Private mortgage insurance (PMI) is a common requirement for many mortgage loans today. If your down payment is less than 20% of the purchase price most lenders will require PMI to protect against default risk. But one key benefit of VA loans is that they do not require any PMI even with 0% down.
VA loans offer significant savings compared to conventional and FHA loans by avoiding mortgage insurance premiums. In this article we’ll compare PMI policies across loan types and show why no PMI is a major perk for Veterans using their VA home loan benefit.
What is Private Mortgage Insurance (PMI)?
PMI is an insurance policy that borrowers pay to protect the lender if they default on a mortgage loan with less than 20% down. PMI payments are made monthly along with your regular principal and interest.
Conventional loans always require PMI if you put down less than 20% at closing. With FHA loans, you pay an upfront mortgage insurance premium (MIP) at closing plus ongoing annual MIP instead of PMI.
On conventional loans, PMI typically costs 0.3% – 1.15% of the total loan amount per year. So on a $300,000 loan with 5% down, you may pay $900 – $3,450 annually for PMI or $75 – $287 per month.
FHA mortgage insurance fees are similarly expensive. On that $300,000 loan you’d pay an upfront MIP of $5,250 (1.75% of loan amount) plus ongoing annual MIP of $1,650 (0.55% of loan balance).
Do VA Loans Have PMI?
One of the best benefits of VA loans is that they do not require any PMI, MIP or monthly mortgage insurance payments. Avoiding PMI can save you thousands over the life of your loan compared to conventional and FHA alternatives.
Instead of PMI, VA loans have a one-time funding fee that helps the VA manage the program long-term. For loans above $144,000, this fee is 2.3% of the loan amount. On that $300,000 loan it would equal $6,900 at closing.
The key difference from PMI is that the VA funding fee is paid once at closing, while PMI recurs monthly. This provides significant savings, especially over the 30 year life of a mortgage.
PMI Requirements by Loan Type
Let’s compare how the major home loan programs handle mortgage insurance:
Conventional Loans
- PMI required if less than 20% down
- Monthly PMI payment of 0.3% – 1.15% of total loan amount
- PMI can be canceled once 20% equity reached
FHA Loans
- Upfront MIP of 1.75% of loan amount
- Annual MIP of 0.45% – 0.85% of loan balance
- MIP payments for life of loan unless refinanced
VA Loans
- No monthly PMI/MIP payments
- One-time VA funding fee from 0.5% – 3.3%
- No further mortgage insurance payments
As you can see, VA loans save substantially compared to other options that require recurring PMI or MIP.
PMI Cost Comparison
Let’s compare estimated PMI costs across loan types to see potential savings:
Loan Amount: $300,000
Down Payment: 5% ($15,000)
| Loan Type | PMI Cost | Total PMI Over 30 Years |
|---|---|---|
| Conventional | $75 – $287/month | $27,000 – $103,320 |
| FHA | $144/month | $51,840 |
| VA | None | $0 |
On this example, a VA loan could save between $27,000 – $103,320 compared to a conventional loan. And over $50,000 versus FHA.
Savings are even greater on more expensive homes. On a $500,000 purchase with 5% down, PMI runs $125 – $488/month with conventional loans. That’s $45,000 – $175,680 extra paid over 30 years.
When Can PMI Be Canceled?
With conventional loans, PMI can be canceled once you reach 20% equity through mortgage paydown or appreciation. However, you must proactively request cancellation – lenders won’t do it automatically.
FHA loans take much longer to shed MIP. You must have 22% equity and 5 years of on-time payments before MIP can be canceled. Refinancing is the fastest way to remove FHA MIP.
Since VA loans have no monthly mortgage insurance, there’s nothing to cancel later on. The one-time VA funding fee covers you for the full loan term.
Who Is Exempt From the VA Funding Fee?
While not as costly as PMI, the VA funding fee isn’t cheap. Luckily, not all Veterans have to pay it.
You may be exempt from the fee if you:
- Receive VA disability compensation
- Are a Purple Heart recipient
- Are the surviving spouse of a VA-eligible Veteran
- Served in a combat zone or hazardous duty area
Veterans who qualify for any of these exemptions pay no VA funding fee on their loan. Be sure to investigate whether you’re eligible for an exemption when applying for your VA mortgage.
Key Takeaways on VA Loan PMI
- VA loans require no monthly mortgage insurance payments
- This provides major savings compared to PMI on conventional and FHA loans
- VA loans have a one-time funding fee at closing instead
- Several groups of Veterans are fully exempt from the VA funding fee
Avoiding PMI is a huge but often overlooked benefit when Veterans use their $0 down VA home loan perk. Be sure to factor these long term savings in when weighing VA loans vs other options.
Prequalify for a VA Mortgage
If you’re eligible for VA loans, start your official pre-approval process to confirm your rate and down payment options. Get matched with top VA lenders competing for your business.
VA funding fee exemptionsYou won’t have to pay a VA funding fee if any of the below descriptions is true.
- Receiving VA compensation for a service-connected disability.
- Eligible to receive VA compensation for a service-connected disability, but you’re receiving retirement or active-duty pay instead.
- The surviving spouse of a Veteran who died in service or from a service-connected disability, or who was totally disabled, and youre receiving Dependency and Indemnity Compensation (DIC).
- A service member with a proposed or memorandum rating, before the loan closing date, saying youre eligible to get compensation because of a pre-discharge claim.
- A service member on active duty who before or on the loan closing date provides evidence of having received the Purple Heart.
Do VA loans have PMI?
Veterans Administration (VA) Loans were created to help active-duty service members, veterans, National Guard, Reserve service members, other uniformed service personnel, and eligible spouses become homeowners. Unlike conventional mortgage loans, VA loans do not have PMI. However, VA loans do have a funding fee, which is paid at closing. At Credit Union of Southern California (CU SoCal), we make buying a home in California easy. Call 866.287.6225 today to schedule a no-obligation consultation and learn about our auto loans, home equity lines of credit, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs. Do VA loans have mortgage insurance? Read on to learn more.
Do You Have To Pay Private Mortgage Insurance On A VA Loan? | Know Your Benefit
FAQ
Do I have to pay PMI on a VA loan?
How to get rid of PMI on VA loan?
Who pays closing costs on a VA loan?
How much is the mortgage insurance premium on a typical VA loan?
Do VA loans require PMI?
The other option is a U.S. Department of Agriculture (USDA) loan for rural home buyers. VA loans don’t require private mortgage insurance (PMI). PMI is mortgage insurance on conventional loans that a lender may require you to pay if you don’t put 20% down.
Do VA loans require private mortgage insurance?
**No**, VA loans do **not** require **private mortgage insurance (PMI)**.Unlike conventional loans, which typically mandate PMI for borrowers who put down less than 20%, VA loans offer a unique benefit:
What is the VA loan PMI benefit?
The VA loan PMI benefit is one of the money-saving advantages of working with the VA loan system on your mortgage. PMI is private mortgage insurance, and new home buyers often need to pay this on a monthly basis. With the VA, you don’t.
Is PMI better than a VA mortgage?
PMI is private mortgage insurance, and new home buyers often need to pay this on a monthly basis. With the VA, you don’t. It might not look like much at first compared to the “no down payment” part of the VA’s benefit, but it can add up to thousands of dollars in savings over the life of your loan.