A refinance from an FHA home loan into a VA home loan is a great way to drop FHA monthly mortgage insurance, at least for those Veterans who are eligible. The monthly mortgage insurance on an FHA loan can really add on to your mortgage payment. And for FHA loans with case numbers pulled after June 3, 2013, the monthly mortgage insurance may never drop off. Even for FHA loans will Case numbers pulled prior to June 3, 2011 the monthly mortgage insurance will be on the loan for anywhere from 5 years to 11 years, depending on the original loan to value and term of the loan.
Why Would a Veteran Have an FHA Loan?
It is surprising that a Veteran would even have an FHA loan in the first place. Except for situations where the Veteran didn’t have full entitlement available for a home purchase, the VA program will be better for the Veteran in almost any situation. However, because not all California lenders are familiar with the VA home loan program Veterans will sometimes be pushed into an FHA loan. Also, sometimes Veterans are not aware of the advantages the VA program has over FHA.
- VA will allow for $0 down payment | FHA requires 3.5% down payment.
- VA does not have monthly mortgage insurance | FHA uses a factor of 1.35% for monthly mortgage insurance when the down payment is less than 5%. (1.3% when 5% or more is put down). A $400,000 FHA loan would have monthly mortgage insurance of $450, versus $0 for VA. Huge savings for VA.
- VA only requires a two year wait after a foreclosure. | FHA requires three years.
- While VA does have a 100% loan limit, which is based on the county where the property is located, it is possible for a Veteran to get a loan amount above and beyond the 100% VA loan limit by coming in with a small down payment. This is referred to as a Jumbo VA Loan. There are lenders in California who will loan up to $1,500,000 on a VA Jumbo Loan. FHA also has limits based on the county of the property, which cannot be breached.
Refinance from FHA to VA
A refinance from a non-VA loan into a VA loan is not a “streamline refinance” or IRRRL. It is a full refinance, with income and asset documentation, appraisal, and credit. Also, in California a clear termite inspection report is required. The refinance process typically can take less than 30 days. Also, depending on whether there is equity in the property it may be possible to consolidate some debt. Some lenders will allow a refinance up to 100% of the appraised value. Also, combining a 2nd mortgage or equity line to 100% loan to value is possible. If a VA borrower wants to consolidate credit card debt, or pull cash out for another purpose (home improvement), most lenders will cap the loan at 90% of the property value. However, there are lenders who will allow cash back to the borrower all the way to 95% of the appraised value.
A refinance from FHA to VA does not make sense 100% of the time, so its important to talk with a California VA lender who can prepare custom loan scenarios, as well as a Side by Side Analysis comparing your current loan to the refinance loan options.
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.