How to Refinance from a Cal-Vet Loan to a VA Home Loan

It is possible to refinance a Cal-Vet home loan. You just have to do it into a new VA home loan. One of the downsides of the CalVet home loan program is that you cannot refinance when interest rates drop. While the VA home loan program offers one of the best refinancing options around, the Interest Rate Reduction Refinance Loan, or IRRRL, CalVet is available only for purchases.

Why CalVet will not Allow a Refinance

When a home is purchased using a CalVet loan, it is actually closed using a Contract of Sale. This is different than a standard loan closing. With a Contract of Sale, it is actually CalVet who purchases the property you select and then takes legal title to the property at the close of escrow. CalVet then turns around and sells the property to the Veteran using the Contract of Sale. CalVet can’t refinance the current loan according to both federal and state laws. Also, because the interest rate is tied directly to the tax-exempt bond used as the funding source of the home, the borrower is locked into the interest rate, even if rates drop.

Refinance into a VA Home Loan

The solution is to refinance into a VA home loan.  This can either be a VA IRRRL or a “cashout” VA refinance. A VA IRRRL does not require an appraisal and there is no income documentation needed. If a CalVet borrower wants to access their equity, whether it be for debt consolidation, home improvement, or some other purpose, then a VA cashout refinance is the way to go.  An appraisal is required and the loan cannot be more than 90% of the property value. This would be a full income documentation loan and can carry a big VA Funding Fee for those Veterans who do not have a service-connected disability rating.

Reasons Why a CalVet Borrower Would Want to Refinance

  • To pull cash out for home improvement or debt consolidation. Property values are on the rise, which means many CalVet borrowers now have equity in their homes. They can refinance into a VA loan to pull cash out for home improvements or debt consolidation. VA allows for cashout refinancing up to 90% of the appraised value.
  • Lower their interest rate and payment. Many CalVet borrower’s interest rates are still above 4%. VA home loan interest rates adjust based on the current market and are now low enough that it makes sense to review your options for lowering your interest rate and payment.

First Step in Determining if a CalVet Refinance is Right for You

The first step in determining whether a refinance from a CalVet loan into a VA home loan makes sense is to contact a California VA home loan specialist.  The VA home loan officer should be able to prepare custom loan scenarios with details on the new loan amount, payment, and closing costs involved in a refinance. Many times there can be a lender credit that will offset some or all of the closing costs. It is important that the Veteran understand the loan process before starting the refinance. A clear termite report will be required for cashout refinancing (not the VA IRRRL). Also, a VA Funding Fee is required, except for those Veterans who have the disability waiver (10%).  The loan officer will be able to review all options and educate the Veteran on the pro’s and con’s of a refinance.

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at Fairway Independent Mortgage Corporation. Direct line is 949-829-1846.


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