The VA Loan is well known because it is the only mortgage product today that allows for no-down payment. What makes the VA Loan even more attractive is that it also has no private mortgage insurance, which a borrower would find with a conventional loan unless a 20% down payment is made.

“Most conventional mortgage programs will charge PMI to protect the lender against default on a loan,” said Dan Davis, VA Loan Specialist with VA Mortgage Center.Com. “This money (PMI) is non-refundable, even if you never default on the loan. It doesn’t go toward your principal or interest, so it’s wasted money.”

And while PMI does finally go away on a conventional loan after the homeowner has 20% equity in the home, VA only requires a one-time funding fee that can be financed into the loan in order to limit the overall cost of the loan to the veteran.

“The VA Funding Fee is still considerably less than the equivalent of paying PMI for 15 years,” Davis said.

The VA funding is typically 2.15% of the borrower’s loan amount for a first-time VA Loan user. Subsequent uses of the VA Loan increase the VA funding fee to 3.3%. Davis points out that while PMI is neither refundable nor tax deductible, the VA funding fee is added to your principal loan balance, which won’t affect how much you can write off for tax purposes. It also won’t take away from the amount you pay down on your principal loan amount each month, but it does ultimately add a few thousand dollars to you mortgage loan.

VA Funding Fees can be lowered however, depending on the size of down payment that’s made. In fact, a 5% down payment will lower the funding fee to 1.50%; a 10% down payment will lower the funding fee to 1.25%.

And for veterans with 10% or more service-connected disability, they are exempt from the VA Funding Fee.

“Conventional lenders aren’t as forgiving,” Davis said, “they’ll only remove PMI if you have a very large down payment or a good deal of equity in the home.”

Bennington VT, Buying

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