Refinancing a Conventional Loan Into a VA Loan: Step by Step

You Can Refinance Out of a Conventional Loan — Here Is How

Many veterans purchased their homes with conventional financing — either because they did not know about VA benefits at the time, because they had used their VA entitlement on another property, or because circumstances changed after purchase. If you now hold a conventional mortgage and have VA loan eligibility, refinancing into a VA loan can offer meaningful financial benefits.

This guide explains exactly how that process works, what it costs, and what veterans should consider before pursuing it.

This Requires a VA Cash-Out Refinance — Not an IRRRL

The first thing to understand is that the VA IRRRL (Interest Rate Reduction Refinance Loan, also called the Streamline Refinance) is not available for this situation. The IRRRL is exclusively a VA-to-VA refinance product — it can only replace an existing VA-backed loan. If your current mortgage is a conventional loan (or FHA, or USDA), you cannot use the IRRRL.

The correct tool for converting a conventional loan to a VA loan is the VA Cash-Out Refinance. This is a fully underwritten refinance that replaces your existing loan with a new VA-guaranteed mortgage. Despite the name, you are not required to take cash out — a transaction that simply replaces the existing balance without adding equity withdrawal is called a Type I cash-out refinance.

If you want to understand the distinction between Type I and Type II transactions, our article on Type I vs. Type II VA Cash-Out Refinances covers it in detail.

Why Convert From Conventional to VA?

Eliminate Private Mortgage Insurance

The most financially compelling reason to convert is PMI elimination. Conventional loans with less than 20% equity require private mortgage insurance — a monthly premium that protects the lender, not you. PMI typically costs between 0.5% and 1.5% of the loan balance annually, paid monthly.

On a $350,000 loan balance at a 1% PMI rate, that is roughly $292/month going to a lender protection premium with no benefit to the borrower. A VA loan has no monthly mortgage insurance — ever. Even accounting for the VA funding fee paid at closing, the elimination of PMI can represent substantial savings over time.

Example: A veteran paying $250/month in PMI who refinances into a VA loan saves $3,000/year in PMI premiums. The VA funding fee on a $350,000 first-use cash-out is $7,525. The funding fee pays for itself in savings in approximately 2.5 years — and from that point forward, the $250/month stays in the veteran's pocket.

Potentially Better Interest Rate

VA-backed loans carry a government guaranty that reduces lender risk, which often results in slightly lower rates compared to equivalent conventional loans. The spread varies, but 0.25% to 0.50% lower is common. Over 30 years on a $350,000 loan, a 0.375% rate reduction saves approximately $25,000 in total interest.

Whether you will receive a better rate depends on current market conditions, your credit profile, and lender competition — but the structural advantage of the VA guaranty is real.

Access Equity If Needed

If you have significant equity in your home and a financial need — home improvements, debt consolidation, education costs — a Type II cash-out structure lets you access that equity as part of the same transaction. You can refinance the conventional loan into a VA loan and take cash out simultaneously. Or you can keep it as a Type I transaction and simply replace the loan. The choice is yours.

Key Requirements and Eligibility

VA Loan Eligibility

To pursue this refinance, you must be an eligible veteran, active duty service member, or qualifying surviving spouse. The VA Certificate of Eligibility (COE) documents your entitlement. You can obtain it through VA.gov, through your lender (most VA-approved lenders can pull it electronically), or by mailing VA Form 26-1880.

There is no requirement that you served recently — the VA home loan benefit is a lifetime benefit. Veterans who served decades ago and have never used their VA loan benefit are fully eligible, as long as they met minimum service requirements at the time of discharge. See VA.gov's eligibility page for the full service and discharge requirements. Veterans who used the VA loan benefit previously but paid off that loan may be able to restore their entitlement for reuse.

Full Underwriting Required

Unlike the IRRRL, this transaction requires full loan underwriting:

• Credit review: Most VA-approved lenders require a minimum credit score, typically 620 to 660, though overlays vary by lender. Higher scores get better rates.
• Income verification: You will provide recent pay stubs, W-2s, and tax returns. Self-employed borrowers typically need two years of returns. The lender will calculate your debt-to-income (DTI) ratio; the VA guideline is 41%, though lenders have some flexibility.
• VA appraisal: A VA-assigned appraiser will assess the property's value. This determines how much you can borrow and confirms the home meets VA minimum property requirements.
• Property occupancy: The home must be your primary residence. VA loans are not available for investment properties or second homes.

Can You Do This on a Home You've Owned for Years?

Yes. There is no requirement on how long you have owned the home before converting to VA financing. A veteran who bought a home 15 years ago with a conventional loan and has significant equity can refinance today. The standard seasoning requirement is modest: most lenders require that you have made at least 6 payments on your current mortgage before pursuing a cash-out refinance.

The Process: Step by Step

Step 1 — Obtain your Certificate of Eligibility (COE)

Your COE confirms your VA loan entitlement. Many VA-approved lenders can retrieve this electronically during the application process, but you can also get it yourself at VA.gov.

Step 2 — Assess your current financial position

Before applying, calculate your current loan balance, your home's approximate value (use a recent comparable sales analysis or a home value estimator as a starting point), and your current interest rate and PMI costs. This gives you the baseline for comparing what a VA loan could offer.

Step 3 — Shop VA-approved lenders

Get quotes from at least 3 VA-approved lenders. The rate you receive varies meaningfully across lenders — differences of 0.25% to 0.5% are common, and those differences compound significantly over time. Compare Loan Estimates (the standardized 3-page form lenders must provide within 3 business days) using the APR and total fees, not just the headline rate.

Step 4 — Submit a full application

Once you choose a lender, submit the full application with documentation: recent pay stubs, W-2s, tax returns, bank statements, and identification. Your lender will order the VA appraisal.

Step 5 — Underwriting and appraisal

The VA appraisal typically takes 1 to 3 weeks. The underwriter will verify your income, credit, and assets, and confirm the appraisal supports the loan amount. The lender will communicate any conditions that must be satisfied before closing.

Step 6 — Close the loan

Closing on a VA cash-out refinance typically takes 30 to 45 days from application. If you are receiving cash proceeds, there is a 3-business-day right of rescission period before funds are disbursed on primary residences.

The Funding Fee

Converting a conventional loan to a VA loan involves the VA funding fee on the cash-out refinance program. For most veterans using the VA loan benefit for the first time:

• 2.15% for first use
• 3.30% for subsequent use

On a $300,000 loan at first use, the fee is $6,450. On a $350,000 loan, it is $7,525.

Veterans with a service-connected disability rating are exempt from the funding fee entirely. If you receive VA disability compensation, you pay no funding fee — which can represent substantial savings. See our VA Funding Fee 2026 guide for a full breakdown of rates, exemptions, and dollar examples at common loan sizes.

The funding fee can be rolled into the new loan balance — you do not need to bring this cash to closing.

The 90% LTV Practical Limit

The VA technically allows cash-out refinances up to 100% of the home's appraised value. In practice, however, most major lenders and Ginnie Mae (which securitizes VA loans in the secondary market) impose overlays that cap cash-out refinances at 90% LTV.

This means: if your home is appraised at $400,000, most lenders will allow you to borrow up to $360,000 (90% of value). Closing costs and the funding fee can be rolled in on top of this, but the base loan amount for equity purposes is constrained to 90% in most cases.

If you need to access equity close to the 100% LTV limit, you will need to shop lenders carefully — some lenders do go higher, but they are not the majority of the market. If your equity is thin, confirm the lender's actual LTV cap before submitting a full application.

Common Questions

Does converting to a VA loan affect my property taxes or homeowners insurance? No. The loan type has no effect on property tax assessments or insurance requirements (beyond confirming the home is insured, which all lenders require).

Can I remove PMI without refinancing? If your conventional loan has reached 80% LTV through payments or appreciation, you may be able to request PMI cancellation without refinancing. This is worth exploring first — it avoids closing costs and funding fees entirely. If you are under 80% LTV already, canceling PMI through your servicer is often the simpler path.

What happens to my current lender? Your existing conventional mortgage is paid off at closing with proceeds from the new VA loan. Your relationship with your current lender ends. The new VA loan will be serviced by whoever your VA lender designates — which may be a different company than the originating lender.

Do I need a new homeowners insurance policy? Your existing policy typically continues uninterrupted. You will need to provide a copy at closing confirming the new lender is listed as the mortgagee.

Bottom Line

Refinancing a conventional loan into a VA loan is one of the more underutilized applications of VA loan benefits. For veterans paying PMI, the elimination of that monthly expense alone often justifies the transaction cost within a few years — and for veterans with eligible disability ratings, the funding fee exemption makes the economics even more compelling. If you later need to go the other direction — converting your VA loan back to conventional to free up entitlement or convert the property to a rental — see our guide on refinancing a VA loan into a conventional mortgage.

The VA Cash-Out Refinance is the vehicle for this conversion. It requires full underwriting, but the process is well-established and typically closes within 30 to 45 days.

Use our VA Refinance Calculator to model the numbers — current loan balance, estimated new rate, PMI savings, and funding fee — before you reach out to any lender.