VA loans do not require private mortgage insurance, even with no down payment

A VA loan is one of the few mortgages where you can borrow the full purchase price without paying private mortgage insurance (PMI). PMI is what lenders charge borrowers who put down less than 20 percent — it protects the lender if you stop paying, but it costs you hundreds of dollars per month and builds no equity. VA loans skip this entirely because the Department of Veterans Affairs guarantees a portion of the loan to the lender, meaning the lender already has protection.

This is one of the largest financial advantages of VA may be able to access. On a $300,000 home with a conventional loan and 5 percent down, PMI alone could run $150 to $200 per month for years. A VA borrower buying the same home with zero down pays nothing for mortgage insurance.

Key Takeaways

  • VA loans do not require PMI at any down payment level, including zero down.
  • The VA funding fee replaces PMI as the lender's protection and is a one-time charge paid at closing or rolled into the loan amount.
  • The funding fee varies by down payment amount and military service category, ranging from 1.4 to 3.6 percent of the loan amount.
  • You may be exempt from the funding fee if you receive VA disability compensation.
  • Even with a funding fee, VA loans typically cost less per month than conventional loans because there is no ongoing PMI.

What the VA funding fee is and how it works

Instead of PMI, VA loans charge a funding fee — a one-time payment to the VA that compensates the department for guaranteeing your loan. This fee is calculated as a percentage of the loan amount and is paid at closing. You can pay it out of pocket, or you can roll it into the loan itself, which means you finance it over 15 or 30 years like the rest of the mortgage.

The funding fee amount depends on two things: how much you put down and what category of service member you are. A first-time VA borrower with no down payment typically pays 2.3 percent of the loan amount. If you put down 5 percent or more, the fee drops to 1.63 percent. If you put down 10 percent or more, it drops further to 1.25 percent. Subsequent VA loans (if you use your benefit more than once) carry higher fees — usually 3.6 percent with no down payment.

On a $300,000 loan with no down payment, a first-time buyer would pay a funding fee of roughly $6,900. That sounds large, but spread over a 30-year mortgage, it adds roughly $23 per month to your payment — far less than PMI would cost.

Who does not pay the VA funding fee

You are exempt from the funding fee if you receive VA disability compensation — meaning the VA has rated you as service-connected disabled and you receive monthly payments from the VA. You do not need to be 100 percent disabled; any service-connected rating qualifies you for the exemption.

Surviving spouses of service members who died in service or from a service-connected disability are also exempt. If you fall into either category, you pay no funding fee and no PMI, making the VA loan even more affordable.

If you are unsure whether you have a disability rating, you can check your VA.gov account or contact the VA directly. Many veterans do not realize they may have access to for the exemption, so it is worth verifying before you lock in your loan terms.

How the funding fee compares to PMI over time

The funding fee is a one-time cost, while PMI is an ongoing monthly charge that continues until you reach 20 percent equity in the home. This makes a real difference in total cost.

On a $300,000 conventional loan with 5 percent down ($15,000), PMI typically runs $150 to $200 per month. If you pay the mortgage on schedule, PMI drops off after about 11 years — meaning you pay roughly $20,000 to $26,000 in total PMI. A VA borrower on the same home with zero down pays a funding fee of $6,900, which costs about $23 per month if financed. Even if you never reach 20 percent equity, you stop paying the funding fee after the loan is paid off, while a conventional borrower might pay PMI for a decade or more.

The math shifts if you plan to sell or refinance within a few years, but for most borrowers who stay in a home for 7 years or longer, the VA loan saves thousands in insurance costs.

What happens if you refinance a VA loan

If you refinance a VA loan into another VA loan, you may owe another funding fee on the new loan amount. However, if you refinance into a conventional loan, you will no longer be protected from PMI — you will need to put down 20 percent or pay PMI on the conventional loan.

Some VA borrowers refinance to a conventional loan after building equity, which can make sense if rates drop significantly. But if you are refinancing to a lower rate and you still have less than 20 percent equity, staying in a VA loan (if you have remaining entitlement) usually costs less than switching to conventional.

Other costs in a VA loan that are not PMI

While VA loans have no PMI, you will still pay other standard mortgage costs: property taxes, homeowners insurance, and interest. You may also pay an appraisal fee, title search, and loan origination fees — these vary by lender and location. Some of these costs are negotiable; others are set by your state or local government.

The VA also limits what lenders can charge you for certain fees. For example, lenders cannot charge you a loan origination fee of more than 1 percent of the loan amount, and they cannot charge you a funding fee on top of other lender fees in a way that exceeds what the VA allows. This is another protection built into the VA loan program.

Frequently Asked Questions

Can I avoid the funding fee by putting money down?

The funding fee decreases as you put more down, but you cannot avoid it entirely unless you have a VA disability rating. A 10 percent down payment reduces the fee to 1.25 percent instead of 2.3 percent, saving you roughly $3,000 on a $300,000 loan. However, the main advantage of a VA loan is that you do not have to put money down at all.

Is the funding fee the same as PMI?

No. PMI is an ongoing monthly insurance payment that protects the lender and continues until you have 20 percent equity. The funding fee is a one-time charge paid at closing that compensates the VA for guaranteeing the loan. The funding fee is typically much cheaper over the life of the loan.

What if I have a disability rating but the lender says I still owe a funding fee?

Bring your VA disability rating letter to your lender and ask them to verify your exemption status. Lenders can look this up through the VA system. If there is a dispute, contact the VA directly or ask your lender's loan officer to escalate the issue — this is a common problem that gets resolved quickly once documentation is provided.

Do I pay the funding fee even if I refinance into a lower rate?

If you refinance a VA loan into another VA loan, yes — you typically owe a new funding fee on the new loan amount, though it may be smaller if you have built equity. If you refinance into a conventional loan, you do not pay a VA funding fee, but you will owe PMI unless you put down 20 percent.

Can I roll the funding fee into my loan?

Yes. Most VA borrowers finance the funding fee as part of the mortgage rather than paying it in cash at closing. This spreads the cost over 30 years and keeps more cash in your pocket at closing, though you will pay interest on the fee amount over time.