VA Loan PMI
There are many reasons why Veterans choose to buy a home with a VA loan. Attractive rates and no down payments are just two of the key benefits for military borrowers.
Those first exploring their benefits often ask, is there PMI with a VA Loan? Fortunately for Veterans, the answer is no.
Private mortgage insurance (PMI) is required for some conventional and all FHA loans, which can add up to thousands of dollars in fees every year. The primary purpose of PMI is to protect the lender in case the borrower defaults. There are many additional reasons for borrowers to avoid PMI that go even beyond the costs.
Consult a CPA, but the rules have changed to where PMI is no longer tax-deductible. And there are no insurance benefits that accrue to the borrower or their family. PMI is strictly default risk insurance that benefits the lender only.
The only way for those taking out a conventional loan to avoid PMI is with a sizable down payment of 20% or more. This is why Veterans are happy to hear that when it comes to VA loans, PMI isn’t a problem — even with zero down.
Find out if you qualify for a VA home loan.
Do VA Loans Require PMI In Any Circumstances?
Thanks to the VA Funding Fee, there are no circumstances where you pay PMI with a VA loan.
As it relates to conventional loans and FHA, PMI is calculated each year as a percentage of the entire loan amount. Typical fees are between .5% and 1%, which means the fee on a $400,000 loan could be up to $4,000 a year. In most situations, you’ll have to pay the PMI fee until your equity in the home builds up to 20%. This is a major additional expense for those who cannot afford their initial down payment.
Lenders need to manage their risk of loan default, and down payments and PMI are how they do this with conventional and FHA loans. With VA loans, this risk management is taken care of with the VA home loan guaranty by assessing a VA Funding Fee, which is similar to the “up-front” Mortgage Insurance Premium or MIP on a FHA Loan.
In the event that a military borrower defaults, the VA will step in and cover the lender’s loss up to 25% of the original loan balance. This makes underwriting guidelines more flexible for Veterans using their VA loan benefit because there is a healthy mechanism that makes the loan less risky for the lender – so they want to make more VA loans!
The VA funding fee is used to cover most of the default risk. Unlike PMI, this is a one-time fee that can be waived in certain cases, such as for Purple Heart recipients, or if you are receiving disability payments from the VA.
Even with the funding fee, Veterans save serious money because they have no PMI with VA loans. Our Funding Fee Chart can tell you exactly how much your Funding Fee will be. You can choose to include your funding fee into your new loan balance and your loan payment for a truly zero down purchase.
No VA Loan PMI Offers a Boost for Veterans
Without the need for costly private mortgage insurance - PMI, Veteran borrowers can enjoy greater buying power on their search for a home. This feature improves borrowers’ debt-to-income ratios. The fact that you do not have to pay PMI with a VA loan can expand your homebuying potential!
If you’re ready to discover more of the benefits of VA home loans, call us today at 949-268-7742.