Do VA Loans Require Mortgage Insurance

Mortgage insurance can increase monthly mortgage payments. Unlike most mortgage types, VA loans do not require mortgage insurance. Instead, borrowers must pay a funding fee at closing.

That’s because VA loans are backed by the Department of Veterans Affairs, which assumes the responsibility and guarantees the loan to lenders. This backing lightens up the financial burden on veterans and active-duty service members.

What Are VA Loans?

VA loans are mortgage loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to help veterans, active-duty service members, and eligible surviving spouses become homeowners.

VA loans offer several advantages, such as competitive interest rates, no down payment requirements, and more flexible credit requirements compared to conventional loans. They are meant to make homeownership more accessible for veterans and active-duty service members after their service and dedication to the country.

Mortgage Insurance: A Brief Overview

Mortgage insurance is required on conventional loans when the borrower makes a down payment of less than 20% of the home’s purchase price. This insurance protects the lender in case the borrower defaults on the loan. The cost of mortgage insurance is usually added to the borrower’s monthly mortgage payment.

If a borrower can provide a down payment of more than 20%, mortgage insurance is waived. Likewise, borrowers can request that their lender cancel mortgage insurance once they have paid off 20% of their home’s equity.

Do VA Loans have Mortgage Insurance?

VA loans don’t require mortgage insurance. This is one of the most important benefits of VA loans compared to other types of mortgages. Instead of mortgage insurance, VA loans have a funding fee, which is a one-time charge paid at closing.

The VA Funding Fee

While VA loans don’t call for ongoing VA monthly mortgage insurance payments, borrowers are required to pay a VA funding fee. This fee helps taxpayers offset the cost of the VA loan program. The amount of the funding fee varies between 0.5% and 3.3%, based on factors such as the type of VA loan, the borrower’s military category, whether it’s the borrower’s first VA loan, and the down payment amount (if any, although not required).

To facilitate home acquisition for veterans and other eligible borrowers, the funding fee can be rolled into the mortgage and spread out through the monthly mortgage payments. This lightens up the initial cost of buying a home, especially for first-time homebuyers who may not have saved enough money.

Exemptions from the VA Funding Fee

Some borrowers may be exempt from paying the VA funding fee.

These exemptions apply to veterans receiving VA disability compensation, active-duty service members who have received a Purple Heart, and surviving spouses of veterans who died in service or from a service-connected disability. When you discuss the VA loan details with your Society Mortgage Loan Officers, make sure to notify them of the possibility of such an exemption.

VA Loans Don’t Require Mortgage Insurance

VA loans don’t require mortgage insurance, which can potentially save borrowers thousands of dollars over the life of their loan.

While the VA funding fee is a consideration, many borrowers find that the overall benefits of VA loans, including no down payment requirements and competitive interest rates, make them an accessible option for home financing, particularly if it’s their first home. There are some thing you need to know before applying for a VA loan. 

If you have questions about the requirements of VA loans, Society Mortgage is an experienced and qualified VA mortgage lender. If you are eligible, you can access a type of loan with very favorable terms that can make homeownership more reachable. Contact us today, and one of our Loan Officers will be happy to give you a complete overview of VA loans!