Refinancing a VA Loan to Conventional: Pros and Cons
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You can refinance a VA loan to conventional at any time, and it often makes sense when you want your VA entitlement back for another home or have at least 20% equity. Paying off the VA loan lets you restore your full entitlement once while keeping the house, and at 80% loan-to-value or less the conventional loan needs no PMI. If you only want a lower rate on a home you still live in, a VA IRRRL is usually cheaper.
Herring Bank is a direct mortgage lender in Texas, Oklahoma and Colorado, offering conventional, VA and refinance loans, so we can price both paths for you. Below: the reasons veterans switch, how entitlement restoration works, the equity and PMI math, and what changes in Texas.
Key Takeaways
- Refinancing to conventional pays off the VA loan, which lets you restore your entitlement one time without selling the home (VA Form 26-1880).
- With 20% equity, a conventional loan has no PMI. Below that, PMI applies until you reach 80% of the original value.
- A conventional refinance has no VA funding fee, but it usually needs an appraisal and full underwriting. An IRRRL has a 0.5% fee and much less paperwork.
- On a Texas homestead, any cash-out refinance, VA or conventional, is capped at 80% of value, so VA's 100% advantage disappears.
- Conventional cash-out requires your current first mortgage to be at least 12 months old.
Why refinance a VA loan to conventional?
The VA loan is hard to beat for buying a home with no down payment. Once you own the home, the reasons to stay or switch change. These are the most common reasons to refinance a VA loan to conventional:
- Restore entitlement for the next purchase. If you are moving and want to keep this home as a rental, a conventional refinance frees your full VA benefit for the next house.
- Avoid the funding fee on a cash-out. A VA cash-out after first use costs 3.3% of the loan. A conventional cash-out has no funding fee, which matters most in Texas, where both are capped at 80%.
- Investment or second-home use. A VA loan requires that you lived in the home. A conventional refinance can be written as an investment property loan once you have moved out.
- Adding or removing a co-borrower who is not a veteran or spouse, such as after a divorce.
One reason that does not apply: refinancing a VA loan to remove PMI. VA loans never carry monthly mortgage insurance. Veterans searching for that usually have an FHA or conventional loan; for those, a VA cash-out refinance can remove the mortgage insurance. See our VA cash-out refinance guide.
Restoring your VA entitlement for the next home
Entitlement is the amount VA guarantees to your lender. While a VA loan is open, the entitlement used on it stays tied up. VA’s eligibility page lists three ways to restore it:
- You sell the home and pay off the loan.
- A qualified veteran assumes your loan and substitutes their entitlement.
- You pay the loan off in full but keep the home. You can do this only once.
Refinancing to conventional uses the third path. After the VA loan is paid off, you, or your lender for you, request a COE with entitlement restoration online or on VA Form 26-1880. Because that one-time restoration is used up, plan for it: if you later want to restore again without selling, you will not have the option.
What happens if you don’t restore?
You may still have enough remaining entitlement. Veterans with full entitlement have no VA loan limit. With entitlement in use, VA’s bonus entitlement formula uses the county conforming limit, which FHFA set at $832,750 for 2026 in most of the country, including most Texas counties.
| Scenario: $87,500 of entitlement charged on a $350,000 VA loan | Amount |
|---|---|
| County limit × 25%: $832,750 × 0.25 | $208,188 |
| Less entitlement already charged | −$87,500 |
| Remaining bonus entitlement | $120,688 |
| Maximum loan most lenders make with no down payment (× 4) | about $482,750 |
| With entitlement restored after a conventional refinance | No VA limit; lender approval sets the amount |
If your next home costs less than about $482,750 in this example, you may not need to refinance at all: keep the VA loan, rent the home and buy with remaining entitlement. If it costs more, you would either put money down or restore. Herring’s VA loan limits guide walks through the math.
Requirements: credit, equity and DTI
| Requirement | Conventional refinance (Fannie Mae guidelines) | VA IRRRL |
|---|---|---|
| Credit score | No fixed minimum for loans approved through Desktop Underwriter; 620 for manually underwritten fixed-rate loans. Lenders often set their own. | No VA minimum; lender overlays apply |
| Equity for no PMI | At least 20% (80% LTV or less) | Not applicable; no mortgage insurance |
| Maximum cash-out LTV | 80% on a one-unit primary home | No cash out |
| DTI | Up to 50% through DU in many cases | Generally not re-qualified on a standard IRRRL |
| Appraisal | Usually required | Usually not required |
| Seasoning | Cash-out: current first mortgage at least 12 months old and 6 months on title | 210 days after first payment due date and 6 payments |
| Occupancy | Primary, second home or investment (priced differently) | Current or prior occupancy |
Fannie Mae has relaxed its credit score rules: its Selling Guide now says “a minimum credit score is not required for DU loan casefiles.” Pricing still depends heavily on score and LTV, so a 760 score at 70% LTV will price far better than a 660 score at 90% LTV. Rate-and-term conventional refinances above 80% LTV are allowed, with PMI.
Will you need PMI?
Only if the new conventional loan is above 80% of the home’s value. Under the federal Homeowners Protection Act, as the CFPB explains, you can ask to cancel PMI when your balance is scheduled to reach 80% of the original value, and the servicer must end it automatically at 78%, provided you are current. Unlike FHA mortgage insurance, it does not last for the life of the loan.
Costs compared with a VA IRRRL
Here is a worked example. A veteran in Round Rock bought with a VA loan of $350,000. The home is now worth $450,000, the balance is $310,000 (about 69% LTV), and the family is relocating and wants to keep it as a rental. Costs are illustrative; your Loan Estimate will show actual figures.
| VA IRRRL | Conventional rate-and-term refinance | |
|---|---|---|
| VA funding fee | 0.5% = $1,550 (waived if exempt) | None |
| Appraisal | Usually none | About $600 to $800 |
| Other lender, title and recording costs (example) | About $4,000 | About $4,500 to $5,500 |
| PMI | None | None (69% LTV) |
| Occupancy after moving out | Allowed (prior occupancy) | Priced as investment property if already moved out |
| Entitlement | Stays tied to this home | Can be restored once |
| Rate | Must be at least 0.50 points below the current fixed rate | Market rate for your score, LTV and occupancy |
If the only goal were a lower rate, the IRRRL wins on cost and speed. Here the goal is the entitlement, so the question is whether a full VA benefit on the next purchase is worth a conventional rate that may be higher, especially if the loan is priced as a rental. Refinancing before you move out lets you close as a primary residence, which usually prices better. Check the payment difference in Herring’s refinance calculator.
Cash-out in Texas: conventional vs. VA under 50(a)(6)
Outside Texas, VA’s main cash-out advantage is reach: VA allows up to 100% of value, while conventional cash-out stops at 80%. On a Texas homestead, that advantage is gone. Article XVI, Section 50(a)(6) of the Texas Constitution caps every cash-out loan, whatever the program, at 80% of fair market value, limits most fees to 2% of the loan, requires a 12-day waiting period and a 3-day rescission period, and allows only one such loan per year.
| Texas homestead worth $450,000, balance $310,000 | VA cash-out (after first use) | Conventional cash-out |
|---|---|---|
| Maximum loan (80%) | $360,000 | $360,000 |
| Gross equity before costs | $50,000 | $50,000 |
| Funding fee | 3.3% (about $11,500 on the base loan, and it must fit within the 80% cap if financed) | None |
| Mortgage insurance | None | None at 80% LTV |
| Pricing | VA pricing; no Fannie Mae price adjustments | Fannie Mae cash-out price adjustments by score and LTV |
For a non-exempt veteran, the funding fee alone can take a large share of the available equity, and Texas fee-cap rules add another question about how the fee is treated. A funding-fee-exempt veteran with a mid-range score may still do better with VA pricing. Both deserve a quote. Herring’s Texas refinance page covers both options.
When staying with a VA loan is smarter
- You only want a lower rate and still live in the home. An IRRRL costs less and closes with less paperwork. See our VA IRRRL guide.
- You have less than 20% equity. A conventional loan adds PMI; VA does not.
- You are exempt from the funding fee. Your VA refinances cost less, and VA pricing is often competitive at lower scores.
- Your remaining entitlement already covers the next purchase. Then there is no reason to give up your one-time restoration.
- You may sell to a buyer who would assume your loan. VA loans can be assumed by qualified buyers, which can be valuable if your rate is low.
For the bigger purchase-side comparison, read VA loan vs. conventional loan.
Steps to refinance
- Set the goal. Entitlement, cash, rate or occupancy change. The goal decides which loan wins.
- Check your equity. Divide your balance by a realistic value estimate. Under 80% LTV means no PMI.
- Pull your COE to see how much entitlement is charged to the current loan.
- Get two quotes: a VA IRRRL (or VA cash-out) and a conventional refinance, with Loan Estimates you can compare line by line.
- Apply and order the appraisal for the conventional loan. In Texas, a cash-out loan cannot close until 12 days after you apply and receive the required notice.
- Close. If the home is your primary residence, you generally have three days to rescind before the loan funds.
- Request entitlement restoration on VA Form 26-1880 or through your next lender once the VA loan shows paid in full.
For general refinance steps in Texas, see how to refinance a mortgage in Texas.
Frequently Asked Questions
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This article is for educational purposes only and does not constitute financial, legal, or tax advice. It is not a commitment to lend. Loan programs, rates, and eligibility requirements are subject to change without notice. Consult a qualified professional before making financial decisions.
