VA Loan Reader Questions: Can I Refinance My FHA Loan with a VA Mortgage?
A reader asks, “I’m a veteran and I have never used my VA Loan benefits. I’ve been in my home for 7 years under the FHA program and would like to inquire how I can refi with the VA?”
This raises an important questions for veterans who are in FHA home loans and want to refinance into a VA mortgage–does the VA loan program allow borrowers to refinance these types of loans?
Yes. The VA loan program has two basic types of refinancing. One is Streamline Refinancing, which allows a borrower holding an existing VA mortgage to refinance with no appraisal or credit check in most cases. The other is called VA cash-out refinancing and features the option to get cash back at closing time for any money left over above and beyond the payoff amount for the original mortgage.
The VA cash out refinance loan option may be used to refinance a non-VA loan. Let’s look at what the VA loan rule book, VA Pamphlet 26-7, says about cash-out refinancing. That information is found in Chapter Six:
“A cash-out refinancing loan is a VA-guaranteed loan that refinances any type of lien or liens against the secured property. The liens to be paid off may be:
- Current or delinquent, and
- From any source, such as
- Tax or judgement liens
- VA, FHA, or conventional mortgages
Loan proceeds beyond the amount needed to pay off the lien(s) may be taken as cash by the borrower for any purpose acceptable to the lender. The loan must be secured by a first lien on the property.”
Additionally, this type of VA refinancing allows a maximum loan amount of “100 percent of the appraised value, plus the cost of any energy efficiency improvements, plus the VA funding fee.” Note that this is an “appraisal required” VA refinance loan and borrowers will need to anticipate the cost of the appraisal and the VA loan funding fee, which is applicable unless the borrower is exempt from paying that fee.
What is the maximum amount the VA will guaranty for this type of refinancing? According to Chapter Six, “The maximum guaranty for regular (i.e., “cash-out”) refinancing loans is the same as the maximum guaranty for purchase loans. Prior to October 10, 2008, the maximum guaranty had been limited to $36,000. However, guaranty on this type of loan is now computed the same as for purchases (i.e., can vary depending on location).”
Do you have questions about VA home loans or refinance loans? Ask us in the comments section.