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Refinancing From a Conventional to a VA Loan in California

California military members and veterans with existing VA loans can use the “streamline” refinancing program to refinance with very little paperwork and no home appraisal.

That’s one of many benefits offered by the VA home loan program, which also allows borrowers to finance up to 100% of the purchase price.

But there’s another refinancing-related benefit that many people don’t even know about.

Eligible homeowners in California with conventional loans can also refinance into a VA loan. This strategy can benefit many homeowners, especially those who are currently paying mortgage insurance.

By switching from a conventional to a VA loan, homeowners can take mortgage insurance out of the equation and reduce their monthly payments at the same time.

Conventional Versus VA Loans

We will circle back to the refinancing benefits in a moment. But first, let’s cover some of the definitions that are used throughout this article.

  • A conventional loan is a type of mortgage that is not guaranteed or insured by any government agency. They typically require a down payment of at least 3% and sometimes more. With a conventional loan, borrowers who make a low down payment that results in a loan-to-value ratio greater than 80% typically have to pay for private mortgage insurance (PMI).
  • A VA loan is a mortgage loan program specifically designed for eligible veterans, active-duty service members, and their surviving spouses. Administered by the Department of Veterans Affairs, VA loans offer several advantages, including no down payment requirement, and no mortgage insurance requirement.

So the main difference, from a borrower’s perspective, has to do with down payments and mortgage insurance.

Government-backed VA loans do not require a down payment or mortgage insurance, while conventional loans usually require a down payment and often require private mortgage insurance as well.

Refinancing Into a VA Home Loan

A lot of military members and veterans in California use VA loans to purchase a house. But not all of them. Some borrowers use conventional loans instead, and many of them end up having to pay private mortgage insurance.

According to data from the Urban Institute’s Housing Finance Policy Center, the average cost for a PMI policy ranges from 0.58% to 1.86% of the loan amount, per year.

For a median-priced home in California, the cost of private mortgage insurance could easily add up to more than $10,000 per year. This can add several hundred dollars onto a homeowner’s monthly mortgage payments.

And this is where VA refinancing comes into the picture.

As mentioned earlier, VA-guaranteed mortgage loans do not require a down payment or mortgage insurance. Additionally, eligible military members and veterans can refinance into a VA loan even if the currently have a conventional mortgage.

As it states on the Department of Veterans Affairs website:

The VA home loan benefit is not just for buying homes. Sure, it provides unmatched home buying advantages, but you can also use it to refinance your existing mortgage, whether it’s a VA loan or not.

The bottom line: Refinancing into a VA loan allows some homeowners to completely eliminate their private mortgage insurance policies. This in turn can help homeowners reduce their monthly housing costs.

How the Refinancing Process Works In This Scenario

When you refinance your home, you are essentially replacing your current mortgage loan with a new one—ideally with a lower rate and/or better terms.

Here’s how to refinance out of a conventional loan and into a VA-backed mortgage:

  1. Determine eligibility: Ensure that you meet the eligibility criteria set by the Department of Veterans Affairs for a VA loan, including military service requirements.
  2. Obtain Your COE: Apply for a Certificate of Eligibility (COE) from the VA to confirm your eligibility their loan guaranty program.
  3. Contact Bridgepoint Funding: We specialize in this program and serve borrowers all across the state of California. We can assist you with many of the steps outlined in this article.
  4. Apply for the VA refinance loan: Submit a loan application and provide all required documentation.
  5. Undergo appraisal and approval: The lender will order an appraisal of your home to determine its current value and assess your loan application for approval.
  6. Pay off existing mortgage: Use the funds from the VA loan to pay off your existing conventional mortgage.

Other Benefits for Borrowers

In addition to eliminating private mortgage insurance, VA loan refinancing can offer other important benefits as well. These include the following:

Stability with fixed-rate mortgages: Homeowners with adjustable-rate mortgages (ARMs) can refinance into a VA fixed-rate mortgage, providing stability and predictability in monthly mortgage payments. This helps protect against potential increases in interest rates and ensures consistent payments over the life of the loan.

Cash-out refinancing: For homeowners with positive equity in their homes, VA cash-out refinance loans allow them to convert some of that equity into cash. This extra cash can be used for various purposes, such as home improvements, debt consolidation, or covering unexpected expenses.

Lower interest rates: VA loan refinancing may offer the opportunity to secure a lower interest rate than what was originally obtained with the conventional loan. This can result in significant savings over the life of the loan, reducing monthly mortgage payments and overall borrowing costs.

As you can see, refinancing from a conventional loan to a VA loan can deliver a lot of benefits. And some of these benefits can overlap.

For example, a homeowner could refinance into a VA loan to eliminate PMI, switch to a more stable fixed-rate mortgage, and secure a lower interest rate … all with one mortgage transaction!

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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