Understanding VA Loan PMI Requirements

Do VA loans require PMI?

VA loan graphicThe VA home loan program is great for veterans and service members to purchase their first home. Understanding the VA loan PMI requirements is essential to ensure you get the best deal possible. Many people are unaware of how VA loan PMI works and the associated requirements. This article will explain the basics of VA loan PMI and provide an overview of some essential requirements that must be met to qualify.

A VA loan does not require a down payment and allows the home seller to pay for the veteran's closing costs, making homeownership more affordable for veterans and their families.

Do VA Loans Have PMI?

PMI graphicVA loans are outstanding, 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 always asked: Do VA loans require PMI? The answer is no!

VA loans are blessed with built-in protections for borrowers, one of which is 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 home's purchase price are typically required to pay PMI to protect the lender in case of default. But because the federal government backs VA loans, lenders don't have to worry about default risk in the same way as other loan types.

As a result, they can waive the PMI requirement and pass along even more savings to VA loan borrowers.

What is a VA Funding Fee?

Read more about the 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, produced by the home seller (if agreed to), or paid in cash. The VA funding fee is essential for continuing the VA loan program.

How much does the funding fee for the VA cost?

 

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

The size of your down payment determines the cost of 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 show the percentages for VA funding fees. You can multiply the loan amount by the appropriate rate to calculate the funding fee.

For example, if you are a first-time home buyer and you purchase a $100,000 house without making a down payment, you will receive a loan of $100,000. You are multiplying the loan amount of $100,000 by 2.3%, resulting in a funding fee expense of $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 regarding credit score requirements and debt-to-income ratios.

Who is Eligible for a VA Loan?

Your length of service or service commitment, duty status, and character of service determines VA Loan eligibility. Veterans, reservists, and National Guard members who have completed a minimum service requirement generally are eligible to apply. In some cases, active duty service members and other groups may also use it.

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 particular surviving spouse. 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?

See the current interest raes today.

Many factors, including credit score, loan type, and the VA lender, determine a VA loan's interest rate. Veterans with a higher credit score 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.

How Much Can I Borrow With a VA Loan?

See VA loan limits

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 borrow depends on your circumstances, including your income, debts, and credit history.

Lenders use a formula to compare your monthly obligations to your monthly payment to determine what size loan you can afford. The maximum loan amount is then calculated based on this formula and the maximum loan limits for your county. You can use our VA Loan Calculator to estimate how much you can borrow.

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 several 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 letting you 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. The method may take longer if you are refinancing because the lender will need to appraise your home to determine its value. You may also need to provide additional documentation, such as income tax returns, 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 wonder if you will need to pay for PMI. The answer is no – VA loans do not require PMI, which 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