Frequently asked questions about VA home loans

Nice houseVA home loans do not have pmi. PMI is an abbreviation for private mortgage insurance. The VA does require a funding fee that is paid at settlement or financed with the loan. Disabled vets are not required to pay the funding fee. The funding fee percentage (cost) is based on the type of service. See VA funding chart below. No monthly fee is required with VA home loans (pmi).

Do I have to have a down payment with a VA loan?

The VA does not require veterans to have a down payment on a VA mortgage, however, the lender may require a down payment if the VA guarantee is less than 25%. The VA "guarantees" 25% of the mortgage in the event of a foreclosure. The VA uses a formula/worksheet to determine whether the loan will provide a 25% guarantee. Large loan amounts may require a down payment.

Do I have to pay mortgage insurance on a VA loan?

There is no monthly mortgage insurance on a VA loan. There is a funding fee that is paid in full at settlement or financed with the loan. Veterans who are at least 10% disabled are exempt from the funding fee. Here are the VA funding fees for regular military, reservists and national guard veterans.

VA Purchase And Construction Loans
Type of VeteranDown paymentPercentage for First time UsePercentage for Subsequent Use
Regular MilitaryNone2.15%3.3%
 5% or more1.50%1.50%
 10% or more1.25%1.25%
 
Reserves/National GuardNone2.40%3.3% *
 5% or more1.75%1.75%
 10% or more1.50%1.50%
 
VA Cash-Out Refinancing Loans:
Type of VeteranDown paymentPercentage for First time UsePercentage for Subsequent Use
Regular MilitaryNA2.15%3.3%
Reserves/National GuardNA2.40%3.3%

How is the VA funding fee calculated?

Here's how the funding fee cost is calculated:

Sales PriceLess Down PaymentBase MortgageX Funding FeeFunding Fee
$100,000 - 0 -$100,000 X 2.15%$2,150

Use one of the VA loan calculators on the right side bar to estimate the funding fee cost and VA mortgage amount.

Do I need a home inspection for a VA loan?

The VA does not require a home inspection, although, the VA encourages home buyers to obtain a home inspection. The VA appraiser is responsible for determining whether the property meets the VA's minimum property requirements. The appraisal is not a home inspection, but a reasonable evaluation of the home. If the appraiser perceives a problem with the home (i.e. roof, furnace, structural), the appraiser will recommend an examination by a professional.

Do VA loans have a lower interest rate?

VA home loan interest rates tend to be lower than conventional loan rates. The reason is due to the VA backing of the government loan. See today's VA interest rates

Do VA loans have closing costs?

VA home loans have closing costs like other mortgages. Closing costs include title insurance, state transfer and mortgage taxes (if applicable), settlement fees, and lender fees. Fortunately, the Veteran's Administration prohibits a variety of fees that can be charged to the vet. See list of non-allowable closing costs

Do VA loans have prepayment penalties?

Prepayment penalties are prohibited with VA home loans.

Do VA loans require an appraisal?

Appraisals are required by the Veteran's Administration. After all, the house is the collateral for the loan.

Does a seller have to pay closing costs on a VA loan?

Home sellers are not required to pay the veteran’s closing costs (except the pest inspection, in most states). Seller paid closing costs (seller assist), can be negotiated between the veteran and home seller.

Do VA loans require escrow?

The Veteran's Administration does not require escrow accounts (taxes and insurance), however, it's the lender that makes the loan to the vet and the lender can require an escrow account as a condition for the loan. The VA establishes minimum standards for a VA home loan, however the lender is allowed to pile on.

Does VA have loan limits?

The Veteran's Administration does not limit the mortgage amount, but the lender can limit the amount the vet can borrow. The borrowing limit can be based on the the debt to income ratio or the loan limit set by the Federal Housing Finance Agency. Each year the Federal Housing Finance Agency establishes the lending limits for the FHA and Fannie Mae (Federal National Mortgage Association). The VA uses the FHFA lending limits to determine the maximum guarantee to the lender.

How does a VA jumbo loan work?

VA loans that exceed the Fannie Mae conforming loan limit for the county where the home is located are known as jumbo VA loans. Jumbo loans may require a down payment if the loan does not meet the 25% lender guarantee. Use the VA loan calculator to estimate the down payment (if applicable) and loan guarantee.

How much can I afford for a VA home loan?

This is an interesting question, because, the amount a veteran can borrow depends on the borrower's income and monthly debt . . . and the location of the home. The VA requires lenders to use the standard debt to income calculation to determine whether the mortgage payment and monthly debts are 41% (or less) of the monthly gross income. But the Veteran's Administration goes one step further. The lender must also determine whether the veteran will have enough money to pay the utilities and other expenses after settlement. Residual income is the amount of net income remaining (after deduction of debts and obligations and monthly shelter expenses) to cover family living expenses such as food, health care, clothing, and gasoline. Here are the VA residual income tables:

Table of Residual Incomes by Region For loan amounts of $79,999 and below
Family Size Northeast Midwest South West
1$390 $382 $382 $425
2$654 $641 $641 $713
3$788 $772 $772 $859
4$888 $868 $868 $967
5$921 $902 $902 $1,004
over 5 Add $75 for each additional member up to a family of seven.

Table of Residual Incomes by Region For loan amounts of $80,000 and above
Family Size Northeast Midwest South West
1$450 $441 $441 $491
2$755 $738 $738 $823
3$909 $889 $889 $990
4$1,025 $1,003 $1,003 $1,117
5$1,062 $1,039 $1,039 $1,158
over 5 Add $80 for each additional member up to a family of seven

Key to Geographic Regions Used in the Preceding Tables
Northeast Connecticut, Maine, Massachusetts New Hampshire, New Jersey, New York Pennsylvania, Rhode Island, Vermont
Midwest Illinois, Indiana, Iowa, Kansas Michigan, Minnesota, Missouri, Nebraska North Dakota, Ohio, South Dakota, Wisconsin
South Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma Puerto Rico, South Carolina, Tennessee, Texas, Virginia, West Virginia
West Alaska, Arizona, California, Colorado Hawaii, Idaho, Montana, Nevada New Mexico, Oregon, Utah, Washington, Wyoming

Estimating the maximum loan amount is complicated with VA loans. A good experienced loan officer should be able to determine the maximum loan amount.

How much is pmi on a VA loan?

PMI (private mortgage insurance) is not required on a VA home loan. There is a VA funding fee that is paid in full at closing or financed with the loan.