Can you refinance a VA loan to a conventional loan?
VA to Conventional Loan Refinancing: The Basics
If you have a VA loan on your current home, you can refinance it into a conventional loan-- but it might only make sense in a few, very particular situations. Since conventional loans typically have higher interest rates and charge monthly private mortgage insurance (PMI) premiums, you probably wouldn’t want to refinance your VA loan just to save money on your mortgage payments.
When a VA to Conventional Loan Refinance Makes Financial Sense
The most popular reason for a VA to conventional loan refinance is that borrowers want to use their VA credit to buy a rental home that can increase their monthly income. If you’re a VA eligible borrower, you only typically have one credit you can use to get a VA home loan. While you can use this credit over and over again, you can’t use it more than once at the same time. By freeing up their VA credit, homeowners may be able to purchase another home, gaining more financial freedom-- but there’s a big catch.
How to Use a VA Loan for Rental Property
There’s one big problem when it comes to using a VA loan to buy a rental or investment property: you can’t technically do it since VA loans are only available for primary residences. Despite this, homeowners can refinance the VA loan on their current home into a conventional loan, freeing up their VA credit, rent that home out for income, and then buy a new home with a VA loan that they will use as their primary residence. This requires you to give up living in your current home, which may or may not be acceptable (depending on how much you like it), but might be a smart financial solution for many. Also, remember that PMI premiums (the ones we mentioned earlier), will make the mortgage on your first home (now the rental home) more expensive, and that could easily eat into your profits.
Remember, VA loans are available for homes with up to 4 living units, so, if you’re really serious about getting more rental income, so it might make sense to choose an affordable duplex or triplex as a new primary residence. Or, if you want to skip the entire refinancing process, it might simply be smarter to sell your old home to free up your VA credit, and to purchase a multiplex with your new VA loan.