Whether looking to buy, build, or refinance a home, a VA loan is tough to beat. A hugely popular feature is the ability to buy a home with no money down. Additionally, refinancing a construction loan or other mortgage up to the VA appraised value is supremely helpful. Another amazing VA loan advantage includes the subject of VA loan PMI. PMI means private mortgage insurance. This is commonly charged on home loans exceeding 80% of the purchase price or appraised value and comes in four formats. These charges could be monthly, one-time financed, both monthly and single, as well as including in the interest rate. VA loans have the most payment friendly option which we explain.
Does a VA Loan Require PMI?
When most people ask this question, they mean monthly PMI because if affects the monthly payment a lot. Fortunately, VA loans never charge buyers or homeowners a monthly PMI. Thus, comparing a VA loan vs FHA, USDA, or conventional, often means VA wins. Although, FHA and conventional do not even offer 100% financing. Both USDA and FHA charge both an up-front and a monthly mortgage insurance. Conventional loans offer all 4 options for borrowers.
Since there is no monthly VA loan PMI, the monthly payment may be much lower when compared to other low to no down payment home loans. On other loans, many ask the question, “When can I get rid of my PMI?“. Not necessary for VA! Therefore, this lack of monthly PMI is a huge bonus for Veterans, service members, reservists, and qualified surviving spouses.
How Does VA Loan PMI Work?
So, VA loans do not charge a monthly PMI. Cool deal, right? But, VA loans do charge most borrowers an up-front VA funding fee which is a form of mortgage insurance. Luckily for VA borrowers, the VA funding fee is financed on top of the loan in most cases. Notice it says “most” borrowers are charged VA loan PMI. The reason is that disabled military Veterans are exempt from the VA funding fee.
Do keep in mind, there is a recent change in financing the VA funding fee. A VA cash out refinance requires the full loan amount including the VA funding fee be within the appraised value. On a purchase or streamline refinance, the fee may exceed the VA appraised value! Even though VA allows the fee to be financed, a borrower may pay it from their own funds at closing. Another strategy is that a seller may pay the fee through seller paid VA concessions.
How Much is the VA Loan PMI?
When VA borrowers are charged the up-front VA funding fee, it ranges from .5% – 3.3% of the loan amount. The fee is determined by a few factors, which are:
- First time or subsequent use
- Service category – Regular military or National Guard/Reserves
- Level of down payment – 5%, 10%, or no money down
- Purchase, regular refinance, or VA IRRRL
In order of cheapest to most expensive VA funding fee, see the list below:
- Disabled Veterans exempt from VA loan PMI
- VA IRRRL (streamline refinance)
- 10% down payment purchase / equity
- 5% down payment purchase / equity
- First time use regular military with < 5% down payment / equity (purchase or refinance)
- First time use reservist with < 5% down payment / equity (purchase or refinance)
- Subsequent use reservist or regular military
For a complete list of all VA funding fee charges, check out the article below.