One of the many special features of VA loans is that borrowers don’t have to carry private mortgage insurance (PMI). PMI is insurance homeowners must get if they have less than 20% equity on a home financed with conventional or FHA loans. The insurance helps secure the loan and cover lender losses if a loan is foreclosed.
Because the U.S. Department of Veterans Affairs guarantees approximately 25% of each VA loan, lenders already have mortgage security they need. Therefore, no additional PMI is needed.
Here are three reasons the no PMI feature of VA loans is such a big deal:
1) VA loans never require monthly private mortgage insurance premiums.
The obvious benefit to no PMI is the monthly savings. Monthly PMI premiums can easily cost conventional or FHA borrowers $100 or more on a $225,000 loan. And, it will take about 5 ½ years for a non-VA borrower to build 20% equity in a home financed at 4% – that’s a total of about $6,600 or more over time. Because VA loans never require PMI, military borrowers can save a big chunk of change.
2) VA borrowers never have to pay for a re-appraisal for the sake of cancelling PMI.
Lenders often don’t make it easy to cancel PMI. It’s often up to the borrower to keep track of their equity and notify the lender when it’s time to cancel PMI. And, in most cases, the value of a home may change after 5 plus years. Lenders frequently require an appraisal at the expense of the homeowner to make sure the equity is there. Most appraisals can run between $300 and $400. Because VA borrowers don’t have to pay for this re-appraisal, they can save another few hundred bucks.
3) No-PMI VA home loans mean money for other things.
By not having to shell out PMI premiums every month, VA borrowers may have that money for other things such as paying down debts, making home improvements or saving for college. Because VA home loans never require PMI, borrowers often have money for other obligations.
For more on no-PMI VA loans contact a loan specialist.