I Bought a House and Didn't Realize I Was Eligible for a VA Loan. What now?

You worked and saved to buy your home only to realize you could have saved a lot of money with a VA loan.

You're not alone. One-third of veterans don't know they're eligible for VA loan benefits. Even veterans who know about the benefit are likely to believe some of the myths about VA loans that are out there. 

The question is, what do you do now?

When you use a VA loan, you typically get a lower interest rate than you would with a conventional loan and you don't have to have a down payment. Since you bought without a VA loan, you've already put money toward a down payment, but that's okay. That 20% isn't exactly gone, it's now equity in your home.

That gives you the flexibility to take out a HELOC if you need to pay for childcare or education costs and it's money can you consider invested until you sell your home. If you weren't able to put the full 20% down, you may be paying private mortgage insurance. If that's the case, you may want to consider refinancing your loan under the VA Cash-Out Refinance Loan program. 

Since your down payment is already a sunk cost, you should focus on your interest rate. If you had excellent credit and a 20% down payment, you may have been able to get a very low interest rate. Check with some lenders who offer VA loan refinancing and see what interest rate you can qualify for under the program. Remember, even half a percentage point can make a huge difference in your monthly mortgage payment. 

Cash-Out Refinance Loan

If you want to roll your existing mortgage into a VA loan, your only option is a Cash-Out Refinance Loan through the VA loan program.

This type of loan allows you to take cash out of your home's equity for home improvements or paying debt. It also allows you to refinance a non-VA loan into a VA loan (with or without cash back). It's available in every state except Texas. 

Find a lender

Your first step is to find a lender who has experience working with VA loans and who you feel comfortable with.

Be sure to explain your situation and what you want to get out of the refinance process. For this type of loan, you'll need all the same documentation you would if you were getting a VA loan for the first time. 

Consider the costs 

Did you break even? Add up all the costs associated with your refinance and divide that by the amount of money you'll save on your monthly mortgage payment.

You can also use our refinance calculator to see the difference, but don't forget your VA loan funding fee, which will be higher for this refinance than it would if you had gotten a VA loan to begin with.

Explore your options

You can use the Cash Out Refinance loan to transfer your mortgage to a VA loan, but you have other options too.

If you're ready to become a landlord, you can buy a new home with a VA loan and rent out your existing home for a little extra income. Or, if you're still an active duty servicemember, you might need to move soon.

In that case, it might make more sense to keep the loan you have and use a VA loan to buy a home when you move. Buying a home with a VA loan will ensure you have a lower funding fee and it will also open up the option of using an Interest Rate Reduction Refinance Loan if you need it in the future. That type of loan is only available for existing VA loans. 

Now that you have a plan for your mortgage, spread the word to your friends so they know they're eligible for a VA loan. And be sure you check to see if your state has any other incentives for veterans that you may be able to take advantage of. You earned the benefits, so don't be afraid to use them!