VA loans do not require Private Mortgage Insurance (PMI), which is a significant financial advantage over conventional loans. Instead of a recurring monthly PMI charge, the VA requires a one-time, upfront VA Funding Fee. This fee is usually financed into the loan, but it can be waived entirely for veterans receiving VA disability compensation, Purple Heart recipients, and other eligible parties. The elimination of monthly PMI helps keep your overall mortgage payment low, regardless of your down payment amount.
Quick Facts
- No Monthly PMI: VA loans are exempt from mandatory monthly Private Mortgage Insurance regardless of the down payment amount.
- VA Funding Fee: This is a one-time fee paid at closing that helps offset the cost of the program, with the percentage varying based on loan use and down payment.
- Fee Exemptions: Veterans receiving service-connected VA disability compensation or those awarded the Purple Heart are exempt from paying the funding fee.
- Major Benefit: The lack of monthly PMI is a primary reason the VA loan remains the most competitive option, often combined with no down payment and lower overall rates.
- Purpose: The funding fee ensures the VA loan program can operate without requiring a down payment, protecting the government’s guarantee on the loan.
Frequently Asked Questions
Is the VA Funding Fee a type of mortgage insurance?
No. Unlike PMI, which is a recurring monthly cost, the VA Funding Fee is a non-refundable, one-time fee paid at closing. It secures the government guarantee on the loan, allowing lenders to offer zero down payments and avoid monthly insurance.
How much is the VA Funding Fee?
The fee varies by use and down payment. For a first-time user with 0% down, it is typically 2.15% of the loan amount. For subsequent users with 0% down, it’s typically 3.3%. The fee is lowered if you make a down payment of 5% or more.
Can the VA Funding Fee be waived?
Yes. Veterans who are receiving VA compensation for a service-connected disability are exempt. Purple Heart recipients and surviving spouses of a veteran who died in service or from a service-connected disability are also exempt.
Key Takeaways
- VA loans eliminate monthly PMI entirely, replacing it with a single upfront funding fee.
- Many borrowers can finance the funding fee, preserving cash and simplifying closing budgets.
- Disability, surviving spouse, and Purple Heart benefits may fully waive the funding fee.
- Zero-down options, capped closing costs, and no prepayment penalties enhance affordability.
- Assumability and streamlined refinancing can lower costs over a loan’s life.
- Extra principal payments and smart refinances help VA borrowers build equity faster.
More VA Closing Costs Resources
- VA Closing Costs Guide See typical VA fees, who pays them, and saving strategies.
- VA Funding Fee: Rates and Rules Rates by service category, first use vs. subsequent, exemptions explained.
- Finance the VA Funding Fee or Pay at Closing? Pros and cons of financing the fee versus paying cash upfront.
- VA Loan Closing Disclosure Explained Understand each line item, timing, and how to spot errors.
- VA Loan Fees: Current Costs Current lender fees, third-party charges, and common ranges to expect.
- VA Closing Day Checklist Step-by-step tasks to prepare documents, funds, insurance, and utilities.
- VA Closing Costs Timeline When estimates arrive, what's due when, and milestones from start.
- No-Closing-Cost VA Loan Guide How lenders offset fees, rate tradeoffs, and when this option fits.
Do VA loans require PMI or monthly mortgage insurance?
No—VA loans never require monthly PMI. The VA guaranty replaces private mortgage insurance that conventional borrowers typically pay with less than twenty percent down. Eliminating PMI reduces the monthly payment and directs more of each payment toward principal and interest, helping qualified borrowers qualify more easily and build equity more predictably. For PMI basics and VA policy context, see the Consumer Financial Protection Bureau’s PMI explainer and the VA’s program overview indicating no mortgage insurance premiums. VA Manual 26‑3.
- Because PMI adds a recurring line item until an equity threshold is reached, removing it improves debt‑to‑income ratios and cash flow, especially for first‑time buyers balancing new housing costs, reserves, and moving expenses during the first year of ownership.
- Conventional PMI can be cancellable later, but monthly premiums accumulate meaningfully early on; the VA design avoids that ongoing charge entirely, which may help pass automated underwriting and reduce payment shock for budget‑sensitive households.
- VA still manages risk via its guaranty and underwriting standards rather than passing recurring insurance costs to borrowers, supporting competitive pricing without layering a separate monthly insurance premium on the payment.
- Ask your lender to model a side‑by‑side comparison: a VA loan without PMI versus a conventional loan with PMI, using identical rate assumptions and terms, to measure monthly savings and total cost over realistic holding periods.
- Review your Loan Estimate to confirm there is no monthly mortgage insurance line on VA scenarios and that any funding fee is either paid at closing or financed, depending on your chosen approach.
- Consider your time horizon in the home; early‑period savings from avoiding PMI often matter most, while long‑term cost depends on rate, term, and any principal‑only payments you plan to make.
Bottom line for this section: VA’s no‑PMI structure lowers monthly outlay from day one, while the program’s guaranty and underwriting take the place of recurring private insurance premiums. Sources: CFPB on PMI; VA Manual 26‑3 (program overview).
What’s the VA funding fee rate, and how is it determined?
The funding fee is a one‑time charge set by law and VA policy. Your percentage depends on loan purpose (purchase, IRRRL, cash‑out refinance), first‑use versus subsequent‑use of benefits, and down‑payment tier. VA publishes the current chart, and amounts can change when Congress or VA updates program rules. See VA’s funding fee page and the Lenders Handbook, Chapter 8.
- The fee can generally be financed into the loan amount to preserve cash at closing, trading slightly higher principal for liquidity and potentially easier qualification if cash reserves are tight during the home purchase.
- First‑use and subsequent‑use tiers differ; your lender verifies prior usage in VA systems and applies the correct line from the current chart, ensuring the Loan Estimate reflects the exact category for your case.
- IRRRL streamline refinances follow a separate, generally lower fee framework, whereas cash‑out refinances share purchase‑style tiering; ensure your loan purpose is documented correctly to avoid recalculations and late re‑disclosures.
- Confirm whether your scenario is first‑use or subsequent‑use, then choose a down‑payment strategy; higher down payments typically reduce the tiered fee, but weigh that against other priorities like reserves and necessary repairs.
- Ask for side‑by‑side estimates showing the fee paid in cash versus financed, so you can compare payment, APR, and lifetime interest under realistic holding periods.
- Before closing, verify the Closing Disclosure shows the correct exemption status (if applicable) and the right fee amount or “$0” when a waiver applies, preventing post‑closing corrections.
Because VA publishes rates and tiers, avoid relying on outdated values; your Loan Estimate reflects the officially applicable percentage for your exact purpose, usage, and down‑payment tier. Sources: VA funding fee and closing costs; Lenders Handbook, Chapter 8.
Who is exempt from the VA funding fee?
Common exemptions include disability, survivor eligibility, and many Purple Heart recipients. Veterans receiving VA disability compensation, Veterans entitled to compensation but not yet receiving it, eligible surviving spouses, and many active‑duty Purple Heart recipients are typically exempt. Exemption status is indicated on the COE your lender obtains. See the Lenders Handbook, Chapter 2 (COE) and VA News on Purple Heart benefits.
- When the COE shows “Exempt,” lenders rely on that indicator for disclosures and settlement, removing the fee from cash‑to‑close or financed principal and eliminating the need for later refunds or file corrections.
- If you’re entitled to disability compensation but not yet receiving it, the lender can document entitlement so the waiver applies, provided VA records support the exemption at or before closing.
- Surviving spouses eligible for VA home loan benefits can also qualify; lenders document eligibility early so the exemption is reflected throughout underwriting and final closing figures without surprises.
- Request your COE early and verify the “Funding Fee” field; resolve any discrepancies with your lender so exemption status is clear before underwriting approval and closing disclosures are issued.
- Provide acceptable Purple Heart evidence if applicable; ensure timing and documentation meet VA requirements so the exemption applies at settlement rather than requiring post‑closing remediation.
- Retain copies of COE and supporting documents in your files for future reference, especially if you plan to restore entitlement or refinance later.
Correctly documented exemptions prevent unnecessary cash‑to‑close changes and refunds after funding. Sources: Lenders Handbook, Chapter 2; VA News: Purple Heart exemption.
What else makes VA loans attractive besides no PMI?
Zero‑down options, competitive pricing, and flexible repayment stand out. Eligible buyers may purchase with no down payment up to lender and entitlement limits. There is no prepayment penalty, so you can reduce principal faster. And unlike FHA’s annual mortgage insurance, VA carries no monthly mortgage insurance. See VA’s purchase loan overview, 38 C.F.R. § 36.4311, and HUD’s MIP description.
| Feature | VA Loan | Conventional Loan | FHA Loan |
|---|---|---|---|
| Monthly mortgage insurance | None required | PMI generally required under 20% down | Annual MIP included in monthly payment |
| Up‑front charges | One‑time funding fee (often financed) | No specific PMI up‑front fee; other fees vary | Up‑front MIP due at closing |
| Down payment | Zero down for many eligible borrowers | Varies by program and borrower | Low down payment options available |
| Prepayment penalty | Not permitted | Generally uncommon; depends on contract | Not permitted |
- Zero‑down eligibility preserves savings for emergencies, furnishings, and initial maintenance, reducing the risk that early‑ownership surprises push you toward high‑interest credit or delay necessary safety and comfort upgrades in your new home.
- No prepayment penalties let you seize rate improvements or make principal‑only payments whenever budget allows, shortening the schedule and lowering lifetime interest without contractual obstacles or punitive fees.
- Because there’s no monthly mortgage insurance, more of each payment targets principal and interest, improving early amortization and helping you build equity faster than similar structures with PMI or annual mortgage insurance added to the payment.
- Request three comparable quotes—VA zero‑down, conventional with PMI, and FHA with up‑front and annual MIP—using identical rate and term assumptions to quantify differences in payment, cash required, and long‑term cost.
- Ask for both 30‑year and shorter‑term options; shorter amortizations increase payments but often reduce total interest dramatically while accelerating equity growth for borrowers with sufficient budget margin.
- Consider seller or lender credits to offset allowable closing costs, balancing slightly higher rates against cash savings if near‑term liquidity is a priority for your household.
These features combine to make VA loans highly competitive for eligible borrowers while keeping monthly obligations lean. Sources: VA purchase loan overview; Right to prepay without penalty; HUD explanation of annual MIP.
How can homeowners build equity faster with a VA loan?
Pay principal sooner and enhance value deliberately. Extra principal payments, shorter terms when refinancing, and targeted improvements can accelerate equity without monthly mortgage insurance draining cash flow. Confirm how your servicer applies additional payments and learn how amortization works so each dollar delivers maximum principal reduction. See CFPB guidance on extra payments and amortization.
- Send small, consistent principal‑only amounts monthly or quarterly; the compounding effect lowers interest accrual, shortens repayment, and builds a cushion of equity that improves refinancing flexibility and resilience against market swings.
- Consider refinancing to a shorter term when rates and budget align; higher payments shift a larger share toward principal, cutting lifetime interest and accelerating ownership without sacrificing the VA program’s other benefits.
- Invest in repairs and upgrades with strong market appeal—safety, efficiency, and longevity—because appraised value increases layered on principal reduction produce the fastest, most durable equity growth.
- Confirm with your servicer that extra funds post immediately to principal and that no “payment holding” practices or fees dilute the effect of your additional contributions.
- Schedule periodic mortgage check‑ups to re‑evaluate rates, term length, and payoff progress, aligning your strategy with evolving income, savings goals, and local housing conditions.
- Maintain an emergency fund so equity‑building does not compromise essential liquidity; sustainable, steady progress usually beats aggressive plans that force credit use after minor setbacks.
Equity grows from disciplined principal reduction and value‑adding decisions. Sources: CFPB on extra payments; CFPB on amortization.
The Bottom Line: VA loans remove monthly PMI, often lowering payments immediately. Most borrowers pay a single funding fee that can be financed; many are fully exempt. Zero‑down eligibility, no prepayment penalties, and streamlined refinances strengthen affordability and flexibility. Build equity faster by sending extra principal, considering shorter terms when feasible, and choosing improvements that boost lasting market value without straining emergency savings.
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Frequently Asked Questions
Do VA loans require PMI?
No. VA loans never require monthly private mortgage insurance. VA’s guaranty replaces PMI, reducing the borrower’s payment compared with similar conventional loans carrying PMI until an equity threshold is reached. That structure supports qualification and accelerates early‑period amortization for many eligible borrowers.
What is the VA funding fee?
It’s a one‑time charge most VA borrowers pay at closing, which can usually be financed. The exact percentage depends on loan purpose, whether it’s first or subsequent use, and down‑payment tier. Some eligible borrowers are exempt based on VA documentation and benefit status.
Who is exempt from the funding fee?
Veterans receiving VA disability compensation, Veterans entitled to compensation but not yet receiving it, eligible surviving spouses, and many Purple Heart recipients on active duty are typically exempt. Exemption appears on the Certificate of Eligibility your lender retrieves before disclosures and closing.
Can the funding fee be rolled into the loan?
Usually, yes. Financing the fee preserves cash at closing, though it increases the loan balance and total interest if you hold the mortgage for many years. Your Loan Estimate compares both approaches so you can choose what best fits your budget.
Are there prepayment penalties on VA loans?
No. VA regulations allow prepayment without premium or fee. That flexibility lets you send principal‑only payments anytime or refinance when beneficial, helping you reduce lifetime interest and accelerate equity growth without contractual obstacles or added charges.
What else makes VA loans attractive besides no PMI?
Eligible borrowers can buy with no down payment, benefit from competitive pricing, and refinance efficiently with an IRRRL. The program’s structure shifts dollars away from insurance premiums toward principal, supporting affordability and faster amortization when paired with disciplined payment habits.
How can I build home equity faster?
Send extra principal payments consistently, consider shorter terms when rates and budget permit, and invest in improvements that increase market value. Confirm your servicer applies extra funds directly to principal without fees or “payment holding” practices that reduce the impact.
Is there monthly mortgage insurance on FHA and conventional loans?
Conventional loans commonly require PMI under twenty percent down, and FHA loans include annual mortgage insurance in monthly payments. VA carries no monthly mortgage insurance, which can make the payment materially lower for eligible borrowers using VA benefits.
Can seller or lender credits help with costs?
Yes. Within program rules, credits can offset many allowable closing costs. This can preserve your cash for moving, repairs, or reserves. Credits do not change the funding fee’s statutory calculation, but they may reduce overall cash to close.
What documents confirm a funding‑fee exemption?
Your COE usually shows exemption status. If not, provide documentation that supports eligibility, such as a VA disability decision or survivor benefit evidence. Work with your lender early so the exemption appears correctly on the Loan Estimate and Closing Disclosure.
Levi Rodgers is the Founder of VA Loan Network, a leading resource for Veteran homebuyer education. A Retired Green Beret and Broker-Owner of LRG Realty in San Antonio, Levi leverages his military discipline and real-world real estate expertise to provide Veterans with expert loan advice, guidance, and trusted financial leadership.
