VA Loans

PMI For VA Loans??

VA LoansVeteran’s have a great benefit with VA Financing.  It’s a 100% VA loan, and in most cases, the seller can pay for closing costs.  It’s a conservatively underwritten loan, so there is little chance that 5 or 6 years from now a Vet is going to be in trouble with a mortgage that they can’t afford!

Minimum credit score requirements for a VA Loan are less than those for a Conventional loan, and there are fewer fees involved, making the interest rates on a VA Loan some of the most competitive available!

All mortgage products that have less than a 20% down payment have some sort of “Mortgage Insurance.”  I call it “Default Insurance,” because it really benefits the bank – in the event of foreclosure, the bank gets a small amount of money to cover some of their costs (It’s not a policy that pays the mortgage off in the event of death).

PMI is what most of us have heard this “Default” Insurance referred to.  For FHA Mortgage Loans, it’s called MIP (click here for details), and USDA Home Loans have a Guarantee Fee, which serves the same default insurance purpose.

VA Mortgage Loans also have a Guarantee Fee.  Here are some basic guidelines regarding how much your fee might be:

  • A basic funding fee of 2.15 percent must be paid to VA by all but certain exempt veterans. A down payment of 5 percent or more will reduce the fee to 1.5 percent and a 10 percent down payment will reduce it to 1.25 percent.
  • A funding fee of 2.40 percent must be paid by all eligible Reserve/National Guard individuals. A down payment of 5 percent or more will reduce the fee to 1.75 percent and a 10 percent down payment will reduce it to 1.50 percent.
  • The funding fee for loans to refinance an existing VA home loan with a new VA home loan to lower the existing interest rate is 0.5 percent.
  • Veterans who are using entitlement for a second or subsequent time who do not make a down payment of at least 5 percent are charged a funding fee of 3.3 percent. A down payment of 5 percent or more will reduce the fee to 1.50 percent and a 10 percent down payment will reduce it to 1.25 percent.
  • Veterans who are classified by the VA as disabled will have a percent (down to zero) of their fee waived.

Why would a Veteran make a Down payment???  Because, with the cost of the “traditional PMI” the reduced Funding Fee is much C-H-E-A-P-E-R!  The VA Loan used to purchase homes over $417,000 makes the down payment on a $500,000 home less than 5%!

We love making loans to Veterans!  If you have questions about purchasing a home in Cary, NC using a VA Loan, or refinancing your VA mortgage loan please call Steve and Eleanor Thorne, 919-649-5058.  We have the most up to date information about VA Guarantee Fees and the VA PMI Fees.

I try and answer all questions :)