Put 10% down on a $400,000 house with a conventional loan and you’ll still hand the lender roughly $150 a month for private mortgage insurance. That money protects the lender, not you, and it vanishes from your budget until your balance falls far enough. A VA home loan with no PMI skips the line item completely, and for a lot of buyers that’s the single biggest reason the program looks so attractive.
The trade-off isn’t free, though. The VA charges a funding fee up front, and the way that fee is structured rewards some borrowers while quietly punishing others. Understanding the difference between those two costs is the whole conversation.
Why VA Loans Don’t Carry PMI
Private mortgage insurance exists because a lender taking a 90% or 95% loan-to-value position is exposed. If the borrower defaults and the house sells for less than the balance owed, the lender eats the loss. PMI reimburses part of that. It’s why conventional lenders demand it below 20% down and why FHA loans carry mortgage insurance premiums for years, sometimes for the entire life of the loan.
The VA takes a different route. It guarantees a portion of the lender’s loss, historically 25% of the loan amount, backed by the federal government. That guarantee does the job PMI normally does, so there’s no private insurer in the transaction and nothing to pay monthly. The benefit of a VA loan isn’t just the missing PMI, either. The honest pros and cons of VA lending are worth reading before you assume it beats every alternative, but the insurance savings are real and they compound over a decade.
The guarantee replaces the insurance policy
Think of the VA’s backing as a government-funded insurance pool that borrowers pay into once at closing rather than monthly forever. Sellers also absorb more of the closing costs in VA deals, up to 4% in concessions, which is a detail conventional buyers don’t get.
The Funding Fee Is What You Pay Instead
That one-time charge is called the VA funding fee. It’s not insurance and it never comes back, but it’s usually financed into the loan rather than paid in cash, so you won’t write a separate check at closing. Rates depend on your down payment and whether you’ve used the entitlement before:
- First use, nothing down: 2.15% of the loan amount
- First use, 5% down: 1.50%
- First use, 10% or more down: 1.25%
- Subsequent use, nothing down: 3.30%
- Subsequent use, 10% or more down: 1.25%
- Interest rate reduction refinance (IRRRL): 0.50%
Notice the jump on a second use at zero down. A veteran buying their second home with full VA entitlement and no down payment pays 3.30%, which on a $400,000 loan is $13,200. That single number changes the math considerably, and it’s the most common surprise in the program.
Who gets the fee waived entirely
Veterans receiving VA disability compensation, active-duty service members with a qualifying disability rating, Purple Heart recipients, and surviving spouses of veterans who died in service or from a service-connected disability are all exempt. If that applies to you, the VA loan becomes close to a pure win: zero down, no PMI, no funding fee, and the lender credits that come with it.
Running the Actual Numbers on a $400,000 Purchase
Compare a zero-down VA loan against a conventional loan with 10% down, the scenario most buyers actually weigh.
VA, zero down: loan amount $400,000 plus a $8,600 funding fee, so $408,600 financed. No monthly PMI. Cash needed at closing is mostly just closing costs and prepaid items, and what $0 down really means on a VA loan is a bit more nuanced than the ads suggest, but the down payment itself genuinely is zero.
Conventional, 10% down: $40,000 cash down, $360,000 loan. PMI on a 90% LTV loan typically runs 0.4% to 0.7% of the balance annually. At 0.55%, that’s about $165 a month, or $1,980 a year. It drops off automatically at 78% LTV per the amortization schedule, which takes roughly seven years on a 30-year note, so call it $13,000 to $14,000 total.
Now the comparison gets interesting. The VA funding fee of $8,600 is less than the PMI you’d pay, and you keep $40,000 in the bank instead of wiring it to a title company. If that cash stays in a high-yield account or covers an emergency, the VA loan wins on almost every measure.
Where the VA Advantage Gets Eaten
Two things can flip the math against you. First, the second-use funding fee at 3.30%. Second, and more common, a lender who quotes a VA rate noticeably above the conventional market. VA rates are typically lower than conventional equivalents, not higher, so a wide gap is a signal to shop. The forces behind the VA rate discount are worth understanding so you can tell a fair quote from a padded one.
Some lenders also advertise “no funding fee” VA loans, which usually means they’ve raised your rate to cover it as a lender credit. That can be a good deal if you’re planning to move in five years and never recoup the fee. It’s a terrible deal if you’ll keep the loan for thirty. Run both quotes to their break-even month before deciding, and use current market data rather than a rate someone quoted you in 2024. VA mortgage rates in 2026 shows how much the spread between lenders varies on any given week.
What the Process Actually Requires
Getting to the closing table on a VA loan isn’t complicated, but there are specific gates:
- A Certificate of Eligibility. Your lender pulls it electronically in minutes, or you can request one through the VA’s portal. It documents your service history and remaining entitlement.
- A qualifying credit profile. Most lenders want a 620 middle score, though the VA itself has no hard floor. The credit score your lender actually uses is the middle of three bureau scores, not the highest one, so a single strong report doesn’t rescue a weak pair.
- Debt-to-income within lender limits. Generally 41% to 50% with compensating factors like reserves or a long employment history.
- A VA appraisal. The appraiser checks both value and minimum property requirements. Peeling paint, a failing roof, or an exposed electrical panel will need to be addressed by the seller before closing.
Questions That Come Up in the First Week
Does no PMI mean no insurance at all?
You’ll still buy homeowners insurance, and lenders typically require it. What disappears is mortgage insurance, which protects the lender against your default. Those are different products with different purposes, and conflating them leads to bad budgeting.
Should I put money down anyway?
Sometimes yes. A 10% down payment cuts the funding fee from 2.15% to 1.25% and lowers the monthly payment. On a $400,000 purchase that saves $3,600 on the fee. Whether it’s worth tying up $40,000 depends on your reserves, your job stability, and what else that money could do. Buyers with thin savings usually come out ahead keeping the cash.
Can I get rid of the fee after the fact?
Not on a purchase, but a subsequent IRRRL costs 0.50% instead of 2.15%, which makes refinancing into a lower rate cheap by comparison. Some veterans with a disability rating who paid the fee before their rating was granted can request a refund from the VA.
Four Questions to Ask a Lender on the First Call
Ask what the funding fee will be on your specific scenario, including whether this is a first or subsequent use, since it swings the number by thousands. Ask whether the quoted rate includes discount points and what the loan’s APR is, not just the note rate. Ask how the lender handles the VA appraisal contingency if the home comes in low. And ask for a written Loan Estimate within three business days, then compare that document line by line against a second VA lender. The gap between the best and worst VA quote on the same day is routinely half a percentage point, and on a $408,000 loan that’s roughly $130 a month for thirty years.