Does a VA Loan Require PMI?

Do VA loans require PMI?

VA loan graphicA VA loan is a mortgage that is guaranteed by the U.S. Department of Veterans Affairs (VA). The loan is made by a private lender, such as a bank, credit union, or mortgage company. The VA does not actually lend the money for the loan.

The main benefit of a VA loan is that it does not require a down payment and the home seller is allowed to pay of the veteran's closing costs. This can make homeownership more affordable for veterans and their families.

Do VA Loans Have PMI?

PMI graphicVA loans are amazing, offering eligible borrowers the chance to buy a home with $0 down and no monthly private mortgage insurance (PMI) payments.

But there's one common question about VA loans that we're asked all the time: Do VA loans require PMI? The answer is no! VA loans are blessed with built-in protections for borrowers, and one of those is the fact that lenders can't require borrowers to pay for PMI. How is this possible? With most loan types, borrowers who don't put down at least 20% of the purchase price of the home are typically required to pay PMI in order to protect the lender in case of default. But because VA loans are backed by the federal government, lenders don't have to worry about default risk in the same way as with other loan types. As a result, they're able to waive the PMI requirement and pass along even more savings to VA loan borrowers.

What is a VA Funding Fee?

VA loans do not require monthly private mortgage insurance (PMI), however the Department of Veteran Affairs requires a funding fee to help support the VA loan program.

The VA funding fee is a one-time, upfront fee that is paid at settlement, financed with the VA loan, paid by the home seller (if agreed to), or paid in cash. The VA funding fee is essential for the continuation of the VA loan program.

Read more about the VA funding fee

How much does the funding fee for the VA cost?

The VA funding fee may be anywhere from 0.5% to 3.6% of the total loan amount.

Your individual cost is determined by the size of your down payment (if any), the kind of loan you get (purchase or refinance). If you've already used your VA loan benefit in the past, you may be subject to a higher financing cost on certain kinds of VA loans.

How Do I Calculate the Funding Fee?

The charts below illustrates the VA funding fee percentages.

The funding fee calculation is simple. Just take your loan amount and multiply the loan by the appropriate percentage. For example, let's say you're purchasing a home for $100,000 and you are not making a down payment. That means your loan amount will be $100,000.

We'll assume you're a first time home buyer. Multiply the loan amount of $100,000 by 2.3% and there it is. The funding fee cost in this example is $2,300.

VA funding fee chart

VA Cash-out Refinance

VA cash out funding fee

How to Finance Your VA Loan Funding Fee

Most borrowers finance the funding fee. Using the previous example, we used $100,000 as the loan amount. Simply add the funding fee cost to the loan amount.

$100,000 + $2,300 = $102,300.

Your final VA loan is $102,300. Your mortgage payment would based on this amount.

Can I Avoid Paying This Fee?

There are exceptions with the funding fee.

Veterans receiving at least 10% disability income are exempt. Purple Heart recipients are exempt. Here's a chart that displays

VA funding fee exemption chart


What is a VA Loan?

A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA). The program is for American veterans, military members currently serving in the U.S. military, reservists and select surviving spouses (provided they do not remarry) and can be used to purchase single-family homes, condominiums, multi-unit properties, manufactured homes and new construction

How Does a VA Loan Differ From a Conventional Loan?

Private mortgage insurance is required for conventional mortgages if the makes a down payment that is less than 20 percent of the loan value.

What Are the Benefits of a VA Loan?

The main benefit of a VA Loan is that it allows eligible borrowers to purchase a home with no down payment and no private mortgage insurance (PMI). This can save eligible borrowers thousands of dollars over the life of their loan. VA Loans are also more flexible than other loan types when it comes to credit score requirements and debt-to-income ratios.

Who is Eligible for a VA Loan?

VA Loan eligibility is determined by your length of service or service commitment, duty status and character of service. Veterans, reservists and National Guard members who have completed a minimum service requirement generally are eligible to apply. Active duty service members and certain other groups may also apply in some cases.

How Do I Apply for a VA Loan?

Loan applicationYou may be eligible for a VA loan if you are a veteran, active duty service member, reservist, National Guard member, or certain surviving spouses. To apply for a VA loan, you'll need to obtain a Certificate of Eligibility (COE) from the Veterans Administration. You can do this by completing an online application or by mailing in an application with any required supporting documentation.

What is the Interest Rate on a VA Loan?

The interest rate on a VA loan is determined by many factors, including credit score, loan type, and the VA lender. Veterans with a higher credit score will usually qualify for a lower interest rate. Loans backed by the Department of Veterans Affairs (VA) also typically have lower interest rates than conventional loans.

See the current interest raes today.

How Much Can I Borrow With a VA Loan?

The short answer is that you can borrow as much as the lender will lend you, within the maximum loan limits for your county. But that’s not the whole story. How much you can actually borrow depends on your individual circumstances, including your income, debts and credit history. Lenders use a formula to compare your monthly debts to your monthly income, to determine what size loan you can afford. The maximum loan amount is then calculated based on this formula, along with the maximum loan limits for your county. You can use our VA Loan Calculator to estimate how much you may be able to borrow.

See VA loan limits

How Long Does It Take to Close on a VA Loan?

VA mortgage graphicThe average time to close on a VA loan is between 21 and 45 days, depending on a number of factors including the lender you use, your military status, and whether you are buying or refinancing a home. If you are buying a house, you may be able to get pre-approved for a loan before you start shopping. This can speed up the process by allowing you to know how much house you can afford and narrow your search to homes within your budget. You will still need to go through the underwriting process when you find a home, but having pre-approval can give sellers confidence that you will be able to get financing. If you are refinancing, the process may take longer because the lender will need to appraise your home in order to determine its value. You may also need to provide additional documentation such as income tax returns in order to complete the loan process.

Closing cost graphicWhat Are the Closing Costs on a VA Loan?

 Closing costs on a typical VA loan run between 2-3% of the total loan amount. That means if you're buying a $200,000 home, you could pay as much as $6,000 in closing costs. A typical range for other loans might be 3-6%.

See VA closing costs

Conclusion

In conclusion, if you are a veteran looking to take out a loan, you may be wondering if you will need to pay for PMI. The answer is no – VA loans do not require PMI. This can save you hundreds of dollars each year, and make homeownership more affordable.

Recommended Reading

  1. How does the Earnest Money Deposit Work for a VA Loan
  2. VA Amendatory Escape Clause : What It is and What It Does
  3. VA Funding Fee: How to Calculate It