The Advantages of VA Refinance Vs. Conventional Refinance

By Lynn Lauren

A Veterans Administration (VA) loan has different rules and regulations than a conventional loan. These rules are similar for purchases and refinances.

VA loans were created to help veterans secure housing with little to no down payment. It is a government-backed program that allows veterans with lower income, lower credit score and no down payment purchase or refinance a home. Conventional mortgages, however, are available to every homebuyer and require higher credit scores, income and down payment.

A refinance allows a borrower to take advantage of a lower interest rates. For VA mortgages, if the borrower is already using a VA mortgage, the borrower is exempt from paying a number of closing fees. A conventional refinance, however, requires the same fees as a purchase, and be quite expensive.

A VA refinance can be streamlined to avoid the need for a new appraisal. This option is only available, however, if the borrower is not receiving any cash out from the mortgage. All conventional mortgage refinances require an appraisal.

A VA Mortgage does require a significant funding fee--2 percent or more depending on the situation--which can be rolled into the mortgage. If the borrower did not have a down payment, this could mean that he didn't owe more on the house than they paid for it. With a conventional mortgage, a minimum of 5 percent equity in the home is required for refinancing.

All veterans are not automatically eligible for a VA loan. It depends on the time served and other factors. In addition, if a borrower has defaulted on a VA loan in the past, he may not be able to get another VA loan.

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