VA loans do not require mortgage insurance, even with zero down payment

This is one of the largest financial advantages of a VA loan. A conventional mortgage with less than 20 percent down requires private mortgage insurance (PMI), which adds hundreds of dollars to your monthly payment and protects the lender if you default. VA loans skip this entirely. The Department of Veterans Affairs guarantees a portion of the loan to the lender, so the lender has protection without passing an insurance cost to you.

You can borrow the full purchase price of a home with no down payment and no mortgage insurance premium. That difference compounds over the life of the loan. On a $300,000 home, PMI might cost $150 to $300 per month on a conventional loan. Over 30 years, that is $54,000 to $108,000 you do not pay with a VA loan.

The VA may provide itself is not free — you pay a funding fee at closing — but it is a one-time cost, not a monthly one, and it is substantially smaller than the total PMI you would pay over time.

Key Takeaways

  • VA loans do not require mortgage insurance because the VA guarantees part of the loan to the lender instead.
  • You can put zero down and still avoid mortgage insurance, which saves hundreds per month compared to a conventional loan.
  • You do pay a VA funding fee at closing, which is a one-time cost that varies based on down payment and whether you have used your VA benefit before.
  • The funding fee can be rolled into your loan amount, so you do not have to pay it out of pocket at closing.
  • If you are a surviving spouse of a service member who died on active duty, you may not owe a funding fee at all.

What the VA funding fee actually costs

The funding fee replaces mortgage insurance. It is a one-time charge paid at closing, and the amount depends on three things: your down payment, whether this is your first time using the VA benefit, and your military status.

For a first-time user with no down payment, the funding fee is typically 2.3 percent of the loan amount. With 5 percent down, it drops to 1.63 percent. With 10 percent or more down, it is 1.25 percent. If you have used your VA benefit before to buy a home, the fee is lower across the board — usually 0.55 percent with no down payment.

On a $300,000 loan with no down payment and first-time use, that is $6,900. It sounds large until you compare it to PMI: the same loan with a conventional mortgage and 3 percent down would cost roughly $9,000 to $10,000 in PMI over the first five years alone. Most VA borrowers roll the funding fee into the loan amount, so it does not come out of pocket at closing.

Active-duty service members, disabled veterans rated at 0 percent or higher by the VA, and surviving spouses of service members who died on active duty or from a service-connected disability are exempt from the funding fee entirely.

How the VA may provide protects the lender instead of you

When you get a conventional mortgage, the lender requires PMI because they are taking on risk. If you stop paying, they foreclose, sell the house, and hope the sale price covers what you owe. If it does not, PMI covers the gap. You pay for that protection even though it protects the lender, not you.

A VA loan flips this. The Department of Veterans Affairs guarantees the lender that if you default, the VA will cover a portion of the loss — up to a maximum amount that changes yearly. For 2024, that maximum is $36,000 for most loans. The lender knows the VA stands behind the loan, so they do not need PMI. The funding fee you pay is the cost of that may provide, but you pay it once, not monthly.

This is why VA loans often have lower interest rates than conventional mortgages too. The lender's risk is lower because the VA is backing the loan, so they can afford to offer better terms.

When you might still owe other insurance costs

VA loans do not require mortgage insurance, but they do require homeowners insurance and property taxes, just like any mortgage. If your down payment is less than 20 percent and you are in a flood zone, you will also need flood insurance. These are separate from mortgage insurance and are not waived by the VA benefit.

Some VA lenders also require a VA appraisal, which costs $400 to $600 and is paid at closing. This is not insurance, but it is an additional cost specific to VA loans. The appraisal protects you by ensuring the home is worth what you are paying for it — the VA will not may provide a loan for more than the appraised value.

Funding fee exemptions and how to verify yours

If you fall into one of these categories, you do not owe a funding fee: active-duty service members, veterans with a service-connected disability rating of 0 percent or higher from the VA, surviving spouses of service members who died on active duty, and surviving spouses of service members who died from a service-connected disability.

To prove your exemption, you need a copy of your Certificate of may be able to access (COE) or your VA disability rating letter. Your lender will ask for this during the loan application. If you have a disability rating, the VA letter showing your percentage is sufficient. If you are a surviving spouse, you will need documentation of the service member's death and the cause.

Do not assume you are exempt. Many borrowers think they may have access to but do not, or they have the wrong documents. Ask your lender to verify your exemption status before you lock in your rate, because it changes the total cost of the loan.

How VA loans compare to FHA loans on insurance costs

FHA loans also allow low down payments, but they require mortgage insurance no matter what. With an FHA loan, you pay an upfront mortgage insurance premium (usually 1.75 percent of the loan) and then an annual premium (0.55 to 0.8 percent per year) for the life of the loan if your down payment is less than 10 percent. On a $300,000 FHA loan with 3 percent down, you would pay roughly $5,250 upfront plus $165 to $240 per month in insurance.

A VA loan with the same terms costs $6,900 upfront (the funding fee) and zero per month in insurance. The VA loan costs more at closing but saves you money every single month. Over 30 years, the VA loan is thousands of dollars cheaper.

The trade-off is that VA loans are only for military service members and veterans. If you do not have VA may be able to access, an FHA loan is the next-best option for a low-down-payment purchase without a large monthly insurance bill.

Frequently Asked Questions

Can I remove the funding fee from my VA loan after I close?

No. The funding fee is paid once at closing and cannot be removed or refunded later. However, if you refinance your VA loan into another VA loan, you may owe a new funding fee on the refinance, depending on the type of refinance and your circumstances. Some refinances have reduced or waived fees.

What happens if I put 20 percent down on a VA loan?

You still owe the funding fee. The fee does not disappear at 20 percent down the way PMI does on a conventional loan. However, the funding fee percentage is lower with a larger down payment, so your total cost is reduced. Many borrowers put down 20 percent to lower the funding fee and reduce the loan amount.

Do I have to roll the funding fee into the loan?

No, but most borrowers do. You can pay the funding fee out of pocket at closing if you have the cash. Rolling it into the loan means you pay it over 30 years with interest, which costs more in total but requires less money upfront. Your lender can show you both options before you close.

If I refinance my VA loan, do I pay mortgage insurance on the new loan?

No. VA refinances do not require mortgage insurance either. You will owe a new funding fee on the refinance (unless you may have access to for an exemption or a waiver), but no monthly insurance premium. This is one reason VA borrowers often refinance when rates drop — the savings on the interest rate outweigh the cost of the new funding fee.

Can I get a VA loan if I have been denied for a conventional mortgage?

Possibly. VA loans have different underwriting standards than conventional loans, and some lenders are more flexible with credit scores and debt-to-income ratios. However, the VA does not may provide you will be approved. Talk to a VA lender about your specific situation — they see borrowers with credit challenges regularly and can tell you whether approval is realistic.