Do VA loans have PMI?

What Is PMI, and Why Don’t VA Loans Require It?

What Is PMI?

Private mortgage insurance is typically required by lenders when a borrower makes a down payment of less than 20 percent on a conventional loan. It protects the lender, not the borrower, against default. PMI can be structured in several ways:

• Borrower‑paid PMI (BPMI) – the most common, added to your monthly mortgage payment.
• Lender‑paid PMI (LPMI) – the lender covers the premium but usually charges a higher interest rate in exchange.
• Single‑premium PMI – the borrower pays one lump sum at closing; useful if you have the cash and want to avoid a monthly add‑on.
• Split‑premium PMI – a hybrid that combines an upfront payment with a smaller monthly fee.

Under federal law (12 U.S.C. § 4901 et seq.), BPMI automatically terminates when you reach 78 percent loan‑to‑value (LTV) based on the original amortization schedule, or earlier if you request cancellation at 80 percent and meet certain conditions. Even so, many borrowers pay PMI for five to ten years—an expense that doesn’t build equity or lower principal.

VA Loan Guarantee

VA loans, backed by the U.S. Department of Veterans Affairs, don’t require PMI because the VA guarantees a portion of every eligible loan—typically 25 percent of the loan amount. If a borrower defaults and the home goes to foreclosure, the VA reimburses the lender for that guaranteed portion. In practice, this “credit enhancement” reduces the lender’s exposure so dramatically that separate mortgage insurance isn’t needed.

Contrast that with an FHA loan, which carries both an upfront and an annual Mortgage Insurance Premium (MIP). The VA guarantee is technically similar but is funded through the one‑time VA funding fee you’ll see later, not by ongoing monthly premiums.

Why This Matters for Veterans

Skipping PMI translates into immediate and long‑term savings. Let’s quantify that:

• $300,000 loan at 97% LTV (3% down) – If PMI runs $100/month, you’d pay $1,200 per year. Over five years that’s $6,000; over ten years, $12,000, assuming it hasn’t canceled sooner.
• $450,000 loan at 95% LTV (5% down) – PMI might be closer to $170/month. Over five years, you’d spend $10,200; over ten years, $20,400.

Those dollars can instead bolster retirement savings, pay down other debt, or fund home improvements—accelerating wealth building. There’s also a psychological benefit: one less recurring line item on the budget brings peace of mind.

Understanding the VA Funding Fee

While VA loans don’t have PMI, they do include a one‑time funding fee. Authorized by Congress, the fee helps keep the program self‑sustaining so it can serve future generations, without relying on taxpayer subsidies. In policy terms, the fee is the VA’s replacement for the risk premium that mortgage insurance covers in other loan programs.

The funding fee rates are set in federal statute (38 U.S.C. § 3729) and have been periodically adjusted—most recently in 2023 when rates were reduced slightly. Congress can adjust them again, so always verify current numbers on VA.gov.

How Much Is the VA Funding Fee?

The funding fee is a percentage of the loan amount, ranging from 0.5 percent to 3.3 percent. Your exact rate depends on:

• Whether it’s your first‑time or a subsequent use of the VA benefit.
• Your down‑payment amount, if any.
• The type of loan—purchase/construction, cash‑out refinance, or Interest Rate Reduction Refinance Loan (IRRRL).

Below is the 2025 schedule:

First‑time vs. subsequent use: You’re “subsequent” if you’ve ever closed a VA loan before—even if that entitlement was later restored. Purchase vs. refinance: Cash‑out refis carry the same fee as a zero‑down purchase because the lender is advancing new cash; an IRRRL is lower because it’s simply a rate‑and‑term refinance of an existing VA loan. Down payment impact: The more skin you put in the game, the less risk for the VA guarantee fund—hence a lower fee.

Can You Avoid the Funding Fee?

Yes—Congress carved out several exemptions:

• VA disability compensation. Any service‑connected disability rating—whether 10 percent or 100—qualifies.
• Active‑duty Purple Heart recipients. If you’ll close while still on active duty and have been awarded the Purple Heart, you’re exempt.
• Surviving spouses of veterans who died in service or from a service‑connected disability, or who were rated totally disabled at time of death.

The exemption appears automatically on your Certificate of Eligibility (COE). If you believe you qualify but the COE is silent, work with your VA regional loan center or lender to correct it before closing.

Paying the Funding Fee

You may pay it upfront at closing, roll it into the loan, or—in some purchase contracts—have the seller cover it as part of allowable concessions (up to 4 percent of the purchase price). Here’s how the math works on a $250,000 loan with a 2.15% funding fee:

• Upfront payment – You bring $5,375 to closing. Loan amount remains $250,000; monthly payment and total interest stay lower.
• Financed fee – Loan becomes $255,375. Your principal and interest payment rises slightly (roughly $30/month at 6.5% interest) and you’ll pay interest on the fee over 30 years.

Even with a financed fee, many veterans still come out ahead versus conventional PMI. Compare that $30/month to the earlier PMI figures—it still saves $70+ monthly in our $300k example.

VA Loans vs. Conventional Loans: A Side‑by‑Side Comparison

Big picture: VA shines for eligible borrowers who want maximum leverage and predictable payments. Conventional may fit if you have 20 percent down, want to avoid the funding fee, or are purchasing a secondary home.

Benefits of VA Loans Beyond No PMI

• No Down Payment. Keeping cash reserves intact can be critical when transitioning out of service or relocating frequently.
• Lower Interest Rates. According to FHFA’s monthly rate survey, VA loans average 50–75 basis points below conventional in comparable credit tiers.
• No Prepayment Penalties. Some non‑QM or investment loans still carry penalties, but VA bans them outright—giving you freedom to refinance or pay off early.
• Foreclosure Assistance. The VA’s Loan Guaranty Service offers forbearance, repayment plans, and modification options if hardship arises.
• Relaxed Debt‑to‑Income (DTI) Ratios. VA guidelines focus on residual income; a high DTI can be offset if your net disposable monthly income meets regional standards.
• Assumability. A future buyer—veteran or not—can assume your VA loan, potentially at a below‑market rate, boosting your home’s resale appeal.

Potential Drawbacks of VA Loans

• Funding Fee. As covered, it’s sizable if you’re not exempt, though often still cheaper than PMI.
• Minimum Property Requirements (MPRs). The VA appraisal ensures safety and habitability: no peeling lead‑based paint, safe electrical, adequate roof, handrails on stairs, etc. Homes needing major repairs may require seller fixes or be ineligible.
• Primary Residence Only. VA loans must be owner‑occupied within 60 days (exceptions for deployed service members). They’re not designed for vacation homes or pure rentals.

How to Qualify for a VA Loan

Eligibility hinges on service history, captured in VA Form 26‑1880 (the COE request).

• Active‑duty wartime: ≥ 90 consecutive days.
• Active‑duty peacetime: ≥ 181 consecutive days.
• National Guard / Reserve: ≥ 6 years unless mobilized for 90 days active.
• Surviving spouse: Unmarried and veteran died in service or from service‑connected causes, or was totally disabled.

The COE also lists used and remaining entitlement, plus any funding‑fee exemption.

Steps to Get a VA Loan

1. Check Eligibility. Gather DD‑214, Statement of Service, or NGB‑22.
2. Obtain Your COE. Your lender can retrieve it instantly through the VA’s WebLGY portal.
3. Find a VA‑Approved Lender. Ask how many VA loans they closed last year and whether they use manual underwriting for borderline files.
4. Get Pre‑Approved. Provide paystubs, LES (if active duty), tax returns, and bank statements.
5. Shop for a Home. Look for properties likely to clear MPRs; consider a VA‑savvy realtor.
6. Appraisal & Underwriting. The VA appraisal confirms value and MPR compliance; underwriting verifies income, assets, and residual.
7. Close & Move In. Sign final docs, pay (or finance) the funding fee, and occupy within 60 days.

Common Misconceptions About VA Loans

• Myth: Only for first‑time buyers. Truth: Entitlement can be restored or even used twice at once (partial entitlement) if you meet guidelines.
• Myth: Take forever to close. Truth: Automated underwriting and e‑closing tools mean VA timelines mirror conventional loans.
• Myth: Sellers hate VA offers. Truth: Appraisal issues are rare when the home is in good shape. Strong earnest money and underwriting‑approved letters ease concerns.
• Myth: Only low‑income veterans use VA loans. Truth: High‑earning officers and retirees often choose VA for the no‑PMI benefit.
• Myth: You can’t buy a fixer‑upper. Truth: The VA Renovation loan exists, though fewer lenders offer it; it finances repairs into the mortgage.

FAQs About VA Loans and PMI

1. Do VA loans require PMI? Copied!

   No. Instead, a one‑time funding fee (0.5–3.3%) replaces monthly PMI, potentially saving thousands over the life of the loan.

2. Can I avoid the funding fee? Copied!

   Yes—disability compensation, a Purple Heart, or qualifying as a surviving spouse grants exemption. Even a 10% disability rating counts.

3. How does the funding fee compare to PMI? Copied!

   PMI is monthly until you reach 78–80% LTV; the funding fee is charged once. Over a decade, a financed fee often costs less than long‑term PMI.

4. Are VA interest rates lower than conventional? Copied!

   Typically by 0.5–1.0%, thanks to the VA guarantee lowering lender risk.

5. Can I use a VA loan more than once? Copied!

   Absolutely—there’s no cap on usage. Subsequent use may carry a higher funding fee unless exempt.

6. Do VA loans have stricter appraisals? Copied!

   They include MPRs for safety and livability, which can be stricter but protect the homeowner.

7. Can I refinance a VA loan? Copied!

   Yes, with the streamlined IRRRL at only 0.5% fee, or a cash‑out refinance up to 100% LTV.

8. Are closing costs higher with VA? Copied!

   The VA caps some lender fees (e.g., origination at 1%), so costs are typically comparable or lower.

9. Can I buy a condo? Copied!

   Yes, if it’s on the VA‑approved list. Check status on VA’s condominium search tool.

10. Do VA loans have a maximum amount? Copied!

    The VA guarantees loans of any size, but lenders underwrite to FHFA conforming‑limit guidelines and your DTI.

Next Steps for Veterans

Ready to act? Take these actionable steps:

• Verify eligibility: Pull your COE through eBenefits or ask your lender.
• Interview at least two VA‑approved lenders. Compare rates, fees, and customer service. Ask whether they manually underwrite files that don’t receive instant AUS approval.
• Review your budget. Even with $0 down, plan for earnest money, inspections, and moving costs.
• Choose a VA‑savvy real‑estate agent. They’ll understand MPRs and craft stronger offers.
• Stay informed. Bookmark resources like CFPB’s Owning a Home tools to compare loan scenarios.

VA loans offer a rare chance to buy a home with no PMI, no down payment, and competitive rates. Don’t let myths or paperwork scare you off—your dream home might be closer than you think!

External resources cited: VA.gov, HUD.gov, ConsumerFinance.gov, FHFA.gov, Congress.gov, CFPB, and other high‑authority government sources to ensure accuracy.