The Quick Read: A VA cash-out refinance usually fits a veteran with limited equity who wants to leave FHA mortgage insurance behind and who will keep living in the home. A conventional refinance usually fits a veteran with meaningful equity, solid credit, and a wish to avoid the VA funding fee. Neither wins by default. Equity, credit profile, and how long you plan to stay decide it.
If you hold an FHA loan on the home you live in, the mortgage insurance is probably the reason you are reading this. Both routes can end it. They get there differently, and they cost different things along the way.
Refinance savings and break-even estimate
The starting figures are an example value with a balance in proportion and a placeholder for costs. Replace them with yours, and enter the current rate from your statement.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $245,000 current balance, a current rate you enter and a remaining term seeded at twenty-five years, closing costs seeded at $5,000 as an editable placeholder (not a fee quote) and rolled into the new loan, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The new rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a refinance quote; a refinance is priced by the lender at lock, and the current rate, the remaining term and the closing costs are figures you enter. The current payment is estimated from the balance, the current rate and the remaining term; the break-even divides the closing costs by the monthly saving and ignores the interest effect of a longer term. On the VA IRRRL the funding fee is added to the loan unless the veteran is exempt. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages; Lendmire is a broker, never the lender.
On what is off the table. The VA streamline (the IRRRL) is not an option here. VA describes it as VA to VA, usable only when the property already carries a VA-guaranteed loan. An FHA payoff goes through VA's cash-out refinance, even if you take no cash at closing. If you want to see how FHA options compare on the same home, Lendmire's FHA loan programs page covers what you are leaving and what you could keep.
Side-by-Side
| Factor | VA Cash-Out Refinance | Conventional Refinance |
|---|---|---|
| Who qualifies | Service-based eligibility, Certificate of Eligibility | Any qualified borrower |
| Leverage | Can reach high loan-to-value, up to the lender's cap | Limited cash-out allows higher LTV than full cash-out |
| Credit floor | VA sets none; lenders set their own | Set by the guidelines and lender |
| Monthly mortgage insurance | None | PMI when equity is thin; cancellable |
| One-time program charge | VA funding fee unless exempt | None |
| Occupancy | You must live in the home | Occupancy changes the maximum LTV |
| Documentation | Full credit and income review, VA appraisal | Full review, standard appraisal |
Two things in that table need explaining. The leverage row is where the two paths diverge most. VA says a no-down-payment loan can reach the conforming limit in most areas, and more in some high-cost counties. Fannie Mae's published matrix gives limited cash-out refinances on a principal residence higher maximum LTVs than full cash-out. That label matters: a conventional refinance that only pays off your FHA loan is "limited," and it gets the better leverage.
The insurance row is the second. VA loans carry no monthly mortgage insurance. Conventional PMI does, but it comes with a legal off-ramp that FHA mortgage insurance lacks.
How Each Path Gets Rid of FHA Mortgage Insurance
Leaving FHA is the only way for many borrowers to end the annual premium early. HUD Mortgagee Letter 2023-05 holds the premium schedule, including the duration table. Across the wholesale programs Lendmire places files with, the pattern is consistent. On a thirty-year FHA loan above 90% LTV, the annual premium lasts for the full term. At or below 90%, it ends after eleven years. The upfront premium is 1.75% of the base loan, and borrowers usually financed it.
A small exception exists. HUD's letter treats certain older streamline and simple refinances of loans endorsed on or before a mid-2009 date differently. If your FHA loan is that old, the insurance economics depend on the case-number date. Check yours before assuming anything.
Now the two exits.
VA. There is no monthly mortgage insurance after the refinance. You pay a funding fee instead, which is a percentage of the loan. VA's Home Loan Buyer's Guide says it can be paid in cash or added to the loan. Financing it raises your balance, so the saving on insurance is partly offset. Some veterans are exempt, generally those receiving VA disability compensation. VA's funding fee page is the place to confirm your status.
Conventional. PMI applies when equity is thin, and it can end. Under the CFPB's PMI guidance, you can ask the servicer to cancel at 80% of the home's original value, and servicers must terminate it automatically at 78%. Cancellation requires a good payment history, no junior liens, and evidence the value has not dropped. If you already have 20% equity, there may be no PMI at all.
One trap worth flagging. That PMI cancellation right does not apply to FHA premiums. Writing a PMI removal letter to an FHA servicer accomplishes nothing.
When VA Is the Better Fit
VA tends to win for a veteran in these situations:
- Equity is thin. If you have little equity, conventional may charge PMI for years, or may not be available at your leverage. VA's loan structure is built for high LTV.
- Credit is imperfect. VA sets no minimum score itself. Lenders add their own, and those vary, so shop the overlays. Conventional guidelines generally lean harder on score.
- You want no monthly insurance of any kind. A VA loan removes it entirely, rather than just reducing it.
- You are exempt from the funding fee. For a disability-compensated veteran, the main VA cost disappears. That tilts the comparison sharply toward VA.
- You plan to stay long. A one-time fee spread over many years of no monthly insurance often favors VA.
Picture a veteran with an FHA loan above 90% LTV at origination, so the premium runs the full term. Equity has grown modestly, nowhere near 20%. Conventional would likely mean PMI for a while. VA removes the monthly insurance now. The funding fee is the cost, and it stays smaller than the insurance it replaces only if the veteran keeps the home long enough. That is a break-even question, and it depends on your numbers. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Two process points. VA cash-out needs a Certificate of Eligibility, which you can obtain through a lender, VA.gov, or by mail. It also needs full underwriting. There is no streamlined credit waiver for an FHA payoff. A VA appraisal sets reasonable value and checks that the home meets VA's minimum property standards, so a home with condition problems can stall here.
Rules also guard against needless refinancing. VA Circular 26-19-05 implements the 2018 Growth Act's statutory criteria for when VA may guarantee a refinance, including a net tangible benefit test. The point is protection against churning, where veterans get pushed into repeated refinances. A lender that cannot show you a clear benefit is a warning sign.
When Conventional Is the Better Fit
Conventional tends to win in these situations:
- You have real equity. At 80% LTV or better, PMI may not apply, and you skip the funding fee. That combination is hard to beat on cost.
- Credit is strong. Strong scores and low ratios let conventional pricing and insurance terms work in your favor.
- You do not want the funding fee on your balance. Conventional has no VA-style program charge, so your loan balance is not inflated by one.
- The home may fail VA standards. A property that struggles with VA's minimum requirements may sail through a conventional appraisal.
- You want to preserve VA entitlement. Using a VA loan uses entitlement. If you expect another VA purchase soon, staying conventional keeps that decision open. Ask a lender how entitlement restoration would apply to you.
- Your plans may change. VA cash-out requires that you live in the home. Conventional rules also tie leverage to occupancy, but the structure is more forgiving of second homes. Final terms depend on lender guidelines, property type, leverage, and the borrower's complete credit picture.
The cost logic is simple and often misread. Conventional is not automatically cheaper just because it has no funding fee. If equity is thin, PMI can add up. If equity is strong, conventional frequently is cheaper. The honest answer depends on your loan-to-value.
Common Mistakes Veterans Make Leaving FHA
Comparing only the monthly payment is the big one. The CFPB's review of veteran refinancing complaints advises looking at how long you will pay the new loan, not just the monthly figure. A lower payment from a longer term can cost more overall.
Other common errors:
- Assuming the streamline works. It does not for an FHA payoff.
- Misreading VA costs. The funding fee exists unless you are exempt, and closing costs can still apply.
- Skipping the equity check. Both products leave less cushion at high leverage. VA urges borrowers to understand how the new loan amount relates to the home's value.
- Ignoring the old loan's age. FHA premium rules depend on when your loan was endorsed.
- Rolling costs in without noticing. Financing the fee or closing costs raises the loan balance and shrinks equity.
Key Terms Defined
Certificate of Eligibility (COE): The VA document that confirms you qualify for a VA-backed loan based on your service.
Funding fee: A one-time VA program charge, set as a percentage of the loan, that can be paid in cash or financed.
Mortgage insurance premium (MIP): FHA's insurance charge, with an upfront piece and an annual piece.
Private mortgage insurance (PMI): Insurance on a conventional loan with thin equity, which can be cancelled as equity builds.
Net tangible benefit: A test that a VA refinance must meaningfully help the borrower, not just generate a new loan.
Limited cash-out refinance: A conventional refinance that pays off the existing first mortgage without taking meaningful cash back.
Break-Even Thinking: The Test That Settles It
Rates and prices are not in this comparison on purpose. What matters is the structure. Run the same test on both options:
1. Add up the one-time costs: closing costs, plus the funding fee if VA and it is financed.
2. Estimate the monthly insurance you would stop paying.
3. Divide the one-time costs by the monthly saving. That gives months to break even.
4. Compare that to how long you expect to own the home.
If you will move before the break-even point, neither refinance may be worth doing. Staying in FHA can be right, particularly for a veteran with a short horizon or a very good existing loan. The same applies if your only goal is a streamline within FHA. That route exists, but the premium continues.
For veterans with other FHA-adjacent decisions, two related Lendmire pieces go deeper: one on FHA cash-out versus VA cash-out for a veteran with an existing FHA loan, and one on VA cash-out vs FHA cash-out for a veteran with a thin credit profile.
The Balanced Verdict
For a veteran leaving FHA, VA usually favors lower equity, weaker credit, a long stay, and fee exemption. Conventional usually favors higher equity, stronger credit, a wish to keep entitlement intact, or a property that might not clear VA standards. Real situations sit between those poles, and the flip point is often equity: closer to 20%, conventional gains ground. Far from it, VA does.
All of this is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
If you are weighing a refinance and want the break-even run on your own numbers, Lendmire can help you compare the programs on the same home.
Frequently Asked Questions
Can I refinance an FHA loan into a VA loan?
Yes, if you are eligible and will live in the home. It runs through VA's cash-out refinance, even when you take no cash. You need a Certificate of Eligibility, and you go through full credit, income, and appraisal review. The streamline product does not apply because it only covers existing VA loans.
Can I refinance FHA into a conventional loan?
Yes, when you meet conventional guidelines. If the new loan only pays off your first mortgage, it is generally treated as a limited cash-out refinance under Fannie Mae's Selling Guide. Your equity, credit, and occupancy decide leverage and whether PMI applies.
Which one removes mortgage insurance faster?
VA removes monthly insurance from day one of the new loan, in exchange for a funding fee unless you are exempt. Conventional removes FHA insurance too, but PMI may replace it until your equity reaches 78% to 80% of original value. With 20% equity or more, conventional may carry none.
Do I owe the VA funding fee on a refinance?
Usually, unless you are exempt. Veterans receiving VA disability compensation are generally exempt. A pending claim may allow a refund if VA awards compensation retroactive to before closing, though you should confirm that with VA directly. The fee can be paid up front or financed.
Should I just stay in my FHA loan?
Sometimes. If you will sell before the break-even point, or your existing loan is hard to beat, a refinance may not repay its closing costs. Staying put is a legitimate answer. So is an FHA streamline if all you want is to adjust the loan without a new appraisal.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
2. VA – Cash-out refinance loan
3. Fannie Mae Eligibility Matrix
4. HUD – Mortgagee Letter 2023-05
6. VA – Funding fee and closing costs
7. CFPB – When can I remove PMI?
8. VBA – Circular 26-19-05 (cash-out)
9. CFPB – Veterans Day complaint review
10. Fannie Mae's Selling Guide
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: FHA Cash-Out LTV Limit When Refinancing an Existing FHA Loan · Conventional Cash-Out vs FHA Cash-Out for Debt Consolidation · Does a Late Payment on Your FHA Loan Block an FHA Cash-Out?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.