VA loans do not require 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 mortgage insurance — the monthly fee that protects the lender if you stop paying. Conventional loans almost always require mortgage insurance when you put down less than 20 percent. VA loans skip this cost entirely because the Department of Veterans Affairs guarantees a portion of the loan to the lender, which means the lender has less financial risk.

This is a real difference in what you pay each month. On a $300,000 home with a conventional loan and 5 percent down, mortgage insurance typically costs $150 to $200 monthly. With a VA loan, that line item does not appear on your bill.

Key Takeaways

  • VA loans never require mortgage insurance, regardless of how much money you put down or whether you put down anything at all.
  • The VA may provide replaces mortgage insurance by backing a portion of the loan, which shifts risk away from the lender.
  • You will pay a one-time VA funding fee instead, which is typically 2 to 3.6 percent of the loan amount and can be rolled into your mortgage.
  • Some VA borrowers are exempt from the funding fee, including Purple Heart recipients and disabled veterans rated by the VA.

What you pay instead of mortgage insurance: the VA funding fee

Because the VA may provide removes the need for mortgage insurance, the VA charges a funding fee to cover the cost of the may provide program itself. This fee is a one-time charge, not a monthly payment like mortgage insurance.

The funding fee ranges from 2 to 3.6 percent of the total loan amount, depending on whether this is your first VA loan, how much you are putting down, and whether you are buying a home or refinancing. A first-time VA buyer with no down payment typically pays 2.3 percent. If you are putting down 5 percent or more, the fee drops to 1.63 percent. Subsequent VA loans carry higher fees.

You do not have to pay the funding fee upfront. Most VA borrowers roll it into the loan amount, which means you pay it back over 15, 20, or 30 years as part of your monthly mortgage payment. This spreads the cost across the life of the loan rather than requiring a lump sum at closing.

Who does not pay the VA funding fee

Certain veterans are exempt from the funding fee entirely. If you are a Purple Heart recipient, you do not pay it. The same applies if you are a veteran with a service-connected disability rating from the VA, regardless of the percentage. Surviving spouses of veterans who died in service or from a service-connected disability are also exempt.

If you fall into one of these categories, you will not see a funding fee on your loan documents. This is one of the clearest financial advantages of a VA loan for disabled veterans — you get the no-mortgage-insurance benefit without paying the funding fee that replaces it.

How the VA may provide works instead of mortgage insurance

Mortgage insurance protects the lender by paying them if you default. The VA may provide works differently: it promises to reimburse the lender for a portion of their loss if you stop paying and the home sells for less than what you owe.

The may provide amount varies based on the loan size and your down payment. For loans up to $766,550 (the 2024 limit for most of the country), the VA guarantees 25 percent of the loan amount, up to a maximum of $191,625. This means the lender knows they will recover at least that much if something goes wrong, which is why they do not need mortgage insurance to offset their risk.

From your perspective, this may provide is invisible — you do not manage it or interact with it. It straightforward means your monthly payment does not include an insurance premium.

Comparing VA loans to conventional loans with mortgage insurance

On a $300,000 conventional loan with 5 percent down ($15,000), mortgage insurance typically runs $150 to $200 per month. Over a 30-year loan, that is $54,000 to $72,000 in total payments. With a VA loan on the same $300,000 purchase, you would pay a 1.63 percent funding fee ($4,890) rolled into the loan, which costs roughly $20 per month in additional principal and interest.

The VA loan saves you money in two ways: the funding fee is smaller than the total mortgage insurance you would pay, and you pay it once rather than every month. However, the VA funding fee does mean your loan amount is slightly higher than it would be without it, which increases your total interest paid over the life of the loan.

A conventional loan with 20 percent down ($60,000) avoids mortgage insurance entirely and may have a lower interest rate than a VA loan, depending on market conditions and your credit profile. The trade-off is that you need significantly more cash upfront.

Refinancing a VA loan and the funding fee

If you refinance an existing VA loan into a new VA loan (called an Interest Rate Reduction Refinance Loan, or IRRRL), you will pay a funding fee on the new loan. This fee is typically lower than the original — usually 0.55 percent for most borrowers — because you are not taking out additional money.

Some borrowers roll this fee into the new loan as well. Others pay it at closing. The decision depends on whether you want to keep your monthly payment as low as possible or reduce the total amount you borrow.

Frequently Asked Questions

Can I avoid the VA funding fee by putting down 20 percent?

No. The funding fee applies to all VA loans unless you are exempt due to disability or Purple Heart status. Putting down more money reduces the fee percentage, but does not eliminate it. A 20 percent down payment lowers the fee to 1.23 percent instead of 2.3 percent, but you still pay it.

What happens if I refinance from a VA loan to a conventional loan?

You would then be subject to conventional mortgage insurance rules. If your new loan amount is more than 80 percent of the home's value, you would pay mortgage insurance on the conventional loan. This is rarely a financial advantage, since you would lose the VA may provide benefit and gain a monthly insurance payment instead.

Does the VA funding fee show up on my credit report?

No. The funding fee is part of your loan amount, not a separate debt or payment obligation. It does not appear as a line item on your credit report. Your credit report shows only the mortgage itself.

Can I pay off the funding fee early to reduce my interest?

Yes, you can pay down your principal at any time, which would reduce the portion of the loan that includes the funding fee. However, paying off the funding fee specifically does not lower your interest rate — interest is calculated on your total loan balance. Paying down principal faster straightforward means you pay less interest overall because you owe less money.

What if I used my VA benefit years ago and want to use it again?

You can reuse your VA benefit, but the funding fee will be higher on a second or subsequent loan. The fee jumps to 3.6 percent for a second VA loan with no down payment. Some borrowers restore their entitlement by paying off the first loan in full, which allows them to use the benefit again at the lower first-time rate.