Do You Need PMI With a VA Home Loan?

Unlike many conventional mortgages, VA loans generally do not require Private Mortgage Insurance (PMI). This absence of PMI is a significant financial advantage that can lower monthly housing expenses for eligible service members, veterans, and their surviving spouses. Instead of PMI, VA loans typically include a one-time VA Funding Fee, which helps sustain the program.

Private Mortgage Insurance Explained

Private Mortgage Insurance (PMI) is an insurance policy designed to protect mortgage lenders in the event that a borrower defaults on their loan. Lenders typically require PMI when a borrower makes a down payment of less than 20% of the home’s purchase price on a conventional loan. This insurance mitigates the risk for the lender, allowing them to approve loans with lower down payments. The VA loan program, with its government guarantee to lenders, eliminates the need for this private insurance.

The VA Funding Fee

The VA Funding Fee is a one-time charge paid directly to the Department of Veterans Affairs, serving a purpose different from PMI. This fee helps offset the costs of the VA loan program to taxpayers and ensures its continued availability for future generations of service members.

It is a percentage of the total loan amount, and its exact rate varies based on several factors, including the type of loan, whether it is the borrower’s first or subsequent use of VA loan benefits, and the amount of any down payment made.

For home purchase loans in 2025, a first-time user with no down payment typically pays a funding fee of 2.15% of the loan amount. If it is a subsequent use of the VA loan benefit with no down payment, the fee increases to 3.3%. Borrowers can reduce this fee by making a down payment; for instance, a down payment of 5% to less than 10% results in a 1.5% fee for both first-time and subsequent users. A down payment of 10% or more further lowers the fee to 1.25% for all users.

The funding fee can be paid at closing as a cash payment or, more commonly, financed into the total loan amount, which increases the overall loan balance and the interest paid over the loan’s term. For certain refinance options, such as an Interest Rate Reduction Refinance Loan (IRRRL), the funding fee is a flat 0.5%, regardless of prior use. Conversely, a cash-out refinance typically carries a 2.15% fee for first-time use and 3.3% for subsequent uses.

A significant advantage of the VA loan program is that certain individuals are exempt from paying the funding fee entirely. This waiver applies to veterans receiving VA compensation for service-connected disabilities, those who would receive such compensation but are receiving retirement or active-duty pay instead, and active-duty service members who have been awarded the Purple Heart. Surviving spouses of veterans who died in service or from service-connected disabilities are also exempt.

Additional Costs of a VA Loan

While VA loans eliminate PMI and offer competitive advantages like no down payment for many, borrowers should anticipate other costs associated with obtaining and maintaining a mortgage. These expenses, known as closing costs, are fees paid at the close of the real estate transaction. VA loan closing costs typically range from 1% to 6% of the loan amount, though specific amounts vary based on the lender and geographic location.

Standard closing costs on a VA loan may include a loan origination fee, which covers the lender’s administrative expenses and is often capped at 1% of the loan amount. Other common fees encompass appraisal fees, which ensure the property meets VA minimum requirements, title insurance to protect against defects in the property’s title, and recording fees for official documentation of the sale. Credit report fees and survey fees may also be part of the closing costs.

VA guidelines limit some of the fees that borrowers can be charged directly, and sellers are permitted to pay for some or all of a buyer’s standard closing costs without limitation. Sellers can also offer “seller concessions” up to 4% of the loan amount. These concessions cover items not considered standard closing costs, such as paying the VA funding fee, contributing to an interest rate buydown, or even paying off certain buyer debts.

Beyond closing, ongoing homeownership costs include property taxes, homeowner’s insurance (hazard insurance), and potentially Homeowners Association (HOA) fees. VA loans often feature competitive interest rates, which can result in lower monthly payments over the life of the loan compared to conventional mortgages.