The VA funding fee vs. PMI comparison is crucial for homebuyers choosing between VA and conventional loans. The VA funding fee is a one-time charge added to the loan, while PMI is a recurring monthly expense until 20% equity is reached. VA loans offer zero down but include this fee unless exempt, whereas PMI applies to conventional loans with less than 20% down. The right choice depends on how long you plan to stay in the home and your financial strategy.
What Is the VA Funding Fee, and Why Do You Have to Pay It?
If you’re using a VA loan, you probably think, “Zero down? Sweet, I’m saving big.” And you’re not wrong. But the government doesn’t just hand that out for free. That’s where the VA funding fee kicks in. The VA funding fee is a one-time charge on your mortgage. It helps cover the cost of running the VA loan program without needing taxpayer money.
- It’s mandatory, even if you have perfect credit.
- The fee helps keep the VA loan program alive for other vets.
- It’s usually added to your loan—so no, you don’t have to pay it upfront (but it makes your loan bigger).
How Much Is the VA Funding Fee?
That depends on your down payment and whether you’ve used a VA loan before. Here’s a simple breakdown.
| Down Payment | First-Time Use | Subsequent Use |
|---|---|---|
| 0% | 2.15% | 3.3% |
| 5% or more | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
So if you’re buying a $300,000 house with zero down using a VA loan for the first time, your VA funding fee is $6,450. Yup, that gets added to your loan. Now you’re borrowing $306,450. And that changes what your monthly payment looks like.
Can You Skip the VA Funding Fee?
Yes. But only in a few situations—mostly injuries related to your service.
- You’re receiving VA disability
- You’re eligible for compensation for a service-connected condition (even if you’re not getting paid yet)
- You’re a surviving spouse of a vet who passed because of service-related injuries
If you don’t fall into those boxes, you’re paying the fee. No way around it.
What’s PMI and Why Am I Paying It If I’m Not Using a VA Loan?
Now to the other side: PMI, aka Private Mortgage Insurance. If you’re buying a home with a conventional loan and putting down less than 20%, lenders charge PMI to protect themselves. It’s not about helping you—it’s about lowering their risk. You see, lenders hate risk. If they see you as risky (read: no down payment), they want coverage. That’s PMI.
- You pay it monthly as part of your mortgage payment.
- It’s based on your loan size and credit score.
- Unlike the VA fee, it keeps going until you hit 20–22% equity… or refinance.
So instead of a one-time cost, PMI is like a slow leak in your wallet every month.
What Does PMI Typically Cost?
Usually between 0.5% and 2.25% of the loan amount—every year. Let’s walk it through. That same $300,000 house with 5% down gives you a $285,000 mortgage. At 1% PMI, you’re paying about $2,850 per year—or over $237 per month. Run that for five years before you’re out of PMI? That’s over $14,000 gone.
VA Funding Fee vs PMI: Which One Costs More?
Here’s how it stacks up:
- VA funding fee: One-time hit upfront (but adds to your loan amount).
- PMI: Ongoing monthly payments until you get 20% equity.
Let’s say you only plan to stay in the house for 5–7 years. That VA funding fee? Financed over time, especially if interest rates are low. But PMI? Every month, it chews at your savings. So for a short stay, the VA loan could win. Long-term, if you can drop PMI early, maybe PMI’s not as painful. It really comes down to how long you’ll hold the mortgage… and how fast home values go up wherever you’re buying.
Real Talk: How I’ve Seen This Play Out with Clients
One of my clients—Army vet, just out of service—bought a starter home with zero down using a VA loan. Didn’t budget for the massive VA funding fee that added to his loan. Thought he was slick with zero down, but freaked when he realized his payment was higher than expected. Then there’s Sara. Teacher, first-time buyer, used a 3% down conventional loan. She was good with PMI… until she saw how much her monthly escrow payment was climbing. Took her five years to refi out of it, and she lost thousands in the process.
So yeah, both fees bite. But in different ways. That’s why you gotta know which one fits your plan better.
Quick Comparison: VA Funding Fee vs. PMI
| Feature | VA Funding Fee | PMI |
|---|---|---|
| Type of Loan | VA Loan | Conventional Loan |
| When You Pay | One-Time (Upfront or Rolled into Loan) | Monthly |
| Can It Be Avoided? | Only with VA disability or exemption | Yes, with 20% down |
| Who It Protects | VA Loan Program | Lender |
| Can It Be Removed? | No | Yes, when you hit 20–22% equity |
FAQs
1. What is the VA funding fee?
A one-time fee on VA loans to fund the program, added to your loan unless exempt.
2. How much is it?
0% down: 2.15% (first-time), 3.3% (subsequent use)
5%+ down: 1.25%–1.5%
3. Can I avoid it?
Yes, if you receive VA disability, are eligible for service-related compensation, or are a surviving spouse.
4. What is PMI?
A monthly fee on conventional loans with <20% down, protecting the lender.
Final Thoughts:
Both the VA funding fee and PMI add extra costs to your mortgage, but in different ways. The VA funding fee is a one-time upfront cost, while PMI is an ongoing monthly charge until you reach 20% equity. If you’re a veteran using a VA loan, be prepared for the funding fee unless you qualify for an exemption. If you’re buying with a conventional loan, expect PMI if you put down less than 20%. The best choice depends on your situation. If you plan to stay in your home long-term, avoiding PMI may save you more in the long run. If you’re moving within a few years, financing the VA funding fee might make more sense.