VA Loan Costs Explained: What You Actually Pay and What You Don't

TL;DR: VA loans have no private mortgage insurance. No down payment requirement. And for veterans with a qualifying disability rating, no funding fee either. But there are real costs involved, and understanding all of them before you start the process puts you in a much stronger position. Call Peak Capital Mortgage LLC at (970) 577-9200 to walk through your specific VA cost picture before you make any decisions.

In This Article:

• The Question That Comes Up Every Single Week

• What VA Loans Do Not Require

• The VA Funding Fee: What It Is, What It Costs, and When It Goes Away

• Closing Costs on a VA Loan

• How VA Loan Costs Compare to Conventional and FHA

• The Bottom Line

The Question That Comes Up Every Single Week

Veterans call me and ask the same question almost every week.

"Do VA loans have PMI?"

The short answer is no. But the full answer is worth understanding because the way VA loans handle mortgage insurance - or rather, the way they eliminate it - is one of the most financially significant differences between the VA program and every other loan type available.

Let me walk through exactly what VA loans cost, what they do not cost, and where the real savings are.

What VA Loans Do Not Require

Two costs that apply to almost every other mortgage program do not exist on a VA loan.

No private mortgage insurance. On a conventional loan, any buyer who puts down less than 20% pays PMI. On an FHA loan, mortgage insurance premiums apply regardless of down payment and stay on the loan in most scenarios. On a VA loan, there is no PMI. None. The VA guarantee eliminates the lender's risk, which eliminates the need for mortgage insurance entirely. Depending on your loan amount, skipping PMI can mean a meaningfully lower monthly payment compared to FHA or conventional financing with a smaller down payment.

No down payment requirement. Eligible veterans with full entitlement can purchase a home with zero down. This is one of two true zero-down programs available to homebuyers today, alongside USDA loans for rural and suburban buyers. Eliminating the down payment removes one of the biggest barriers to homeownership - the years of savings that conventional financing requires before a buyer can get to the closing table.

Those two benefits together - no PMI and no down payment - represent the financial core of why the VA loan program exists. They make homeownership accessible for veterans who have served without requiring years of savings to qualify.

For a full overview of how the VA loan program works, visit our VA loans page.

The VA Funding Fee: What It Is, What It Costs, and When It Goes Away

Here is the cost that surprises veterans most.

The VA loan does not have mortgage insurance, but it does have a one-time funding fee paid at closing. This fee helps sustain the VA loan program for future generations of veterans. It is not the same as PMI - it is a one-time charge rather than an ongoing monthly cost - but it is real money and worth understanding.

The funding fee amount varies based on three factors: whether it is your first time using the VA benefit or a subsequent use, your down payment amount, and your branch of service.

For first-time use with no down payment, the fee is 2.15% of the loan amount for most borrowers. Subsequent use with no down payment carries a higher percentage. Putting money down reduces the fee: 5% or more down drops it to 1.5% for first-time use, and 10% or more brings it to 1.25%. The VA publishes the current funding fee table and your loan officer can calculate the exact amount for your specific scenario.

The most important thing to know about the funding fee: you may not owe it at all.

Veterans who receive VA disability compensation for a service-connected disability are exempt from the funding fee entirely. Surviving spouses of veterans who died in service or from a service-connected disability are also exempt. If you receive VA disability compensation, verify your exemption status before you close. That is real money, and it is yours to keep if you qualify.

The funding fee can be financed into the loan, so you do not have to pay it out of pocket at closing. And even with the fee included, the VA loan typically comes out significantly ahead of conventional or FHA financing when you factor in the absence of PMI and no down payment.

Closing Costs on a VA Loan

VA loans do have closing costs, and this is where some veterans get caught off guard - not because the costs are unusual, but because they were expecting the loan to be entirely free.

VA closing costs typically include lender origination fees, the VA appraisal fee, title insurance, prepaid property taxes and insurance, recording fees, and other standard transaction costs. These are similar to what you would pay on any mortgage.

What the VA does regulate is how much lenders can charge. The VA limits certain fees that lenders can pass to veteran borrowers, which provides meaningful consumer protection.

One option worth knowing: seller concessions. In a VA purchase, the seller can pay up to 4% of the loan amount in concessions, which can cover the funding fee, closing costs, or other prepaid items. This is a negotiating tool that can significantly reduce or eliminate your out-of-pocket costs at closing depending on the market and the seller's motivation.

How VA Loan Costs Compare to Conventional and FHA

The cost structure of these three programs is genuinely different, and understanding the comparison conceptually is more useful than any specific number - because the right comparison depends entirely on your loan amount, credit profile, and down payment.

Conventional loans with less than 20% down require PMI as an ongoing monthly cost. PMI eventually comes off once you reach sufficient equity, but that can take years depending on your down payment and home appreciation.

FHA loans carry an upfront mortgage insurance premium at closing plus an ongoing annual premium paid monthly. In most FHA scenarios the annual premium stays for the life of the loan, which makes the long-term cost picture meaningfully different from conventional.

VA loans replace all ongoing mortgage insurance with a one-time funding fee at closing - which can be financed into the loan and is waived entirely for veterans with a service-connected disability rating. No monthly insurance cost, ever.

For most veterans, the absence of ongoing mortgage insurance costs is the single biggest financial advantage of the VA program. The math over a 5, 10, or 30-year period tends to favor VA significantly - and your loan officer can run the side-by-side comparison for your specific numbers so you can see the real difference.

If you are comparing VA to FHA or conventional and want to see the full cost picture side by side, read our FHA vs Conventional comparison guide for context on how those two programs compare to each other, which gives you a useful baseline for understanding where VA fits in.

The Bottom Line

VA loans do not have PMI. They do not require a down payment. And for veterans with a service-connected disability rating, the funding fee disappears too.

What they do have is a one-time funding fee and standard closing costs - both of which can be managed through financing and negotiation. The net result is one of the most cost-effective home financing options available to any buyer, not just veterans.

If you have served, this benefit is yours. Understanding the full cost picture before you start is what makes the difference between using it confidently and leaving money on the table.

For a broader look at everything you need to know before using a VA loan, read our full VA loan guide.

At Peak Capital Mortgage LLC we work with veterans across all 13 states we are licensed in. We are independent, which means we shop multiple VA-approved lenders to find the right fit for your situation.

Call us at (970) 577-9200 or schedule a consultation to get started.