Direct VA Loans

VA Mortgages and PMI

One of the many benefits of the veterans mortgage program is that VA loans never have private mortgage insurance. Private Mortgage Insurance (PMI) is typically paid to insure non-VA mortgages with more than an 80% loan-to-value ratio. The purpose of the insurance is to offset lender losses in case a borrower is unable to repay the loan and the lender is not able to recover costs after foreclosure and the sale of the property. A typical PMI premium on a $200,000 property might be around $120 a month ($1440 per year). Unless a borrower is able to make a twenty percent down payment on a home purchase, PMI is required in most instances. VA loans are an exception; they do not require mortgage insurance.

VA Backing on Every VA mortgage

Understanding PMI can help VA borrowers realize the money saved with the no PMI benefit of veterans’ mortgages. Because the U.S. Department of Veterans Affairs provides backing on every VA mortgage, PMI is not required from VA borrowers. The savings can add up to thousands over the life of the loan.

For most other borrowers, PMI is a reality. Some borrowers end up paying PMI even after the principal balance is paid down below 80%. The request to cancel PMI must come from the servicer of the mortgage. Many times, to ensure the 80% requirement has been met, the servicer will require an appraisal (a cost that can run from $300 to $450), or that the balance be paid down to 75-78 % of the original loan amount. VA-eligible borrowers can avoid all this by using their VA home loan benefits.

Unless it’s a VA loan, borrowers should be informed about loans marketed as no-PMI loans. What many borrowers don’t realize is that loans that are advertised as “no PMI required” may be lender-paid PMI loans with higher interest rates. Therefore, the borrower may end up paying for the PMI indirectly through higher monthly mortgage payments.

VA Home Loan Program Advantages

No PMI is just one of many VA home loan program advantages. Some other benefits of VA loans include:

  • No down payment required
  • Relaxed qualifying standards
  • Competitive interest rates
  • No prepayment penalties

VA loans are a benefit of qualified service in the U.S. military. Eligibility standards are set by the VA and a Certificate of Eligibility is required as proof of entitlement. To learn more about no-PMI VA mortgages and the VA home loan guaranty program, contact a VA loan professional.

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