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Purchasing a home is an exciting milestone, but the process can be complex for military homebuyers evaluating different loan options. One key difference many Veteran buyers wonder about is whether VA loans require private mortgage insurance (PMI) like conventional loans.
The answer is no – VA loans do not have PMI saving borrowers thousands over the life of their loan. Let’s take a closer look at how VA loans handle mortgage insurance compared to other loan types.
What is Private Mortgage Insurance (PMI)?
Private mortgage insurance is a type of insurance lenders require when borrowers put down less than 20% on a home loan PMI protects the lender if the borrower stops making payments.
On conventional loans, PMI is usually required when buyers put down less than 20% of the purchase price. It adds an extra monthly cost – typically 0.3% to 1.15% of the total loan amount annually.
For example, on a $300,000 conventional loan with 5% down, a borrower may pay $150 to $200 per month for PMI. This monthly mortgage insurance continues until the borrower builds 20% home equity.
Do VA Loans Have Mortgage Insurance?
VA loans are unique in that they do not require any type of monthly mortgage insurance premium, including PMI. This sets them apart from conventional loans and FHA loans, which require mortgage insurance.
Instead of PMI, VA loans have a one-time funding fee that helps the VA loan program operate This VA funding fee ranges from 0.5% to 36% of the loan amount depending on factors like down payment and military service.
Many Veterans are exempt from the VA funding fee as well. But unlike PMI, there are no monthly mortgage insurance costs on a VA loan.
VA Loan Benefits
No PMI provides major savings for Veterans using their VA home loan benefit. Here are some key advantages of VA loans:
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No down payment required – VA loans offer 100% financing even with a credit score as low as 580
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No monthly mortgage insurance – Saving 0.5% to 1% yearly compared to conventional & FHA loans
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Lower interest rates – VA loans often have the lowest rates, saving money each month
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Less cash needed at closing – Sellers can pay closing costs and the funding fee can be financed
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No prepayment penalties – Freedom to refinance or sell without extra fees
These benefits make VA loans one of the most affordable loan types for eligible military buyers.
Who is Eligible for a VA Loan?
VA loans are an earned benefit for those who served, but eligibility isn’t limited only to Veterans. Here are the main groups eligible:
- Active duty service members
- Veterans
- National Guard & Reserve members
- Surviving spouses
- Eligible spouses of Veterans
The basic requirements are least 90 days of active duty service and an honorable discharge. An easy way to confirm eligibility is obtaining a VA Certificate of Eligibility (COE).
How Much Can You Borrow With a VA Loan?
VA loans go up to the conforming loan limit set by the FHFA. For 2023, this limit is $726,200 for most counties. Higher cost areas like San Francisco can go up to $1,089,300.
You can borrow above these limits with a down payment or through a VA jumbo loan. VA loans also require residual income after paying your mortgage and other debts.
The VA Funding Fee Explained
While VA loans don’t have monthly PMI, most Veterans will pay the VA funding fee. Here are key details on the VA funding fee:
- It’s a one-time fee charged on most VA loans
- The fee ranges from 0.5% to 3.6% of the loan amount
- Can be paid upfront or rolled into the loan
- Funds the VA home loan program
- Many Veterans are exempt from the fee
For example, on a $300,000 VA loan, a Veteran with no prior use of their benefit would pay a 2.3% funding fee, equaling $6,900. This is either paid at closing or financed into the loan.
Who is Exempt From the VA Funding Fee?
Several groups of Veterans are exempt from the VA funding fee, including:
- Veterans with service-connected disabilities
- Purple Heart recipients
- Surviving spouses
- Veterans receiving VA compensation
- National Guard on active duty call
Veterans can also have the funding fee reduced or waived under certain circumstances. Your lender will know if you’re exempt when applying for the VA COE.
Conventional Loan Alternatives
Some Veterans opt for conventional loans instead of VA loans if they want to avoid the funding fee or have ample funds for a down payment.
Conventional loans can make sense if you qualify for no PMI by putting down 20%. But for most, the VA loan provides better terms and fewer out-of-pocket costs.
Bottom Line
VA loans provide a major benefit by eliminating PMI and monthly mortgage insurance premiums. This savings combined with perks like no down payment and lower rates make VA loans the most affordable option for eligible Veterans.
Check your COE eligibility and explore your options to see if a VA purchase loan or VA refinance is the right fit. Your service provides benefits that can save you thousands over the life of your mortgage.
How to request a COE You can request a COE through the VA eBenefits portal online, by mail to your regional VA loan center or through your mortgage lender. Active-duty service members or current National Guard or Reserve members who haven’t ever been activated need a signed statement of service from a commander, adjutant or personnel officer. Veterans and current or former activated National Guard or Reserve members need to provide form DD21 There are separate requirements for discharged National Guard or Reserve members who were never activated, as well as surviving spouses. Visit the VA website
If you have full entitlement, there’s no limit on the size of your VA loan. However, your lender will still assess what you qualify for based on your finances — including income and other debt — and might impose its own loan limit. Your entitlement will still be pegged to conforming mortgage limits, as well.
You won’t have full entitlement if you have an active VA loan you’re still paying back; you paid a previous VA loan in full and still own the home; you refinanced your VA loan into a non-VA loan and still own the home; or you experienced a short sale, deed in lieu of foreclosure or foreclosure on a previous VA loan and didn’t fully repay it. In these cases, you’re restricted to borrowing only as much as the loan limit for your county. Mortgage For 2024, the limit in most counties is $766,550. In more expensive areas, that limit can go up to $1,149,825.
Lastly, you can only use a VA loan with a primary residence; investment properties and vacation homes aren’t allowed. The property also needs to meet certain safety and structural standards. Learn more:
Pros of a VA loan
- No down payment: VA loans allow you to purchase a home with zero down payment. In contrast, you’d need at least 3 percent down for a conventional mortgage and at least 3.5 percent down for an FHA loan.
- No mortgage insurance: Unlike conventional and FHA loans, VA loans do not require you to pay mortgage insurance, even though you aren’t making a down payment.
- Capped lender fees: The VA limits lender fees (like the loan origination fee) to 1 percent of the loan amount. This might mean lower closing costs compared to other loan types.
Do You Have To Pay Private Mortgage Insurance On A VA Loan? | Know Your Benefit
FAQ
How to get rid of PMI on VA loan?
Does a VA loan require monthly mortgage insurance?
Do VA loans cover closing costs?
Does a VA loan require property insurance?
Do VA loans require private mortgage insurance?
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. Not having to pay PMI can save you between 0.1% – 2% of your loan amount per year until you reach 20% equity.
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 you need PMI on a FHA loan?
With an FHA loan, the PMI payments stay with you for the duration of the loan term. If it sounds expensive, well, it can be. But there are a handful of less onerous features to Private Mortgage Insurance. First, PMI generally isn’t required with a conventional loan if you can make a down payment of 20% or more.
Should I pay PMI If I don’t put 20% down?
PMI is mortgage insurance on conventional loans that a lender may require you to pay if you don’t put 20% down. Not having to pay PMI can save you between 0.1% – 2% of your loan amount per year until you reach 20% equity. VA loans allow you to qualify with a higher DTI than any mortgage program from one of the major mortgage investors.