How Much a Disabled Veteran Saves Moving From FHA to a VA Loan

The Quick Read: The savings come from two places. You skip the one-time VA funding fee that most VA borrowers pay, and you drop FHA’s monthly mortgage insurance. The dollar total depends on your balance, your FHA premium schedule, how long you stay, and the terms of the new loan. No single number fits everyone. Anyone who says otherwise is selling something.

What Does a Disabled Veteran Actually Skip?

You skip three costs: the VA funding fee, FHA’s annual mortgage insurance, and (if you are buying fresh) FHA’s upfront premium. Each one works differently, so keep them apart in your head.

The VA funding fee. VA describes the funding fee as a one-time payment on a VA-backed loan. It exists because the program does not require a down payment or monthly mortgage insurance. Anyone using a VA loan to buy, build, improve, repair, or refinance pays it unless an exemption applies. The first exemption on VA’s list is receiving VA compensation for a service-connected disability.

The fee is a percentage of the loan. It varies by loan type, prior VA use, and down payment. The exempt borrower owes none of it. A non-exempt borrower can finance the fee into the loan or pay it at closing.

FHA’s annual premium. FHA charges an annual mortgage insurance premium, split into monthly pieces. Across the wholesale programs Lendmire places FHA files with, that annual premium runs between 0.15% and 0.75% of the balance. Where you land depends on term, loan amount, and LTV. LTV is loan-to-value, the loan balance as a share of the home’s value.

Here is the part that stretches the savings. On a thirty-year loan above 90% LTV, the annual premium lasts for the full term. At or below 90% LTV, it ends after eleven years. HUD lowered the annual premium schedule for many loans, so your own number may be smaller than what you remember hearing. Your FHA closing documents or servicer statement show the exact premium on your loan.

FHA’s upfront premium. The upfront premium is 1.75% of the base loan, and it is usually financed. You paid that when you took out the FHA loan. It matters going forward only if you are choosing between FHA and VA for a home you have not bought yet.

Can You Switch an FHA Loan Into a VA Loan?

Yes, but not through the streamlined VA refinance. That product, the IRRRL, is built to refinance an existing VA-guaranteed loan. VA’s own circular defines it that way. An FHA borrower does not qualify for it.

The route is the VA cash-out refinance. It is the VA product that replaces a non-VA loan. VA News confirms that veterans with a non-VA home loan can refinance into a VA-backed loan.

The name misleads people. “Cash-out” is a program label, not a requirement. VA says these loans typically do not require cash from the veteran at closing, and allowable fees may be paid from loan proceeds. You can use it purely to swap FHA for VA and walk away with no cash in hand.

The FHA side has its own refinance options, and they all keep you in FHA:

• The FHA Streamline refinances an existing FHA loan with no appraisal, limited credit review, and a net tangible benefit test. The mortgage insurance continues.
• The FHA rate-and-term refinance, with an appraisal, reaches 97.75% on a principal residence you have occupied for the previous twelve months.
• The FHA cash-out reaches 80% LTV on a home you have owned and occupied for twelve months before the case number. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

Those matter if staying with FHA still pencils out. They do not remove FHA’s insurance. Only a move to a different program does that.

How Is the Move Underwritten, Step by Step?

Think of it as six checkpoints. A broker like Lendmire arranges the file through a wholesale lender, and the lender reviews eligibility and approves. Everything below is subject to lender guidelines and full file review, and none of it is a commitment to lend.

Step 1: Get your Certificate of Eligibility. The COE is the document that carries your exemption. VA’s Lenders Handbook says the COE verifies your available entitlement, your exempt or non-exempt funding-fee status, and the amount of your monthly service-connected compensation. Pull it first. If it does not show exempt status, you want to know before anything else moves.

Step 2: Confirm your income documentation. VA treats disability compensation as a benefit. The same handbook says it does not need to be documented for the likelihood of continuance. The COE generally lists the amount. A VA award letter or bank statement can also verify the current monthly figure.

Step 3: Understand the gross-up. Tax-free income can be adjusted upward when a lender figures your debt-to-income ratio. That helps you qualify. VA’s underwriting materials draw a line, though. The residual income test uses your actual income, not the grossed-up figure. Residual income is what is left each month after the major obligations. Do not assume the boost applies to both tests.

Step 4: Order the appraisal. A VA cash-out refinance comes with a VA appraisal, and the home must be your primary residence. The new loan, fee included, cannot exceed VA’s value limit.

Step 5: Pass the refinance tests. When the new loan does not exceed the payoff of the old one, VA applies a net tangible benefit test. The lender must certify to VA that the fees will be recouped through savings within a set period. A swap that removes FHA mortgage insurance often supports that story, but the lender’s review decides it.

Step 6: Compare the Loan Estimate to what you have now. The Loan Estimate is the standard three-page form lenders give you after you apply. Look at the Projected Payments section and the “In 5 Years” figures. They show the real difference in monthly cost and total cost, not the sales pitch.

Lendmire’s piece How Much a VA Cash-Out Releases From a Conventional or FHA Loan goes deeper if you plan to take some equity along the way.

What If You Have Not Bought the Home Yet?

If you are buying, you skip the conversion entirely and choose the better loan on day one. Compare the two on the same house.

Two honest notes. First, the wholesale programs Lendmire places FHA loans with start at a 580 decision score. HUD has a lower tier, but the network does not reach below 580. VA credit floors vary by lender. Second, FHA allows a non-occupant co-borrower and seller or interested-party contributions up to 6% of the price. Some files lean on those features. When one does, FHA can still be the better fit.

Where the Savings Shrink

The general rule is that an exempt borrower saves money by moving to VA. Several situations bend that rule.

A pending claim. The exemption needs a compensation award, or a recognized proposed or memorandum rating from a pre-discharge claim. If your claim is still pending, you may not be exempt at closing. VA’s page describes a refund when compensation is awarded later, but only if the effective date reaches back before your loan closed. Timing of the rating matters more than most people expect.

Retirement pay instead of compensation. A veteran who is eligible for compensation but receives retirement or active-duty pay instead can still be exempt. Surviving spouses who receive Dependency and Indemnity Compensation have their own exemption path. So do active-duty members with a Purple Heart at closing. Each has separate rules.

Aid and Attendance or pension. If you receive pension or disability benefits with Aid and Attendance, VA’s handbook says whether that income counts should be discussed with VA’s Pension Service, Compensation Service, or a VA hospital. Do not guess.

Little FHA insurance left to remove. Say your loan sits at or below 90% LTV and you are close to the end of the eleven-year window. Then the monthly insurance you would drop is nearly done anyway. The saving shrinks. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

A higher balance. VA warns that cash-out amounts added to the loan raise the balance and the interest paid over time. VA also says a cash-out refinance very rarely lowers the monthly payment compared with the original loan. Be wary of any pitch that promises otherwise. The new term and rate still set your net payment change.

A short stay. Closing costs are real even when the funding fee is zero. If you plan to sell soon, you may not live in the home long enough to recoup them.

Property tax relief is a separate matter. Some states and counties reduce property taxes for veterans with certain disabilities. Those rules vary by state and county and do not travel with the loan, so check locally.

What Does the Savings Stack Look Like?

Here is every source of savings in one view. The exemption is flat across rating levels, because VA’s page requires only that you receive compensation.

Notice the last row. Higher ratings can add benefits like property tax relief, but those come from local rules, not from the mortgage.

A Worked Scenario in Percentages

Picture a veteran who bought with FHA at 96.5% financing and a 3.5% minimum investment. The home has appreciated, so the balance now sits below 90% of its value. Because the original loan was high LTV and thirty-year, the annual premium was set to run for the full term. The veteran now holds a compensation award.

Run the comparison in plain terms:

• Stay in FHA: The annual premium continues. Any refinance stays inside FHA, and the insurance goes with it.
• Move to VA (exempt): Zero funding fee. No monthly mortgage insurance. The new loan carries its own appraisal, title, and lender charges.
• Same veteran, not exempt: The funding fee applies. It is financed or paid at closing. That is the gap the exemption closes.

The net result depends on the new term and rate, which the Loan Estimate will show. Often the monthly line that disappears is the insurance. Whether the payment drops overall is a separate question that only the full numbers answer.

For the sequence of events once you commit, Lendmire’s piece VA Cash-Out Timeline Moving From a Conventional or FHA Loan walks through the order of steps.

Key Terms Defined

Funding fee: A one-time VA charge, set as a percentage of the loan, that disabled veterans receiving compensation do not pay.

MIP (mortgage insurance premium): FHA’s insurance cost, made up of an upfront premium and an annual premium paid monthly.

IRRRL: VA’s streamlined refinance, open only to loans that are already VA-backed.

Certificate of Eligibility (COE): The VA document showing your entitlement, exempt status, and disability compensation amount.

Residual income: The money left each month after major obligations, a VA test that uses actual income.

Net tangible benefit: A test showing the refinance gives the borrower a real, measurable gain.

What Does the Decision Look Like in Practice?

Start with three questions. Do you receive compensation today, or is the claim still pending? How much of the FHA premium is left on your loan? How long will you stay?

If you are exempt, expect to remain in the home for a good while, and still carry years of FHA insurance, the move usually deserves a serious look. If your claim is pending, or the insurance is nearly gone, the savings can be thin. Then waiting or staying put may make more sense.

Honestly, this one can go either way. The math favors VA for most exempt borrowers with long horizons. A short stay or a high new balance can flip it.

Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

Next Step

If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. If you already hold FHA and have a disability rating, a comparison against a VA cash-out refinance takes one conversation. Reach the team at 828-256-2183.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. VA – Funding fee and closing costs

2. HUD – Mortgagee Letter 2023-05

3. VBA Circular 26-18-30

4. VA News – You could be losing thousands on your home loan

5. VA – Credit Underwriting (Lenders Handbook Ch. 4)