Do VA loans have PMI? This is still a very popular question, especially among first time home buyers. The quick answer is no. However, there is a little more to explore on this topic. I’ll discuss how this is still one of the biggest benefits for veterans and their wallets, and yet how a related item can be a turn off as well.
Benefits of VA Loans
There are so many benefits VA loans offer veterans and service members. It’s always sad to hear when a veteran is put into a loan like FHA or even conventional. Not only are down payments required for all FHA loans and conventional loans with less than 20% down, but so is PMI. Two of the biggest benefits VA loans offer are no down payment and no PMI. This not only saves home buyers thousands of dollars upfront but even more over the term of the loan. Add the fact that VA loans have lower rates and you can see why it’s such a great solution for veteran home buyers and even home owners.
Why do VA Loans not have PMI?
So here is where things become a little cloudy. Yes, VA does NOT require PMI (private mortgage insurance). PMI is a monthly payment home owners make to insure the lender should they default on the loan. However, they do require service members and some veterans to pay what’s called a funding fee. In essence, this is their insurance policy for anyone that might default on their loan. As you can see, by definition, this is mortgage insurance. It is not PMI though. VA thus, gets off on a technicality.
How much is the VA Funding Fee?
Let’s be sure we’re clear on this subject. The funding fee isn’t always required. If you have a service connected disability rating of at least 10%, you will always be exempt from the funding fee. For everyone else, the funding fee can range from 0.5% up to 3.3% of the loan amount. Factors that determine how much you are charged are Military service, down payment, type of VA loan and how many times you have used your eligibility. Find more about the VA funding fee.
Although VA loans do not have PMI, there can still be a related charge. Even with that that though, to date, there is absolutely no home loan product that offers the benefits a VA loan offers.
See other VA Loan Lending pages and articles: