May 29, 2018
Can a military member or veteran with a VA mortgage loan refinance that loan into an FHA mortgage? If a VA borrower wanted to refinance using an FHA Rehab loan, for example, is such a transaction possible?
Some online research into the possibility of a “VA rehab loan” turns up results that indicate that a borrower might have a difficult time finding a lender willing to issue the right kind of refinance loan for the borrower’s needs in this particular area.
VA loan rules basically address cash-out refinancing, Interest Rate Reduction Refinancing Loans (IRRRLs) and refinancing loans to cure a delinquent mortgage.
There is a section under “other refinancing loans” for VA refinance options that include a construction loan, but the VA in general does not offer the same kind of rehabilitation loan as the FHA 203(k) Rehab loan or FHA 203(h) rehab loan for borrowers in federally declared disaster areas.
Can a VA borrower refinance into an FHA mortgage whether a rehab loan or cash-out refinance mortgage?
The short answer is yes. At this stage, the question on some VA borrowers’ minds is rightly whether FHA loan occupancy requirements might be a problem for the refinance loan because military duty might take the borrower away from the local area.
FHA loans are generally for owner/occupiers and using the home as their main address. But FHA mortgage loans anticipate the military borrower’s needs.
According to HUD 4000.1, eligible military borrowers can refinance into an FHA mortgage even if they have military duties that keep them from using the home as their full-time residence. HUD 4000.1 instructs the lender:
“Borrowers who are military personnel, who cannot physically reside in a Property because they are on Active Duty, are still considered owner occupants and are eligible for maximum financing if a Family Member of the Borrower will occupy the subject Property as their Principal Residence, or the Borrower intends to occupy the subject Property upon discharge from military service.”
So we see that like VA loans, FHA mortgages give an eligible service member the same consideration for loan approval. Like VA loans, FHA mortgages require occupancy, but as we read above, military duty is an exception.
When refinancing any mortgage, both FHA loan rules and lender standards will apply. If you aren’t sure what a particular financial institution has to say about refinancing a VA mortgage, talk to a loan officer to discuss your specific needs in detail.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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