Mortgage insurance can increase monthly payments. Unlike most mortgage types, VA loans do not require borrowers to pay mortgage insurance. Instead, borrowers must pay a funding fee at closing.
That’s because the VA loan program is backed by the Department of Veterans Affairs, which assumes responsibility and guarantees the total loan amount you’ll pay back to lenders. The good news about this backing is that it lightens the financial burden on the veteran and active-duty service members regarding real estate.
What Are VA Loans?
VA loans are mortgage loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to help eligible veterans, active duty service members and surviving spouses who are eligible to receive assistance and become homeowners. They are also available to members of the National Guard.
VA loans offer several advantages down the line, such as a competitive and lower interest rate, no down payment requirements, and more flexible credit score requirements compared to conventional home equity loans. They are meant to improve the accessibility of homeownership 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 (like home 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 of the home purchase. The cost of mortgage insurance is usually added right to the borrower’s monthly mortgage payment right up until the last.
If a borrower is able to provide a down payment of more than 20% for the purchase loan, 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 home Loans have Mortgage Insurance?
VA home 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 come with a funding fee, which is a one-time charge paid at closing.
The VA Funding Fee
While VA loans don’t need ongoing VA monthly mortgage insurance payments, the programs require borrowers to pay a VA funding fee. This fee helps taxpayers offset the cost of the VA loan funding program. The amount of the funding fee varies between 0.5% and 3.3%, based on factors such as the type of VA loan rates, the borrower’s military service category, whether it’s the borrower’s first VA loan, and the down payment amount (if any, although not required).
To facilitate property acquisition for veterans housing and other eligible-to-receive 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 a veteran going to buy a home, especially for new first-time homebuyers who may not have enough savings, who then can build their payments over time.
Exemptions from the VA Funding Fee
Some borrowers may be exempt from paying the VA funding fee or percentage of.
These exemptions apply to eligible veterans receiving VA disability compensation, active duty service members who have received a Purple Heart, and the surviving spouse of veterans who died in service or from a service-connected disability. When you discuss the VA loan types, home loan lender program benefits, and other 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 (unlike American direct loans) don’t require the support of mortgage insurance, which can often save borrowers thousands of dollars over the life of their direct loan when they purchase homes.
While the VA funding fee process is a consideration to check, many borrowers find that the overall benefits of VA loans, including no down payment requirements and a competitive VA loan interest rate, make them an accessible option for home financing, particularly if it’s their first home. There are some things you need to know about before applying for a VA loan.Â
If you have questions, require more information and want to learn about the requirements of VA loans, Society Mortgage is an experienced and qualified VA mortgage loan lender. To find out your eligibility for a loan you can access 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 and our services!
Frequently Asked Questions
Do VA Loans have PMI?
VA loans do not require Private Mortgage Insurance. Instead, borrowers must pay the closing costs of a funding fee. This is because VA loans are backed by the Department of Veterans Affairs, which assumes the responsibility and guarantees the loan to lenders.
Is VA loan Mortgage Insurance required when buying a home?
VA loan mortgage insurance is not required. Since VA loans are guaranteed by the Department of Veterans Affairs, buyers need to pay only a one-time funding fee at closing.
