with lots of perks, like no mortgage insurance and lower-than-average interest rates. 

If you didn’t know about VA loans when you bought your house, you’re not completely out of luck. If you would be eligible for a VA mortgage, you can also probably get a VA refinance. By refinancing a non-VA loan into a VA one, you might be able to get a lower interest rate, remove mortgage insurance, and/or cash-out some of your equity. 

There’s a trick here, though. While the VA offers multiple types of refinances, only one is available to people starting with a non-VA loan. 

The one path for refinancing a non-VA loan into a VA loan

The VA offers a streamlined refinance — the interest rate reduction refinance loan (IRRRL) — but that’s only for people who currently have a VA loan. If you’re starting with any other kind of mortgage, you’ll need to use the VA’s cash-out refinance option. This gives you a way to get into a VA-backed loan if you currently have a conventional mortgage, an FHA loan, a USDA loan, a jumbo loan, or some other type of mortgage. 

This can be a little confusing. With other kinds of mortgages, you only get a cash-out refinance if you actually want to cash out some of the equity you’ve built up in your house. Essentially, you take out a bigger mortgage than what’s currently left on your loan balance, then pocket the difference.

With a VA cash-out refinance, you can do that, but you don’t have to. The VA is completely fine with people using a cash-out refi to get into a VA loan even if they take $0 out. The VA calls this a Type I cash-out refinance. If you do want to liquidate some of your equity, it’s called a Type II VA cash-out refinance. 

When a VA cash-out refinance might be right for you

Refinancing means paying closing costs, usually to the tune of thousands of dollars. Plus, if you refinance a non-VA loan into a VA loan, you’ll need to pay the VA funding fee. That will equal 2.15 or 3.3% of your loan amount; 2.15% if you’ve never had a VA loan before, 3.3% if you have. 

So this comes down to finding out if the VA cash-out refinance makes financial sense for you. It might if:

• You want to cash out some of the equity you’ve built up in your house to use for home improvements, education, starting your own business, consolidating debt, or moving toward another long-term goal. 
• You can qualify for a lower interest rate that would help you more than make up for the closing costs and save money over time. 
• You want to move from an adjustable-rate mortgage to a fixed-rate one for more stability in your budget. 
• You currently have an FHA loan with lifelong mortgage insurance premiums (MIPs) that you want to ditch.
• You have a conventional loan with private mortgage insurance (PMI) and you’re not close to reaching the 80% equity threshold for removing it.

Our VA refinance calculator can help you crunch the numbers here. Pay special attention to the break-even analysis. That tells you how long it will take for you to make up what you’ll pay in closing costs. After that, you’ll start seeing financial benefits. 

Checking if you’re eligible for VA cash-out refinance

You technically can refinance a non-VA loan into a VA loan. But to get a VA cash-out refinance, you have to meet three specific criteria that the VA lays out. They are:

• The ability to get a certificate of eligibility (COE)
• The ability to meet financial requirements like a decent credit score and enough income to repay the loan
• Occupancy

Let’s break those down.

Certificate of eligibility

The first one hinges on where, when, and how you served. Most active-duty service members and veterans who served during wartime can get a COE if they served for 90 consecutive days. If you’re a veteran who served during peacetime, you usually need at least 180 days of service. If you’re a Reserve or National Guard member, the requirements are slightly different. 

We did a deep dive into the minimum service requirements to get VA loans and refinances. You can use that to help you find out if you’re eligible. 

Ability to repay

You don’t get a VA cash-out refinance directly from the VA. Instead, you get it through a lender who’s been approved by the VA. 

That means you need to meet the lender’s standards for minimum income, credit score, and other financial thresholds. Essentially, the lender will only approve you for the VA cash-out refinance if it looks like you can repay what you borrow. 

Occupancy

VA cash-out refinances are only available to people who will live in the home they’re refinancing. This isn’t an option if you’re trying to refi a vacation home or investment property. 

Getting started with your VA cash-out refinance

Do you think a VA cash-out refinance might be right for you? The next step is to start exploring lenders who can offer you this kind of loan. Not all lenders have VA approval and you don’t want to waste your time. We keep a list of lenders currently offering VA cash-out refinances. You can use that to start shopping your options. 

To get the best deal on your VA cash-out refinance, make sure you compare offers from multiple different lenders. That way, you’ll know you made the right move when you refinanced your non-VA loan to your new VA loan.

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