The Quick Read: The savings come from dropping FHA mortgage insurance, minus what the VA funding fee and closing costs add. Swapping an FHA loan for a VA loan is treated as a VA cash-out refinance, even if you take no cash. The switch pays off only when the monthly savings recover those costs before you sell or refinance again. A short stay, a repeat-use fee, or no change in the loan terms can wipe the benefit out.
Key Takeaways
- FHA to VA is not the VA streamline. The streamline covers existing VA loans only.
- The FHA annual premium is usually the biggest monthly piece you remove. VA loans carry no monthly mortgage insurance.
- The VA funding fee is a one-time charge, usually financed. Financing it raises your balance.
- Break-even is the test: total added costs divided by monthly savings.
- Exempt borrowers skip the fee, so their break-even comes much sooner.
- A new VA loan means full underwriting and a new appraisal.
What Does “Refinancing FHA Into VA” Actually Mean?
You pay off your FHA loan with a new VA-guaranteed loan on the home you live in. VA classifies this as a “non-VA to VA” refinance, which runs through its cash-out refinance process. VA’s cash-out refinance quick reference explains that the system sorts these loans into two types. Type 1 means the new loan is at or below the payoff amount, so no cash comes back. Type 2 means you take cash out.
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.
So "cash-out" is the label, not a requirement. Many FHA borrowers run the Type 1 version and simply replace one loan with another.
You need a VA Certificate of Eligibility, called a COE. That is the document that shows VA you earned the benefit. The lender also reviews your credit, income, and residual income, which is what you have left each month after major obligations. Your COE also shows whether you are exempt from the funding fee.
Across the wholesale programs Lendmire works with, FHA to VA is a full-documentation refinance. Nothing about it is streamlined. If you are still shopping the FHA side, Lendmire's FHA loan programs page covers what staying in FHA looks like.
Where Do the Savings Come From?
Three things can create savings. The first is the biggest for most borrowers.
1. The monthly FHA premium goes away. FHA charges an annual mortgage insurance premium, paid monthly. Across the FHA programs we place, it runs between 0.15% and 0.75% of the balance. The exact amount depends on the loan term, the loan amount, and the LTV (loan-to-value, meaning your balance as a share of the home's value). VA has no monthly mortgage insurance at all.
2. The rate or term can change. A lower rate or a shorter term can cut interest cost. A higher rate can erase the insurance savings. This is plain refinance mechanics, and it moves the answer in either direction.
3. You avoid upfront insurance on the alternative. If you refinance FHA into another FHA loan, the upfront premium comes into play. That premium is 1.75% of the base loan amount, and it is financed. The VA funding fee takes its place on the VA side. Comparing the two is a fair way to see which path costs less.
The length of the premium matters too. On an FHA loan with a thirty-year term and an LTV above 90%, the annual premium lasts for the full term. At 90% or below, it ends after eleven years. If your premium is set to run for the whole loan, the cumulative savings from removing it are larger.
Older FHA loans may also cost more. HUD cut the annual premium for loans endorsed after a set effective date. A borrower with an older loan may be paying a higher premium than a neighbor with a newer one. Check your own mortgage statement for the premium line.
What Does the Funding Fee Do to Your Savings?
The funding fee is VA's one-time charge, set as a percentage of the new loan. It is the main cost that cuts into your savings. On a cash-out refinance, VA lists one rate for first-time use and a higher rate after first use. VA's funding fee page holds the current table, so check it for the exact percentages.
Two points from VA's rules matter here:
- Refinance fees do not change with your down payment. The reduced tiers on purchase loans do not apply to refinances, per VA's fee circular.
- The 0.5% streamline fee that gets quoted online applies only to VA-to-VA refinances, per VA News. It does not apply to an FHA payoff.
Most borrowers finance the fee. You pay nothing extra at the table, but the fee is added to the loan. A bigger balance means a bigger payment and more interest over time. The financed fee also eats into your equity.
Exemptions exist. Your status may qualify you, so confirm it before you run any numbers. Anyone who is exempt skips the biggest cost of the switch.
Here is how the two cases compare.
| Factor | Pays the fee | Exempt |
|---|---|---|
| Fee at closing | One-time charge, often financed | None |
| Balance after refinance | Higher if financed | Not raised by a fee |
| Monthly insurance | Removed | Removed |
| Break-even | Takes longer | Much sooner |
| Repeat use | Higher fee tier | Not applicable |
How Do You Calculate the Savings? (A Worked Example Without the Dollars)
Run the math in four steps. Pull your own figures from your statement and from the Loan Estimate a lender gives you.
1. Find your monthly savings. Take your current payment, including the FHA premium. Subtract the estimated new payment, including the financed funding fee. The gap is your net monthly change.
2. Add up your one-time costs. Include the appraisal, the closing costs, and the funding fee if you pay it in cash instead of financing it.
3. Divide costs by monthly savings. The result is the number of months to break even.
4. Compare that number to how long you plan to stay. If you expect to hold the loan longer than the break-even period, the switch saves money. If not, it costs you.
Picture a borrower with an FHA loan that has a mid-range annual premium and a thirty-year term. The loan-to-value sits just above 90%. The premium therefore runs for the whole term. Say the new VA rate and term match the old ones. Then the entire monthly saving is the removed premium, less the added cost of the financed fee on the balance. If the fee and closing costs equal roughly three years of that net saving, break-even lands around the three-year mark. A borrower who stays seven years comes out well ahead. A borrower who moves in two years does not.
Now change one input. Same borrower, but the new rate is meaningfully higher than the old one. The extra interest eats part of the premium savings, so the monthly gain shrinks and break-even stretches out. Some of these files never break even. This is why you compare the true payment, not just the insurance line.
Here is how the inputs move the result.
| Scenario | Net monthly change | Break-even |
|---|---|---|
| Rate and term unchanged | Premium removed, minus fee on balance | Moderate |
| Rate modestly lower | Larger saving | Sooner |
| Rate meaningfully lower | Largest saving | Soonest |
| Rate higher | Smaller or negative | Later, or none |
| Exempt from fee | Larger saving, lower balance | Much sooner |
Treat these as directional. Your own Loan Estimate is what makes them real.
When Does It Not Save You Money?
Some situations break the math. Here are the common ones:
- A short stay. If you sell or refinance again before break-even, you paid the fee for nothing.
- A repeat-use fee with no rate improvement. The higher fee tier can swallow the premium savings.
- A small FHA premium. If your annual premium is near the low end of the range, there is less to remove.
- A higher new rate. The insurance savings can vanish into interest.
- A reset amortization clock. Starting a fresh thirty-year term can lower the payment while raising total interest.
- A weaker file. The refinance needs full underwriting. If your credit or income has slipped since you got the FHA loan, you may not qualify for terms that make sense.
There is also a tradeoff on the FHA side. If you stay FHA, the FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It needs a net tangible benefit, and the premium 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. Those options cost less to run but keep the mortgage insurance. Compare them honestly against the VA route.
What Is the Net Tangible Benefit Test?
Net tangible benefit, or NTB, is VA's check that the refinance helps you. For a non-VA to VA loan, the VA guide requires at least one qualifying benefit. The lender enters the old loan and the new terms, and VA's system determines whether you meet a NTB.
Common NTBs on an FHA payoff include:
- Eliminating monthly mortgage insurance.
- Moving from an adjustable rate to a fixed rate.
- Shortening the loan term.
- Lowering the payment or the interest rate.
- Raising residual income.
Understand what this test is. It is a gate, not a promise of savings. A borrower can meet an NTB and still lose money if the fee and costs outrun the monthly gain. Passing the test means the refinance is allowed. Only your break-even math tells you whether it is smart.
VA's guide also ties seasoning and recoupment tests to VA-to-VA refinances. Seasoning is a waiting period after the existing loan starts, and recoupment is a test of how fast costs are earned back. Those tests do not apply to an FHA payoff under VA's guide. A lender may still add its own rules, so ask before you assume.
How the Process Works, Step by Step
Here is the path from first call to closing:
1. Confirm eligibility. Get your COE and check your fee status.
2. Collect documents. Expect income, asset, and credit review, the same as a purchase.
3. Order the appraisal. A new VA appraisal sets the home's reasonable value, which caps the loan.
4. Review the disclosures. The VA cash-out process includes an initial and a final cash-out disclosure.
5. Compare the Loan Estimate to your break-even. This is where you decide.
6. Close. The FHA loan is paid off, the VA-guaranteed loan takes its place, and any leftover proceeds go to you.
VA allows lending up to a high share of reasonable value, but lenders set their own caps, and many set them lower. State rules can also limit how much cash you can take out of a home. Every figure here is subject to lender guidelines and full file review.
One more point on closing costs. Some refinances are marketed as "no-cost." That label means the costs are built into the rate or added to the balance. Nothing is free. Whatever you pay, it shows up on the Loan Estimate and again on the Closing Disclosure, and you should compare the two.
What About Your VA Entitlement?
Entitlement is the amount of your VA benefit that backs a loan. A new VA loan uses some of it. If you plan to buy another home with VA financing, the details of your remaining entitlement matter. They are specific to your COE, so ask your lender to walk through it before you commit.
Plan for the future too. Once you hold a VA loan, the streamline for VA-to-VA refinances becomes available later. That can make a second refinance cheaper if terms improve. The fee for that streamline is lower than the cash-out fee, which is a real plus. It does not rescue a bad first switch, though.
VA loans are for your primary residence. The program covers owner-occupied homes of up to four units in some cases. If you plan to rent the home out soon, talk through occupancy with your lender first. Occupancy decides which loan fits.
Key Terms Defined
Funding fee: VA's one-time charge on its loans, set as a percentage of the loan, which can be financed.
Mortgage insurance premium (MIP): FHA's insurance charge, made up of an upfront premium and a monthly annual premium.
COE (Certificate of Eligibility): The VA document that shows your eligibility and fee status.
Net tangible benefit (NTB): The VA test that a refinance gives you at least one real advantage.
Break-even: The point where your savings equal what the refinance cost you.
Entitlement: The part of your VA benefit that backs a loan.
IRRRL (streamline): VA's simplified refinance for existing VA loans only.
Frequently Asked Questions
Can I use the VA streamline on my FHA loan?
No. The streamline covers existing VA loans only. An FHA payoff goes through VA's cash-out refinance process, which needs a full appraisal and full income and credit underwriting. The funding fee on the streamline also does not apply to an FHA payoff.
Do I have to take cash out?
No. You pay off the FHA loan, and no cash comes back. If you do take cash, the balance and the funding fee base both rise.
Can I roll the funding fee into the loan?
Generally yes, and many borrowers do. You owe nothing extra at closing, but your balance rises by the fee. That raises your payment and your interest cost, so count it when you calculate break-even. Exact limits depend on the lender.
Who skips the funding fee?
Veterans who receive VA disability compensation and certain surviving spouses are exempt. If you are exempt, your break-even arrives much sooner, because the largest one-time cost is gone.
Does the switch always lower my payment?
No. Removing FHA insurance lowers the payment, but a financed fee, a higher new rate, or a longer term can push it back up. Compare the full payment on the Loan Estimate to your current one before you decide. The Lendmire piece on how much cash a VA cash-out releases after the payoff and the fee shows how the balance moves when the fee is financed.
The Decision in Practice
Start with your COE and your fee status. Then pull your mortgage statement and find your FHA premium line. Ask a lender for a Loan Estimate on the VA refinance. Compare the full payment, the one-time costs, and the new balance against your current loan.
Then do the break-even math and set it beside how long you expect to keep the home. If you will stay well past break-even, the switch can save real money. If your stay is short, or the fee tier is high and the rate is flat, staying put or taking the FHA Streamline may be the better move. Lendmire's piece How Much a VA Cash-Out Funding Fee Costs After a Conventional or FHA Loan goes deeper on the fee side.
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. Lendmire is a mortgage broker, not a lender, and every program detail is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender's guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA Loan Guaranty – Cash-Out Refinance Quick Reference
2. HUD mortgagee letter on FHA mortgage insurance premiums
3. VA.gov – Funding fee and closing costs
4. VA Circular 26-23-06, Exhibit B – funding fee table
5. VA News – Funding fee: who pays and who is exempt
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Qualify for a Second FHA Loan as a Repeat FHA Buyer · How Much Annual MIP Adds to an FHA Loan Payment for a Retiree · Can You Do an FHA Streamline Within the First Year of the Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.