Here’s what you need to know in 2025 if you’re considering refinancing your FHA or VA loan.
Government refinance applications increased by 42% over the week, according to the MBA’s Weekly Mortgage Applications Survey for the week ending Feb. 28, 2025. This jump was mainly due to the dip in mortgage rates, which are currently hovering at around 6.70%, the lowest since December 2024.
Does it make financial sense for you to refinance right now? We interviewed experts to understand what’s going on with government-backed loans, specifically FHA and VA refinancing, to help you decide.
What is an FHA Loan?
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development. With FHA loans, you can make down payments as low as 3.5% if you have a credit score of 580 or higher.
If you’re taking out a $500,000 FHA loan, you can put down as little as $17,500 for your home. Because of the low credit score and down payment requirements, FHA loans are solid options for aspiring homeowners with little savings or less-than-ideal credit.
That said, you must pay a mortgage insurance premium (MIP) when you take out an FHA loan. MIP includes an upfront premium paid at closing, equal to 1.75% of the loan principal. You’re also responsible for annual MIPs, which are typically rolled into your mortgage payments for the life of the loan.
What is a VA Loan?
A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs for service members, veterans and their surviving spouses.
The main selling point of a VA loan is that it requires zero down payment – provided that the home’s sales price doesn’t exceed its appraised value. VA loans don’t require you to pay private mortgage insurance, which typically comes with conventional loans. They also limit the closing costs you pay.
However, VA loans typically charge higher interest rates than conventional loans. Plus, you must pay a VA loan funding fee, which can cost anywhere between 1% and 3% of the total loan amount.
Why Refinance an FHA or VA loan?
Refinancing your FHA or VA loan allows you to potentially lower your interest rates, reduce monthly payments or switch from an adjustable-rate loan to a fixed-rate one for stability.
“FHA borrowers might also use cash-out refinancing to access equity for things like home improvements or paying off debt,” explains Mike Roberts, a mortgage broker, loan originator and co-founder of City Creek Mortgage. “For VA loans, refinancing is often about saving money or simplifying payments through programs like IRRRL.” An IRRRL is a type of VA loan that helps you refinance an existing VA-guaranteed loan, generally at a lower interest rate.
What’s Changed in 2025?
“The challenge this year is higher closing costs due to increased loan limits and rate fluctuations,” says Roberts. “You’ll want to make sure refinancing actually saves you money after those costs are factored in.”
He says that because of these higher loan limits in 2025, you can refinance larger balances and access more equity if you’re doing a cash-out refinance.
According to the HUD, FHA loan limits have increased to a floor of $524,225 and a ceiling of $1,209,750, reflecting rising home prices. For VA loans, the limits have also risen to $806,500 in most counties. These changes mean you can refinance larger amounts.
“The downside is that in an uncertain market, lenders are tightening their requirements,” says Bill Lyons, Founder, CEO & President of Griffin Funding, a nationwide boutique mortgage banker. If you’re considering refinancing your mortgage, he suggests evaluating your financial situation and researching multiple mortgage refinance lenders to find the best refinancing options.
The Bottom Line
Though higher loan limits mean you could borrow more, potentially more expensive closing costs and stricter lending criteria mean you’ll also need to crunch the numbers carefully. Before refinancing your mortgage, compare lenders and calculate your long-term savings to see if this decision makes financial sense. Check out our lists of the best FHA lenders and VA refinance mortgage lenders to narrow down your options.
Why You Should Trust Us
Around 25 million readers monthly trust Benzinga for in-depth financial coverage, including mortgages, investing and other personal finance topics. Our commitment to thorough research and expert-backed insights has solidified our reputation as a go-to resource for financial information.
Jamela Adam, the author of this piece, has been a personal finance writer since 2021. She’s also a Certified Financial Education Instructor. To provide expert perspectives on the future of FHA and VA loans, we spoke with Mike Roberts, a mortgage broker, loan originator and co-founder of City Creek Mortgage, and Bill Lyons, Founder, CEO & President of Griffin Funding, a nationwide boutique mortgage banker.
FAQ
Can I refinance my FHA loan with a VA loan?
Yes. If you’re an eligible veteran, active-duty service member or qualifying spouse, you could refinance an FHA loan into a VA loan using a VA cash-out refinance. This lets you get rid of mortgage insurance and potentially get better terms.
Are most FHA and VA loans assumable?
Yes. FHA and VA loans are assumable, meaning you can take over the seller’s mortgage. But you must meet lender and program requirements to qualify.
Can you have a VA and FHA loan at the same time?
Yes. You can have a VA and FHA loan simultaneously if you meet each eligibility requirement. This typically happens when you use your VA loan for one property and an FHA loan for another.
Sources
- Mortgage Bankers Association, Weekly Mortgage Applications Survey, Feb. 28, 2025 https://www.mba.org/news-and-research/newsroom/news/2025/03/05/mortgage-applications-increase-in-latest-mba-weekly-survey
- Freddie Mac, Primary Mortgage Market Survey (PMMS) https://www.freddiemac.com/pmms
- Mike Roberts, a mortgage broker, loan originator, and co-founder of City Creek Mortgage https://www.linkedin.com/in/mikeroberts5/
- Bill Lyons, Founder, CEO & President of Griffin Funding, a nationwide boutique mortgage banker: https://www.linkedin.com/in/lyons/
About Jamela Adam
Jamela is a certified financial education instructor (CFEI) with a background in covering mortgages, home buying, and real estate financing. She specializes in breaking down complex topics like mortgage rates, home loan options, and market trends to help readers make smarter decisions with their homes.