Understanding VA Loans and Private Mortgage Insurance
One important feature of VA-backed home loans is that they do not require monthly private mortgage insurance (PMI). VA-backed loans use a VA guaranty structure instead of requiring monthly PMI.
No monthly PMI does not mean a VA loan has no fees or costs. Other costs and fees, including the VA Funding Fee when applicable, may still apply.
The Basics
What Is Private Mortgage Insurance?
Private mortgage insurance, commonly called PMI, is insurance that may be required by a lender on certain conventional mortgage loans when the borrower has less than a specified amount of equity or makes a smaller down payment.
"PMI generally protects the lender, not the borrower, if the borrower defaults on the mortgage."
VA and PMI
Do VA Loans Require Monthly PMI?
"VA-backed home loans do not require monthly private mortgage insurance (PMI)."
This can be an important distinction between VA financing and certain conventional mortgage programs.
VA loans are not without costs. Other fees and expenses may apply. See the sections below for important details.
The VA Guaranty
Why Don't VA Loans Require PMI?
VA-backed mortgages are supported by a guaranty from the U.S. Department of Veterans Affairs. Because of the VA guaranty structure, eligible VA-backed mortgages do not require the monthly private mortgage insurance commonly associated with certain conventional loans.
"The VA guaranty replaces the role that PMI plays in certain conventional mortgage structures."
Important Distinction
PMI vs. the VA Funding Fee
PMI and the VA Funding Fee are not the same thing. Understanding the difference matters.
Private Mortgage Insurance (PMI)
- May apply to certain conventional mortgages
- Can involve a recurring monthly premium
- Is not required on VA-backed loans
VA Funding Fee
- A one-time fee on many VA-backed loans
- Helps support the VA Home Loan program
- May vary based on transaction and borrower circumstances
- Certain eligible borrowers may be exempt
- May generally be financed into the loan in eligible transactions
Monthly Payment
Does No PMI Mean a Lower Payment?
Not having monthly PMI eliminates one potential monthly housing expense that may apply to certain other mortgage programs. However, the total mortgage payment depends on many factors.
- Loan amount
- Interest rate
- Loan term
- Property taxes
- Homeowners insurance
- HOA dues when applicable
- Other applicable housing expenses
"No monthly PMI does not automatically mean a VA loan will have the lowest total monthly payment."
Program Comparison
VA vs. Conventional Financing
VA-Backed Loan
- No monthly PMI
- VA eligibility required
- Certificate of Eligibility generally required
- VA occupancy requirements apply
- VA Funding Fee may apply unless exempt
- Subject to VA and lender requirements
Conventional Loan
- VA eligibility is not required
- PMI may apply depending on the financing structure
- Different down-payment and underwriting options may be available
- Subject to applicable conventional and lender requirements
"The appropriate mortgage program depends on the borrower's individual financial situation, property, eligibility, goals, and available loan programs."
FHA Mortgage Insurance
What About FHA Mortgage Insurance?
FHA mortgage insurance and conventional PMI are not the same thing. FHA-insured mortgages generally have their own mortgage-insurance requirements. VA-backed loans do not require monthly PMI.
Each mortgage program has its own structure, requirements, and costs. Comparing programs with a mortgage professional can help identify the most appropriate option for your situation.
Eligibility
Who Can Use This VA Benefit?
VA Home Loan benefits may be available to eligible:
- Veterans
- Active-duty service members
- Certain National Guard and Reserve members
- Certain surviving spouses
- Other qualifying individuals under applicable VA requirements
VA eligibility alone does not guarantee mortgage approval. Borrowers must also meet applicable lender underwriting and property requirements.
Certificate of Eligibility
Certificate of Eligibility
A Certificate of Eligibility (COE) provides evidence of the applicant's eligibility for the VA Home Loan benefit.
"A Certificate of Eligibility does not constitute mortgage approval."
The borrower must still meet applicable financial, credit, property, occupancy, and underwriting requirements.
Evaluating the Full Picture
Why This Benefit Can Matter
Eliminating monthly PMI may be valuable because it removes one potential recurring mortgage-related expense. However, borrowers should evaluate the entire financing package rather than selecting a mortgage based solely on mortgage insurance.
Consider comparing:
Start the Conversation
Questions to Discuss With a Mortgage Professional
- Am I eligible for VA financing?
- Do I need a Certificate of Eligibility?
- Does my VA loan require monthly mortgage insurance?
- Does the VA Funding Fee apply to me?
- Could I qualify for a VA Funding Fee exemption?
- Can the VA Funding Fee be financed?
- How does a VA loan compare with conventional financing for my situation?
- What would my estimated total monthly housing payment be?
Ready to Begin?
Explore Your VA Financing Options
Connect with the Prosper Path Group team to discuss your VA eligibility and explore whether VA financing may be appropriate for your situation.
VA Home Loan benefits are subject to current U.S. Department of Veterans Affairs requirements, borrower eligibility, Certificate of Eligibility, property eligibility, occupancy requirements, lender underwriting guidelines, and program availability. VA-backed loans do not require monthly private mortgage insurance (PMI); however, other costs and fees, including the VA Funding Fee when applicable, may apply. Certain eligible borrowers may be exempt from the VA Funding Fee. Not all borrowers or properties will qualify. This information is provided for general educational purposes and is not a commitment to lend.
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