Why Would You Transfer a VA Loan to Conventional?

With its low interest rates and no-money-down options, you may wonder why you would transfer a VA loan to a conventional loan. Believe it or not, there are a few scenarios that may warrant the switch. But first, let’s look at the difference between these two mortgage options.

Understanding VA loans versus conventional loans

Private banks, credit unions, and other mortgage institutions grant and service conventional loans, which aren’t backed by a government agency like VA loans. If you default on a VA loan, the U.S. Department of Veterans Affairs will reimburse your lender up to 25% of your total loan amount. This assurance allows lenders like OVM Financial to offer exclusive benefits that conventional loans don’t:

• No down payments. The VA doesn’t necessarily require down payments the way conventional lenders do if you meet certain requirements.
• No private mortgage insurance (PMI). The VA, unlike conventional mortgage companies, doesn’t require private mortgage insurance.
• No minimum credit score requirements. The VA doesn’t demand a minimum credit score while conventional lenders typically require a minimum score of at least 620 to qualify for refinancing.

So why transfer from a VA loan to a conventional loan? Let’s look at when it might make sense.

Purchasing a new property while retaining your previous home

The VA requires you to live in the home for which you’re borrowing funds. In order to purchase a new primary residence but retain your old one, for say, a rental property, you’ll need to transfer from a VA loan to a conventional loan. Here’s an example:

Let’s say your residence—House A—no longer suits your current needs, whether you’ve had children or are relocating for work. Since you have built-up equity in House A, why not consider transferring your VA loan to a conventional loan, retaining House A, and using it as a source of rental income?

Once you pay off your VA mortgage for House A with your new conventional loan, your VA entitlement returns to its maximum amount, allowing you to purchase Home B—one that offers more room for a growing family or closer proximity to work.

Plus the new source of income from House A will help pay off expenses associated with your new conventional loan, such as closing costs and PMI. And if you have a higher credit score, say above 700, you’ll likely qualify for lower interest rates. Just make sure your credit score is in good shape before considering a refinance.

Whatever your reason for exploring transferring your VA loan to a conventional loan, make sure to consider all closing costs and other expenses to ensure you’ll actually save money. If the lower interest rate coupled with new loan expenses isn’t releasing pressure on your budget, is it really worth it?

Talk to our OVM Financial professionals, who can help you determine whether you should transfer your VA loan to a conventional loan. Contact us today, or start your application online. You can also browse our other articles about transferring a VA loan to an LLC, VA loan amount limits, and VA loan guidelines.