How Much You Save Moving FHA to a VA Loan on Second-Tier Entitlement

The Quick Read: Your savings come mainly from dropping the FHA annual mortgage insurance, minus the VA funding fee and the costs of the new loan. The move runs through a VA cash-out refinance, even when you take no cash. Second-tier entitlement sets the largest loan VA will back with nothing down. Whether you come out ahead depends on your FHA premium schedule, your funding-fee status, and how long you keep the loan.

What Is Second-Tier Entitlement?

Second-tier entitlement is the part of your VA guaranty still available after an earlier VA loan. VA guarantees a slice of each VA loan, and that guaranty is your “entitlement.” If an earlier VA loan on another property is still active, it has used part of yours. What is left is remaining, or “bonus,” entitlement.

VA’s formula is simple. Take 25% of the county conforming loan limit. Subtract the entitlement the earlier loan still uses. Multiply what is left by four. That is the largest loan VA will guaranty at 25% with no money down. VA News walks through the same steps, and VA Circular 26-23-26 confirms that lenders often cap no-down loans at four times the remaining amount.

Full entitlement is different. If you have never used the benefit, or it has been restored, VA applies no county-limit cap. The limit math only bites when part of your entitlement is tied up. A typical case: you keep a VA-financed home as a rental, then buy your next home with an FHA loan. That FHA loan is the one you may want to move.

Why Is the Route a Cash-Out Refinance?

An FHA loan can only move to VA through a VA cash-out refinance. The VA streamline cannot do it. A cash-out refinance can pay off liens of any type, while the streamline features belong to VA-to-VA loans. You can read the structure in VA Pamphlet 26-7, Chapter 6.

VA describes two cash-out types in its cash-out refinance guide.

Most people moving off FHA to shed insurance want Type I. A Type II adds cash to the balance, which erodes the savings you came for.

If you are weighing the FHA side first, Lendmire’s FHA loan programs page explains how the premium works from the start.

Where Do the Savings Come From?

The biggest saving is the end of the FHA annual mortgage insurance premium. VA loans carry no monthly mortgage insurance. The VA charges a one-time funding fee instead, and you can pay it at closing or finance it. The VA funding fee page explains that the fee is a percentage of the loan, varies by loan type, and may depend on first or later use. Veterans who receive compensation for a service-connected disability are exempt.

Here is how the FHA premium works. FHA charges an upfront premium of 1.75% of the base loan, usually financed. It also charges an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. 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 Mortgagee Letter 2023-05 shows the schedule by term, base loan amount and original LTV. HUD has since folded these rules into its handbook, so confirm the current schedule for your case.

Here is what that means in plain terms:

Your original FHA LTV matters most. A borrower who started at 96.5% financing with a 3.5% investment is paying the long-duration premium. That borrower has the most to gain by leaving. Someone whose premium is about to end anyway has far less.

How Do You Work Out Your Own Break-Even?

Do the math in three steps, using your own statements rather than a rule of thumb.

1. Find the premium you pay now. Your mortgage statement or escrow analysis shows the annual FHA premium line. Divide it by twelve.

2. Add up the one-time costs. That is the funding fee (zero if exempt), closing costs, and any appraisal charge. Your Loan Estimate lists them.

3. Divide costs by monthly savings. The answer is your break-even in months. If you expect to keep the home longer than that, the move pays off on the insurance line alone.

Run the same math against a rate and term change, too. A VA refinance often changes the interest rate and the term, and those effects can swing the result either way. A lower monthly payment matters, but a longer term can raise total interest. Compare total cost over the years you will actually hold the loan, not just the monthly figure.

Financing the funding fee raises your balance a little. That is fine if you keep the loan long. It hurts if you sell in a few years.

What Does the Loan Have to Pass?

The new loan must clear four gates. All of them are subject to lender guidelines and full file review.

Appraisal and the 100% cap. The new loan, including financed fees, must stay at or below 100% of VA’s reasonable value, per VA’s cash-out lender briefing. Your FHA payoff, any financed upfront premium and the financed funding fee must all fit inside appraised value. This is the main equity gate. A low appraisal can stop the refinance. Some lenders set a tighter cap than VA does, so expect variation.

Net tangible benefit. Every VA cash-out refinance must meet at least one of eight benefit tests, and the lender must show you the test. Dropping monthly mortgage insurance is a common way to satisfy it when leaving FHA.

Occupancy. You must certify that you intend to live in the home. This path is for your own residence.

Underwriting. A cash-out refinance gets full credit and income review, not the streamlined process. VA sets no minimum credit score. Lenders set their own floors, and some set a higher one than others. Debt-to-income and residual income both count.

You will also receive loan-comparison disclosures before and at closing.

How Does Partial Entitlement Change the Picture?

Partial entitlement limits how large the no-down loan can be. Run VA’s formula with the county limit for the home you are refinancing, not the one you bought earlier. If your FHA payoff plus financed fees lands above four times your remaining entitlement, the lender will usually want the gap covered.

On a refinance, that gap is not a “down payment.” It is equity. You would either bring cash to the table, or the loan would stay smaller than the full balance owed. Neither option is hard, but it changes the savings math. Cash you bring to close the gap is cash you could have kept.

Entitlement also has a cost down the road. A new VA loan uses guaranty again. While it is active, that charge stays attached. If you plan another VA purchase soon, factor that in before you refinance. If the earlier VA loan was on the same property and gets paid off, that entitlement can be restored for the new loan. Lendmire’s piece Can a Veteran Who Used a VA Loan Before Use Second-Tier Entitlement? goes deeper on that side.

Where Does the General Rule Break?

A few edge cases change the answer.

• Funding-fee exempt borrowers. If you receive VA disability compensation, you owe no funding fee. The savings math improves sharply. Certain surviving spouses and Purple Heart recipients may also qualify for exemptions, so check the VA page.
• Premium about to end. If your FHA premium drops off in the near term, the insurance savings shrink. Do not assume it will fall off on its own at 78% LTV. HUD bases cancellation on the original amortization schedule, not new appraisals, as HUD Handbook 4000.1 explains. Your case-number date, term and original LTV decide it.
• Low appraisal. Value short of the payoff plus fees can end the deal.
• Large loans. With partial entitlement, a big balance may need a large equity cushion.
• Seasoning. Waiting-period and recoupment rules are written mainly for VA-to-VA refinances. Your lender confirms how they apply to a non-VA payoff.
• FHA Streamline alternative. Some borrowers stay in FHA and use the Streamline, which needs no appraisal and only a limited credit review. The premium continues, though, so it does not solve the insurance problem. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

One more point on credit events. HUD’s waiting periods, such as two years from a chapter 7 discharge and three from a foreclosure, are HUD rules for FHA. VA and lender rules differ, and a foreclosure can also affect entitlement.

Common Myths

“The VA streamline gets me out of FHA.” No. The streamline is VA-to-VA only.

“Cash-out means I must take cash.” No. Type I returns nothing to you.

“VA loans cost nothing.” There is a funding fee unless you are exempt.

“VA has no loan limit for me.” True only with full entitlement. Partial entitlement brings the county-limit formula back.

“I can only have one VA loan.” Remaining entitlement can support another.

Key Terms Defined

Entitlement: the portion of a VA loan that VA guarantees to the lender.

Remaining (second-tier) entitlement: the guaranty left after an active earlier VA loan uses part of it.

Funding fee: the one-time VA charge, payable at closing or financed, that replaces monthly mortgage insurance.

Net tangible benefit: a test showing the refinance helps you in a measurable way, such as ending monthly mortgage insurance.

Type I cash-out: a VA cash-out refinance where the new loan is at or below the payoff, so you take no cash.

Annual mortgage insurance premium (MIP): the yearly FHA charge, billed monthly, based on term, loan amount and LTV.

What Should You Do First?

1. Request your Certificate of Eligibility. It shows entitlement already charged.

2. Look up the county limit for the home you live in.

3. Run VA’s formula to find your no-down ceiling.

4. Pull your FHA payoff statement and your annual premium figure.

5. Ask for a Loan Estimate and compare the one-time costs to your monthly savings.

6. Decide how long you will keep the home.

If you hold an FHA loan on your home and want to see whether moving to VA fits your file, Lendmire can help you compare the options and what each one asks of the file. Every figure above is subject to lender guidelines and full file review, and none of it 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.

References

1. VA News: Veterans can use their VA-guaranteed home loan benefit more than once

2. VA Circular 26-23-26

3. VA Pamphlet 26-7, Chapter 6: Refinancing Loans

4. VA Cash-Out Refinance Quick Reference

5. VA.gov: Funding fee and closing costs

6. HUD Mortgagee Letter 2023-05

7. VA Loan Guaranty Cash-Out Interim Rule briefing

8. HUD Handbook 4000.1