Everything You Need to Know About VA Loan Mortgage Insurance

Buying a home can be a daunting experience, but military members and veterans have a unique benefit available to them through the Department of Veterans Affairs (VA). VA loans are mortgages designed specifically for those who have served in the military or are currently active duty. One of the benefits that come with a VA loan is the exemption from private mortgage insurance (PMI). However, VA loans still require a form of mortgage insurance. Let’s take a closer look at VA loan mortgage insurance.

What is VA loan mortgage insurance?

VA loan mortgage insurance is a form of insurance that protects lenders in the case of default by the borrower. This insurance is required for all VA loans and is known as the VA Funding Fee. This fee is typically rolled into the loan amount and paid over the life of the loan. The VA Funding Fee replaces the need for private mortgage insurance.

It’s important to note that VA loan mortgage insurance is not the same as homeowner’s insurance. Homeowner’s insurance is an additional policy that is required for all mortgages, not just VA loans. Homeowner’s insurance protects the homeowner from losses due to damages to the property or personal liability claims.

How is the VA Funding Fee calculated?

The amount of the VA Funding Fee is based on a percentage of the loan amount and varies depending on several factors, including the type of loan, whether it’s a first-time or subsequent use of a VA loan, and the down payment amount (if any).

The VA Funding Fee for first-time use of a VA loan with no down payment is currently 2.3% of the loan amount for regular military members and 2.4% for National Guard and Reserve members. The fee for subsequent use of a VA loan with no down payment is 3.6% for regular military members and 3.15% for National Guard and Reserve members.

If a borrower chooses to make a down payment, the amount of the VA Funding Fee is reduced. For example, if a borrower makes a 5% down payment, the VA Funding Fee for first-time use of a VA loan is reduced to 1.65% for regular military members and 1.8% for National Guard and Reserve members. The fee for subsequent use with a 5% down payment is 1.65% for both regular military members and National Guard and Reserve members.

What are the different types of VA loans?

There are several different types of VA loans, including:

Do all VA loans require the VA Funding Fee?

Most VA loans require the VA Funding Fee, but there are some exemptions. The following individuals are exempt from paying the VA Funding Fee:

• Veterans who receive compensation for a service-connected disability
• Surviving spouses of veterans who died in service or from a service-connected disability
• Service members who have received the Purple Heart

Can the VA Funding Fee be waived?

Occasionally, the VA Funding Fee can be waived. This may happen if a borrower has a service-connected disability that makes them exempt from the fee, but the lender mistakenly charges it. In this case, the borrower will need to contact the lender and request a refund of the fee.

Can the VA Funding Fee be rolled into the loan?

Yes, the VA Funding Fee can be rolled into the loan amount. This means that the borrower won’t have to pay the fee upfront but will pay it over the life of the loan. Rolling the fee into the loan can make the loan more expensive over time, but it can also make it more affordable for borrowers who can’t afford to pay the fee upfront.

How does VA loan mortgage insurance compare to other types of mortgage insurance?

VA loan mortgage insurance is generally less expensive than other types of mortgage insurance, such as private mortgage insurance (PMI) or Federal Housing Administration (FHA) mortgage insurance. Additionally, VA loans do not require ongoing mortgage insurance payments like FHA loans do.

Conclusion

VA loan mortgage insurance is an important aspect of obtaining a VA loan. While it may seem like an additional expense, it’s important to remember that the VA Funding Fee replaces the need for private mortgage insurance, which can be much more expensive. By understanding how the VA Funding Fee works and how it compares to other types of mortgage insurance, borrowers can make informed decisions about their homeownership journey.

FAQ

What is VA loan mortgage insurance?

VA loan mortgage insurance is a form of insurance that protects lenders in the case of default by the borrower.

What is the VA Funding Fee?

The VA Funding Fee is a fee that is required for all VA loans and is based on a percentage of the loan amount.

Can the VA Funding Fee be waived?

Occasionally, the VA Funding Fee can be waived if a borrower is exempt from paying it due to a service-connected disability.

What are the different types of VA loans?

The different types of VA loans include purchase loans, interest rate reduction refinance loans (IRRRL), cash-out refinance loans, and Native American Direct Loans (NADL).

How does VA loan mortgage insurance compare to other types of mortgage insurance?

VA loan mortgage insurance is generally less expensive than other types of mortgage insurance, such as private mortgage insurance (PMI) or Federal Housing Administration (FHA) mortgage insurance.