When comparing VA loan refinancing vs. conventional refinancing, the choice depends on your financial situation. VA options, like the IRRRL, offer a streamlined process with no appraisal and lower costs, ideal for those seeking lower payments. Conventional refinancing, requiring a strong credit score and equity, may be better for those with improved financials. VA refinancing is best for veterans with current VA loans, while conventional refinancing can offer lower long-term costs for those with strong financials.
VA Loan Refinancing vs. Conventional Refinancing: Where Do You Start?
The keyword here—VA loan refinancing vs. conventional refinancing—has become a hot topic, especially with unpredictable market rates and rising home equity. Everyone wants to know which path saves more money and gives fewer headaches.
So here’s the straight-up deal.
If You Have a VA Loan, You’ve Got Two Main Options:
- VA IRRRL (Interest Rate Reduction Refinance Loan): Streamlined, fast, super low-barrier. No appraisal, no income checks, lower funding fees.
- VA Cash-Out Refinance: Pull out cash based on home equity. Bigger underwriting process, but could make sense if you need liquidity.
On the flip side, if you’re comparing this to going conventional, you’re stepping into a different game:
- Conventional Refinance: Uses your credit score, debt-to-income ratio, and equity to qualify. More hoops to jump through but better for those with strong financials.
Think of It Like This:
You’ve got a friend, let’s call her Megan. She served in the Navy, got a VA loan five years ago at 4.5%. Now, rates dropped to 3.25%. Her lender says, “Let’s do an IRRRL, you’ll skip the appraisal, close in 2 weeks, and your payment will drop by $200/month.”
Sounds like a no-brainer… unless Megan wants cash for a new roof or debt consolidation. That’s when she might lean toward a VA cash-out or even a conventional refinance if her equity is strong.
Key Differences: VA Loan Refinancing vs. Conventional Refinancing
| Feature | VA Refinance | Conventional Refinance |
|---|---|---|
| Credit Score Needed | No official minimum for IRRRL; Cash-Out: ~620 | Usually 620 or higher |
| Appraisal Required | No (IRRRL); Yes (Cash-Out) | Yes |
| Mortgage Insurance (PMI) | None | Required if < 20% equity |
| Funding Fees | Yes (can be financed) | No funding fee, but closing costs apply |
| Cash-Out Option | Yes, up to 90–100% LTV | Yes, but usually capped at 80% LTV |
| Use for Investment Property | No | Yes |
When a VA Refinance Makes the Most Sense
Stick with VA refinancing if any of this sounds like you:
- You’ve already got a VA loan
- Your credit isn’t perfect right now
- You don’t want to deal with an appraisal or massive income documentation
- You’re just chasing a lower interest rate (IRRRL is tailor-made for this)
And if you need cash—VA’s cash-out refinancing gives you way more flexibility with LTV (loan-to-value ratio) than a conventional refi.
Here’s Where Conventional Refinancing Might Be Better
Let’s say you’ve got a VA loan but your financials improved a lot since you first bought. High credit score, stable income, big equity cushion. You might be able to:
- Skip the VA funding fee
- Avoid paying the VA’s higher closing costs
- Get a super competitive rate, especially if you’re borrowing less than 80% LTV
This is when a conventional refi might beat the VA—even for veterans. It’s about running the numbers and seeing what saves more long term.
There’s no universal “right one,” but you can figure out which makes more sense for you right now.
Hit up the full blog series at reAlpha’s blog if you’re also looking at FHA vs. conventional loans or want to understand home equity vs. cash-out refi options.
FAQs
Can I refinance my VA loan into a conventional loan?
Yes. If you qualify based on credit, income, and equity, you can switch from VA to conventional. Just note that you’ll lose the VA-specific perks (no PMI, potentially higher LTV).
What’s cheaper—VA refinance or conventional?
Depends on your financials. VA wins when you’re trying to cut payments fast, especially with IRRRL. Conventional can be cheaper over time if you’ve got great credit and lower LTV.
Will I have to pay closing costs for a VA refinance?
Yes, but they can often be rolled into the loan or offset through lender credits. IRRRL usually has lower costs than a full cash-out refi.
Does VA loan refinancing require a new appraisal?
Only for a VA cash-out. IRRRL doesn’t need one, which is a game-changer for people who hate paperwork (who doesn’t?).
Can I use a VA refinance for an investment property?
Nope. VA loans (original or refi) are only for your primary residence. If you want to refi a rental, you’ll need a conventional loan.
Conclusion
We’ve only just scratched the surface of VA loan refinancing vs. conventional refinancing—keep reading to get the full picture. The choice could literally save you thousands. Stick around for Part 2.
