VA Loans And PMI: Everything You Need To Know

Private mortgage insurance (PMI) is another cost for homeowners to contend with. It’s an extra fee added to your monthly mortgage payment. But home buyers closing with a VA loan don’t have to worry about the added cost of PMI.

Let’s explore the lack of VA loan PMI. Plus, consider what other fees to keep in mind when purchasing a home with a VA loan.

Do VA Loans Have PMI?

Unlike conventional loans, VA loans don’t require PMI. Because VA loans don’t have PMI and no down payment is required, borrowers can enjoy more buying power when it comes time to purchase a home.

If considering other government-backed loan options, FHA loans are a popular choice. However, FHA loans require buyers to pay a mortgage insurance premium (MIP). The upfront premium amounts to 1.75% of the total value of your loan.

The lack of a private mortgage insurance requirement is one of many benefits tied to VA loans.

Which Fees Replace PMI For VA Loans?

Although you won’t get saddled with PMI for a VA loan, you can’t escape fees altogether. Instead of PMI, a VA loan requires you to pay for fees such as the VA funding fee, interest and closing costs.

While you might be able to refinance your way out of PMI with a conventional loan at some point, the VA funding fee is unavoidable. The proceeds of the VA funding fee are used to keep the affordable home loan program going.

As a buyer, you can pay for the full funding fee upfront or roll the cost into your loan. The exact cost of your funding fee varies based on the size of your loan and the type of loan you get. Plus, opting to make a down payment can help you lower the funding fee requirements.

Importantly, some veterans can avoid paying the funding fee. But this is only an option if you have a service-connected disability.

PMI Vs. VA Funding Fee

PMI is a type of insurance. If the borrower falls behind on their mortgage, the insurance protects the lender from the financial consequences. Typically, this is required when a borrower puts down less than 20% on a home purchase. You make these PMI payments monthly. After building 20% equity in the home, it’s often possible to have PMI removed from your loan.

In contrast, the VA funding fee is used to lower the costs of the loan program for U.S. taxpayers. The funds are due upfront or are rolled into the cost of your loan. You cannot avoid the funding fee by putting down 20%, but you can lower the size of the funding fee.

You can use a VA loan multiple times. But after the first use, you’ll pay a higher funding fee if putting down less than 5%.

Below is a look at how much the costs would run if purchasing a $200,000 home.

Advantages Of Having No PMI With VA Loans

VA loans come with a long list of benefits. Here’s a look at the advantages of having no PMI attached to your VA home loan.

• Savings: Borrowers can save up to 0.1 – 2% of their loan amount each year.
• No extra monthly costs attached to your mortgage: Money saved on PMI can allow borrowers to afford a more expensive home with a higher monthly mortgage payment.
• No need to save for a big down payment. Saving for a down payment is one of the biggest challenges for prospective home buyers. The low down payment requirements of the VA loan are very enticing.
• Refundable funding fees: If you learn later that you qualify to skip the funding fee, the VA may refund the funding fee. You might avoid the funding fee if you meet certain service requirements.

The ability to avoid PMI on your home purchase through a VA loan is enticing. However, the funding fee might rain on your parade. If you can afford to make a 20% down payment, opting for a conventional loan will help you avoid both the funding fee and PMI. Run the numbers to see what type of home loan makes sense for your situation.

VA Loans And PMI: FAQs

You have questions about VA loans and PMI. We have answers.

How much is PMI on a VA loan?

VA loans don’t have PMI attached. Instead, borrowers will pay a VA funding fee. The funding fee ranges from 1.25% to 3.3% of the total loan amount.

Do I have to pay MIP for a VA loan?

Borrowers don’t have to pay MIP for a VA loan. MIP requirements are tied to FHA loans. Instead of MIP, VA loan borrowers must pay a funding fee. The funding fee ranges from 1.25% to 3.3% of the total loan amount.

How much can you save without paying for PMI with a VA loan?

The amount you can save by avoiding PMI with a VA loan varies. But it’s important to take the funding fee into account. Run the numbers for your unique home buying situation to determine the best path forward.

The Bottom Line

If you qualify, the VA home loan program might be the right fit for your home buying journey. The lack of a down payment requirement and nonexistent PMI are attractive. If you’re ready to get started, get approved with Rocket Mortgage^® today.