Do I have to pay PMI on a VA loan?
By Kyle Melvin · NMLS #1486450 · REV Mortgage ·
Short answer
No. VA loans carry no private mortgage insurance and no monthly mortgage insurance premium, regardless of down payment. The VA guaranty does the job mortgage insurance does on a conventional loan, and what VA charges instead is a one-time funding fee, a percentage of the loan amount that most borrowers finance and that veterans with a disability rating are exempt from. Over a typical hold, no monthly insurance is a larger saving than the fee costs.
Mortgage insurance exists to protect a lender against default on a loan with a small down payment. On a conventional loan that means PMI you can ask to cancel at 80% of the original value and that the servicer must drop automatically at 78%; on an FHA loan it means an upfront premium plus an annual premium that, with a small down payment, lasts the life of the loan. On a VA loan, the VA guaranty replaces both. The lender's risk on the guaranteed portion is covered by VA, so there is nothing for insurance to do.
The trade is the funding fee: a one-time percentage of the loan amount, set by statute, that steps down with a larger down payment and is higher for subsequent use with less than 5% down. It can be financed on top of the loan, so it does not have to come out of pocket, and it is waived entirely for veterans receiving disability compensation and several other groups. The funding fee page has the schedule and the exemptions.
How the two compare depends on how long you hold the loan. A financed funding fee adds a small amount to the payment for the life of the loan; PMI adds a larger amount for the years until you reach 20% equity. For most holds the VA structure costs less, and for an exempt veteran it is not close. The VA loan guidelines page lays out what VA sets versus what the lender sets, and the down payment answer covers when putting money down anyway makes sense.
Questions people also ask
- Is the VA funding fee the same as PMI?
- No. PMI is a monthly premium that continues until you reach a certain equity level; the funding fee is a one-time charge at closing, usually financed, with no monthly component and no cancellation to track.
- Does a VA loan with zero down cost more per month than conventional with 20% down?
- The payment on the same loan amount is the same or lower, because there is no mortgage insurance. The difference is that the conventional borrower put 20% of the price into the house up front and the VA borrower kept it.
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