How Much Mortgage Insurance a VA Loan Saves Over FHA or Conventional

The Quick Read: A VA loan removes the monthly mortgage insurance bill that FHA and most low-down-payment conventional loans carry. In its place, most VA borrowers pay a one-time funding fee, and some pay nothing at all. How much you save depends on three things: how long you keep the loan, your down payment, and whether you are exempt from the fee. For most eligible buyers who stay put for several years, the savings are real and grow every year.

Here is the plain version. You can only use VA if you are an eligible veteran, service member, or surviving spouse. Everyone else compares FHA and conventional. This guide walks through each loan’s insurance mechanics, where the usual rule breaks, and how to decide.

What Does “Mortgage Insurance” Mean on Each Loan?

Each loan type protects the lender in a different way, and you pay for that protection in a different way. VA uses a government guaranty. FHA uses a government insurance fund. Conventional uses a private insurer. Only the last two bill you every month.

Think of it as three different ways to cover the same risk. VA collects once. FHA collects twice, then keeps collecting. PMI collects monthly, but it can stop.

There is a small catch in the VA row. “No monthly insurance” does not mean “no insurance cost.” The funding fee takes that place, and it applies to purchase, build, repair, and refinance loans unless you meet an exemption.

How Does the VA Funding Fee Work?

The VA funding fee is a one-time payment, set as a percentage of your loan amount. Three things set the percentage: whether this is your first VA loan or a repeat, how much you put down, and the loan type. A bigger down payment moves you to a lower tier.

The idea. A first-time user putting 5% down pays 1.5% of the loan amount. VA’s funding fee page holds the current chart. Check it there rather than trusting a number copied onto a blog, because the chart is a VA decision and VA can change it. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

Two points trip people up:

• It is charged on the loan, not the price. Put money down and both the base and the tier shrink.
• You can finance it. Rolling it into the loan cuts your cash at closing. It also raises the balance, so you pay interest on the fee.

Why does VA charge it at all? The fee helps offset the cost to taxpayers, since the program asks for no down payment and no monthly insurance. Exempt borrowers skip it. More on that below.

How Does FHA Mortgage Insurance Work?

FHA has two pieces. The first is an upfront premium of 1.75% of the base loan, which most borrowers finance into the loan. HUD’s Mortgagee Letter 2023-05 sets that upfront premium for all mortgages, with a few named exceptions, such as certain older FHA streamline refinances.

The second piece is the annual premium. It runs between 0.15% and 0.75% of the balance, depending on the loan term, the loan amount, and the loan-to-value ratio (LTV). LTV is the loan balance divided by the home’s value. HUD sets the schedule. Your credit score does not move it.

Duration is where FHA and VA really split. Across the FHA programs Lendmire places files with, the rule is simple:

• Above 90% LTV on a thirty-year loan, the annual premium lasts the full term.
• At or below 90% LTV, it ends after eleven years. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

FHA lets you buy with 3.5% down at a 580 decision score. That is 96.5% financing, so a minimum-down-payment buyer lands in the first bucket. You pay the annual premium until you sell or refinance. Anyone reading about FHA loan programs should plan around that, not around a hope that it falls off at 20% equity. It does not. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

How Does Conventional PMI Compare?

PMI is private mortgage insurance on a conventional loan with less than 20% down. The Consumer Financial Protection Bureau notes that PMI protects the lender, not you. You pay for coverage that benefits someone else. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

PMI is the only one of the three that can end on its own. The Homeowners Protection Act sets the rules, as summarized in the Federal Reserve’s supervisory manual:

• You can ask to cancel when the balance reaches 80% of the original value, if you are current.
• It must end automatically when the balance is first scheduled to reach 78%.
• High-risk loans fall outside those two rules.

PMI pricing depends on your credit profile, your down payment, and the loan type. No single range fits everyone, so get a quote before you compare. Insurance appears in your monthly payment, your closing costs, or both, so read both lines on the Loan Estimate.

That makes conventional the hardest comparison. A strong-credit buyer with 10% down may carry PMI for a short stretch. A weaker-credit buyer with 5% down may carry it much longer, at a higher price. VA’s advantage over conventional swings wider than its advantage over FHA, depending on who is borrowing. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

Why Doesn’t VA Need Monthly Insurance?

Because the government guaranty does the insurer’s job.

The lender holds a loan backed by that guaranty, so it does not ask you to buy a policy. This is also why VA can lend with no down payment. The guaranty stands in for the cushion a down payment would normally supply.

None of this makes VA easier to qualify for. VA looks at debt-to-income ratio and also at residual income, which is the money left each month after housing costs, debts, and household needs. Total debt-to-income “should not exceed 41%” as a guide, but lenders can go higher with a documented reason. The federal regulation adds that meeting both tests does not mean the loan is automatically approved. The 41% is a guide, not a wall.

Lower insurance costs can help your ratios, since a smaller required payment leaves more room under the limit. A VA appraisal also checks minimum property standards, not just value. A home with a leaky roof can stall a VA file.

How Much Does a VA Loan Actually Save? A Worked Comparison

Here is the setup, in percentages and plain words. Picture one buyer, one home, and the same loan amount under each program. Nothing below is a quote. It is a model, and your numbers will differ.

VA, first use, 5% down. You pay a one-time fee of 1.5% of the loan. You pay no monthly insurance. After closing, your insurance cost stops growing. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

FHA, 3.5% down. You pay 1.75% upfront, usually financed. Then you pay an annual premium of 0.15% to 0.75% of the balance, billed monthly, for the whole term. The upfront premium alone already exceeds VA’s 1.5% in this setup.

Conventional, 5% down. You pay PMI monthly. You may pay nothing upfront. PMI ends at 78% scheduled, or sooner if you ask at 80% and qualify. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Now stack the timelines:

The breakeven math is simple. At the top of FHA’s range, 0.75% a year, the annual premium alone matches a 1.5% one-time fee in roughly two years. It takes a little longer as the balance shrinks. At the bottom of the range, 0.15%, it takes much longer. Either way, FHA’s cost recurs and VA’s does not.

Conventional is murkier. If PMI ends in a handful of years, a conventional loan can come close to VA’s total cost. If it runs for a long stretch because you put down 5% and your credit is middling, VA pulls well ahead. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

Your holding period decides the winner. Selling in three years is a different decision than staying for fifteen. A one-time fee costs the same either way, while a monthly premium costs more with each year you stay.

Where Does the General Rule Break?

“VA is more affordable” holds up most of the time. These are the cases where it bends.

Funding fee exemptions. VA’s page lists exemptions, and the first is for borrowers receiving VA compensation for a service-connected disability. Other categories exist, such as certain surviving spouses and borrowers with a pre-discharge rating in place before closing. Confirm yours with your lender and VA. If a rating is granted after closing, ask about a refund. The exemption covers the VA funding fee only. Other closing costs still apply.

Repeat use. A repeat user with less than 5% down lands in a higher fee tier than a first-time user. A 5% down payment narrows that gap. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Refinances. VA’s streamline and cash-out refinances use different fee rates than a purchase loan, per VA’s chart. FHA has its own streamline treatment too. An FHA streamline refinances an existing FHA loan with no appraisal and a limited credit review, but the premium continues.

Lender-paid mortgage insurance. Some conventional loans build the insurance cost into the interest rate instead of a separate monthly line. You cannot cancel lender-paid mortgage insurance later. It stays for the life of the loan, so only a refinance removes it.

Very small down payments on short timelines. If you plan to sell soon, a one-time fee financed into the loan, or an upfront FHA premium, may cost more than a few months of PMI. Run the holding period before you assume.

Occupancy. VA, FHA, and the PMI cancellation rules all concern your principal residence. Occupancy decides the leverage, so a home you will not live in falls outside this comparison.

Eligibility. VA is for eligible veterans, service members, and survivors. If you are not eligible, the real comparison is FHA against conventional.

What If You Sell or Refinance Early?

Early exit changes the math. If you sell in a few years, you paid the VA fee once and you stop. An FHA borrower paid the upfront premium and several years of annual premium. Selling ends the annual premium, but nothing refunds what you paid.

A refinance is the other exit. An FHA borrower with a minimum down payment typically refinances to shed the annual premium. One common route is a conventional cash-out or rate-and-term refinance once equity builds. A veteran carrying mortgage insurance on a conventional or FHA loan can also look at VA, and Lendmire’s piece VA Cash-Out vs Conventional for a Veteran Paying Mortgage Insurance lays out the tradeoffs. A refinance has its own costs, so the savings must outweigh them.

Don’t Confuse These Insurances

Several different products share the word “insurance.” Mixing them up leads to bad comparisons.

• Mortgage insurance (PMI or FHA annual premium) protects the lender on your loan.
• Homeowners insurance covers damage to your house. Every loan type requires it.
• Veterans’ mortgage life insurance is a separate life-insurance product. It pays off a mortgage if a disabled veteran dies. It is not the same thing as the funding fee.

Only the first is what this guide compares.

Key Terms Defined

Funding fee: a one-time VA charge, set as a percentage of the loan amount, that replaces monthly mortgage insurance for most borrowers.

Upfront premium: the FHA charge of 1.75% of the base loan, usually financed into the loan.

Annual premium: FHA’s yearly insurance charge, billed monthly, set by loan term, amount, and LTV.

PMI: private mortgage insurance, required on most conventional loans with under 20% down. It protects the lender.

LTV: loan-to-value ratio, which is the loan balance divided by the home’s value.

Guaranty: the government promise to cover part of the lender’s loss on a VA loan. It replaces borrower-paid insurance.

Residual income: the money left each month after housing costs, debts, and household expenses. VA uses it alongside debt-to-income.

What Does the Decision Look Like in Practice?

Start with eligibility. If you hold a Certificate of Eligibility, VA goes first on the list. Your funding fee status (exempt, first use, or subsequent use) comes from that paperwork.

Then work through these questions:

1. How long will you keep the loan? A longer hold favors VA.

2. How much can you put down? Each step up moves your VA fee tier. On FHA, ten percent down shortens the premium to eleven years. On conventional, it speeds PMI cancellation.

3. Are you exempt? If so, VA’s cost advantage is hard to beat.

4. Is your credit strong? Strong credit narrows the PMI gap, since conventional PMI is priced on credit and FHA’s premium is not.

5. Will you refinance? If so, price the exit, not just the entry.

Across the programs Lendmire places files with, FHA tends to fit buyers with thinner credit or limited savings who are not VA-eligible. FHA starts at a 580 decision score on the wholesale side, which is a floor lenders hold even when HUD allows lower. Conventional tends to fit buyers who can reach a larger down payment. All of this is subject to lender guidelines and a full file review.

Ask for a Loan Estimate on each option. Compare the insurance line, the upfront charges, and the cash to close side by side. Then ask how long each insurance charge lasts.

Ready to Compare?

If you are buying a home and want to see whether a VA or FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Program figures vary by lender, and nothing here is a commitment to lend.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. VA – Funding fee and loan closing costs

2. HUD Mortgagee Letter 2023-05

3. CFPB – What is private mortgage insurance?

4. Federal Reserve – Homeowners Protection Act background