Does a Veteran With a Disability Rating Pay PMI on a VA Loan?

The Quick Read: No. A VA loan carries no private mortgage insurance for anyone, rated or not. A veteran who receives VA compensation for a service-connected disability also owes no VA funding fee, which is the one-time charge VA loans use instead. For an exempt borrower, there is typically no mortgage-insurance-style cost of either kind. Subject to lender guidelines and full file review, the exemption is set by VA and shown on your paperwork.

What Is PMI, and Why Don’t VA Loans Have It?

PMI stands for private mortgage insurance. It is coverage a lender can require on a conventional loan when the down payment is under 20 percent. The Consumer Financial Protection Bureau explains that it protects the lender, not you.

VA loans work differently. VA guarantees part of the loan to the lender, and that guaranty does the job insurance would do. Across the wholesale programs Lendmire places VA loans with, the purchase structure is 100% financing with no down payment (as long as the price is not above the appraised value) and no mortgage insurance of any kind. With full entitlement there is no VA loan limit. With remaining entitlement a down payment may be required, so speak with a loan officer.

Your disability rating does not create that feature. Every eligible VA borrower gets it. What the rating changes is the funding fee and how your income is read.

Is the Funding Fee the Same Thing as PMI?

No. This is the mix-up that causes most of the confusion. PMI is an ongoing insurance cost on a conventional loan. The funding fee is a one-time charge on a VA loan that helps keep the program running. VA’s own news release puts the fee in a range of 0.5% to 3.3%, depending on loan type, loan amount, down payment and whether you have used the benefit before.

Here is how the two compare.

For a non-exempt borrower, the fee can be financed into the loan or paid at closing. Here are the tiers for the programs Lendmire works with:

• First use, purchase: 2.15% with less than five percent down, 1.5% with five to under ten percent down, 1.25% with ten percent or more down.
• Subsequent use, purchase: 3.3% with less than five percent down, with the same 1.5% and 1.25% tiers above that.
• IRRRL (VA streamline refinance): 0.5%.
• Cash-out refinance: 2.15% first use, 3.3% after.

Those are the figures for the non-exempt. If you are exempt, none of them apply to you.

How Does a Disability Rating Change What You Pay?

A rating that comes with compensation wipes out the funding fee. VA’s funding fee page lists veterans receiving VA compensation for a service-connected disability among the exempt groups.

Does the rating percentage matter? The test VA states is whether you receive compensation, or are entitled to it, rather than a specific percentage. You do not have to be rated at 100% to be exempt. Compensation generally starts at a 10% rating, so a lower rating that pays compensation is the usual route in.

A 0% rating is different. A 0% (non-compensable) rating carries no compensation, so by VA’s test it does not trigger the exemption. You can still use the VA loan. You would just owe the fee like any other borrower.

The rating also does not change the appraisal. The VA appraisal process is the same for exempt and non-exempt veterans.

Are You Exempt? Find Your Situation

Match your situation to the row below. The VA funding fee page is the authority on each.

The second row is the one people miss. If you are eligible for compensation but receive retirement pay instead (often because you chose to waive one for the other), you can still be exempt. You do not have to be collecting the check.

A filed claim alone does not exempt you. The exemption needs awarded compensation or an eligible pre-discharge rating.

How Is Your Exemption Verified?

Through your certificate of eligibility, or COE. This is the document from VA that confirms you can use the benefit. VA’s Buyer’s Guide says that when you request a COE, VA verifies your eligibility and whether you are exempt from the funding fee because of a service-connected rating. It also says the fee is due at closing unless you are exempt.

Two practical consequences follow.

• Your lender does not decide the exemption. VA does, and the COE shows it. A loan officer cannot waive the fee for you, and cannot be talked out of it either.
• Your award letter is the usual backup. If the COE does not show your exempt status, your VA benefit letter is the typical supporting document. Bring it early.

Then check the paperwork. Your Loan Estimate and Closing Disclosure are the two consumer disclosures that show your costs. An exempt borrower should see no funding fee on either. If one appears, raise it before closing.

What If Your Claim Is Pending, or the Rating Comes Later?

Timing decides this one. If you close while a claim is pending, you owe the fee at closing. The good news is that VA’s funding fee page says you may be eligible for a refund if you are later awarded compensation and the effective date is retroactive to before your closing date.

Here is the sequence that works:

1. Keep your closing paperwork showing the fee you paid.

2. When the award arrives, check the effective date on your decision letter.

3. If that date falls before your closing date, request the refund.

4. Contact your mortgage holder or the VA Regional Loan Center. VA’s refund page lists the number to call.

5. Follow up. Do not assume the refund happens on its own.

One hard line applies. If a proposed or memorandum rating from a pre-discharge claim arrives after your closing date, you still owe the fee.

Some buyers with a claim in the pipeline weigh whether to wait. That is a real tradeoff, and it depends on your timeline and your situation. Your loan officer can walk through it with you.

Does “No PMI, No Fee” Mean Zero Closing Costs?

No. This is the second thing people over-read. An exempt VA purchase has no mortgage insurance and no funding fee. Appraisal charges, title and settlement services, prepaid items and escrow deposits still apply. Zero down does not mean zero costs.

What you do skip is the largest VA-specific charge. For a non-exempt borrower, financing the fee also raises the loan balance, so interest accrues on it. An exempt borrower avoids both.

Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

How Is Disability Pay Treated as Income?

Compensation can count toward qualifying, as long as the lender can verify that you receive it and that it will continue. That verification is usually your award letter.

Beyond that, a rating does not make approval automatic. Across the wholesale programs Lendmire places files with, residual income is the controlling test. That means the money left each month after your debts, taxes and living costs, compared against a VA table. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.

The federal regulation says the same thing in its own way. 38 CFR 36.4340 states that meeting both the debt-to-income and residual income standards does not mean a loan is automatically approved, and that no single factor is a final determinant.

Credit still matters too. VA sets no minimum credit score. The wholesale programs Lendmire places VA loans with start at a 580 decision score and serve amounts up to $4,000,000 with full entitlement. Lenders may set a higher floor.

What If You Choose a Conventional Loan Instead?

Then PMI can apply. The funding fee exemption benefits only the VA loan. A veteran with a rating who takes a conventional loan with less than 20% down faces the same PMI as anyone else, and there is no waiver based on disability. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

That is the clearest way to see what the exemption is worth. On a VA purchase you can pair 100% financing with no mortgage insurance and, if you are exempt, no funding fee. A conventional loan with a low down payment cannot match that structure. It can still make sense in some files, such as when you want to put a lot down. Compare the two on your own numbers.

Key Terms Defined

• PMI (private mortgage insurance): coverage a lender can require on a conventional loan with under 20% down. It protects the lender.
• VA funding fee: a one-time charge on a VA loan, waived for exempt borrowers.
• COE (certificate of eligibility): the VA document confirming you can use the benefit and whether you are fee-exempt.
• Residual income: the money left each month after debts, taxes and living costs, measured against a VA table.
• Entitlement: the amount of VA guaranty available to you, which affects whether a down payment is needed.
• IRRRL: the VA streamline refinance of an existing VA loan.

Where to Go From Here

If you are weighing a VA purchase, start with your COE and check that it shows your exempt status. Lendmire’s VA loan programs page covers the structure. If you later consider tapping equity, Lendmire’s piece How Much a Veteran With a Disability Rating Keeps in a VA Cash-Out picks up where this one stops.

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. Program figures are subject to lender guidelines and full file review, 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. CFPB: What is private mortgage insurance?

2. VA News: Borrowers can deduct funding fees

3. VA.gov: Funding fee and closing costs

4. VA Home Loan Guaranty Buyer’s Guide

5. VA Home Loans: Funding Fee Refunds

6. 38 CFR 36.4340