Does a VA Loan Require Mortgage Insurance or Just a Funding Fee?

The Quick Read: No, a VA loan does not require mortgage insurance of any kind, whether conventional-style PMI or the FHA-style premium. Most borrowers pay a one-time funding fee instead, and veterans who receive compensation for a service-connected disability, along with a few other groups, are exempt from it. The fee is not monthly and is not insurance. It can be paid in cash or financed, subject to lender guidelines and full file review.

The Short Version in Four Lines

• No monthly mortgage insurance on a VA purchase loan, at any down payment level.
• One-time funding fee for most borrowers, paid to VA rather than a private insurer.
• Fee size depends on use history and down payment, and exempt borrowers pay nothing.
• Financing the fee raises the loan balance, so it is a real cost even when it isn’t paid at the table.

Why Doesn’t a VA Loan Need Mortgage Insurance?

A VA loan skips mortgage insurance because the VA guaranty backs the lender instead. VA’s purchase loan page says a VA-backed loan often means no need for PMI or MIP, and it defines PMI as the insurance usually required on conventional loans with less than 20% down, and MIP as the FHA equivalent.

Here’s the part many buyers miss. The guaranty protects the lender, not you. You still have to qualify. Across the wholesale programs Lendmire places VA loans with, that means a credit decision, a full review of income and debts, and a property appraisal. The guaranty is why, with full entitlement, a lender can finance the whole purchase price with no down payment, as long as the price is not above the appraised value, and still charge no monthly premium. It is not a shortcut around underwriting.

With full entitlement there is no VA loan limit. If you have remaining entitlement from an earlier VA loan, a down payment may be required, and that is a conversation to have with a loan officer rather than something to guess at.

What Is the Funding Fee, and What Isn’t It?

The funding fee is a one-time charge on VA-guaranteed loans, paid to VA. VA News explains that it offsets the program’s cost to taxpayers, which is what lets Veterans buy with no down payment and no monthly private mortgage insurance.

Think of it this way: it is a program fee, not a policy.

One wording point matters for accuracy. Some pages call the fee “the VA version of mortgage insurance,” and others say financing it is “essentially” paying monthly insurance. Neither is right. The CFPB describes the VA guarantee as replacing mortgage insurance and functioning similarly, with no monthly premium but an upfront funding fee. Similar function. Different thing. The statute itself calls it a loan fee.

How Much Is the Funding Fee on a Purchase?

On a purchase, the fee runs from 1.25% to 3.3% of the loan amount, depending on use history and down payment. Across the wholesale programs Lendmire works with, these are the tiers:

Two levers show up in that table. A larger down payment cuts the percentage, and a first-time user pays less than a repeat user at the lowest down payment tier. Those numbers are program figures, not a quote, and they are subject to lender guidelines and your full file.

The fee is set as a percentage of the total loan amount, so the dollar figure moves with the loan. Your Loan Estimate and Closing Disclosure will show the actual amount for your file.

Who Pays the Fee and Who Doesn’t?

Most borrowers pay it. Exempt borrowers don’t. Under the statute, 38 U.S.C. § 3729, a fee is collected from each person obtaining a VA-guaranteed housing loan except as the exemption subsection provides. Veterans receiving compensation for a service-connected disability are exempt, as are veterans who would be entitled to compensation but for receiving retirement pay, and certain surviving spouses. Other exemption categories exist, so check VA’s funding fee page for the current list.

Your Certificate of Eligibility is where this gets settled.

What If Your Disability Rating Is Still Pending?

A pending rating does not by itself waive the fee. VA General Counsel guidance, VAOPGCPREC 2-2019, treats the closing date as the point when the fee is assessed, and it also addresses refunds when waiver requirements are later met. In practice, a rating that takes effect before your closing date may support a refund afterward. That is not a promise. Confirm the specifics with your loan officer and VA rather than counting on it.

The cleaner path is to get your exemption documented on the COE before closing, so the fee is never collected.

Should You Pay the Fee in Cash or Finance It?

You can do either, and the choice is a straightforward tradeoff. The fee is due at closing, and it may be paid in cash or included in the loan, as the statute allows and as the VA Buyer’s Guide describes. Financing keeps cash in your pocket on closing day. The cost is a larger loan balance, which means a larger principal-and-interest payment and more interest over the life of the loan. Rolling the fee in raises both the loan amount and the overall cost.

Picture two buyers purchasing at the same price with less than 5% down on a first use. One pays the 2.15% fee out of pocket and carries a smaller balance. The other finances it and walks in with less cash needed but a bigger loan. Neither is wrong. The buyer with thin reserves may reasonably finance it. The buyer who expects to keep the loan for a long time and has spare cash may prefer to pay it up front. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

Financing the fee is not the same as paying monthly mortgage insurance, though. There is no recurring premium line in your housing payment. The fee simply becomes part of the balance, and it never “cancels” because there is nothing recurring to cancel.

How the Lender Handles the Fee

The lender collects the fee from non-exempt borrowers and sends it electronically to VA. Per Chapter 8 of the VA Lenders Handbook, unless exempt, each veteran pays the fee at closing, and the lender remits it through VA’s payment system. Under the statute, a loan can’t be guaranteed until the fee has been remitted.

Three things decide your fee: your exemption status as verified on the COE, your loan type and use history, and your down payment percentage. The appraisal does not set the percentage. It does set the reasonable value, which can affect the loan amount and therefore the dollar fee.

VA vs. Conventional vs. FHA: What the Monthly Budget Looks Like

A VA loan leaves the mortgage insurance line out of your monthly housing payment entirely. A conventional loan with less than 20% down generally carries PMI, mostly paid monthly. An FHA loan carries MIP. The size of the VA savings depends on the loan, so run the comparison on your own file rather than trusting a headline number.

Look at the whole cost, not the label:

• Upfront: VA charges a funding fee unless you’re exempt. FHA and conventional have their own upfront and monthly structures.
• Monthly: VA has no insurance line. Conventional and FHA do.
• Over time: A financed VA fee adds to the balance. Conventional PMI may be removable in certain circumstances.

An exempt veteran with a low down payment often comes out well ahead on VA. A non-exempt borrower with 10% or more down should compare carefully, because the fee drops to 1.25% and a conventional loan with that much down may also look different. This is a genuine toss-up for some files. The comparison is worth running side by side.

Other Insurance You’ll Still See

No mortgage insurance doesn’t mean no insurance. Homeowners insurance is still required, and flood insurance applies where the property needs it. Neither is mortgage insurance. They protect the property, not the lender’s loan risk. Title insurance is a separate one-time closing item. Budget for all of it. “Zero down” also doesn’t mean zero cost, because the funding fee and ordinary closing costs may still apply.

Does the Answer Change for a Refinance?

Yes, the fee schedule changes with the loan type, but the no-monthly-insurance rule does not. An IRRRL, the streamlined refinance of an existing VA loan, carries a 0.5% fee unless you’re exempt. A VA cash-out refinance carries 2.15% on first use and 3.3% after. Both are reviewable, and both are subject to seasoning and a net tangible benefit requirement. For deeper comparisons, see Lendmire’s piece VA Cash-Out Funding Fee vs Conventional Cash-Out Mortgage Insurance.

Myths Worth Clearing Up

• “VA loans have PMI.” They don’t.
• “The fee is monthly.” It’s one time.
• “Everyone pays it.” Exempt groups don’t.
• “The fee goes to the lender.” It goes to VA.
• “Financing it is free.” It raises the balance and the total cost.

Key Terms Defined

Funding fee: A one-time charge on VA-guaranteed loans, paid to VA, which may be financed unless you pay it in cash.

PMI (private mortgage insurance): Insurance usually required on conventional loans with less than 20% down, mostly paid monthly.

MIP (mortgage insurance premium): The FHA equivalent of PMI.

Certificate of Eligibility (COE): The VA document that shows your entitlement and whether you’re exempt from the fee.

Residual income: What’s left of your monthly income after major obligations. It is the controlling test in VA underwriting.

Entitlement: The amount of VA guaranty available to you, which affects whether a down payment is needed.

Where a Broker Fits

Lendmire is a mortgage broker licensed for consumer lending in 16 states, and it arranges VA loan programs through wholesale lenders. Across those programs, the wholesale floor is a 580 decision score and amounts reach $4,000,000 with full entitlement. VA itself sets no minimum score, so some lenders set a higher floor. Residual income is the controlling test, and the 41% debt-to-income figure is a guideline rather than a cap. A ratio above it simply needs residual income well above the table. Everything here is subject to lender guidelines and full file review, and nothing is a commitment to lend.

If you are buying a home and want to see whether a VA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Reach the team at 828-256-2183.

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

About Lendmire

As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. VA.gov: Purchase loan

2. VA News: Funding fee, who pays and who is exempt

3. CFPB: What is mortgage insurance and how does it work

4. 38 U.S.C. § 3729

5. VA’s funding fee page

6. VAOPGCPREC 2-2019

7. VA Buyer’s Guide

8. VA Lenders Handbook, Chapter 8