Is There Mortgage Insurance on a VA Loan

By Jamie Wilson

A VA home loan is guaranteed by the Veterans Administration. These loans are designed to provide inexpensive mortgages to active-duty military members and veterans, as well as certain other people, like members of the National Guard and spouses and widows of veterans. In most cases, a VA loan is very similar to a traditional mortgage, but in a few respects it is very different.

Mortgage insurance, usually called Private Mortgage Insurance, or PMI, is required by most lenders in cases where the borrower's mortgage is equal to more than 80 percent of the home's value. PMI guarantees the lender that, if the borrower defaults for any reason, the full loan amount is still repaid.

VA home loans work differently from standard mortgages. Both of these types of loans are guaranteed by federal government programs, so that if the borrower defaults, the lender is repaid by the guarantor. This eliminates the need for private mortgage insurance. Additionally, though even PMI-guaranteed loans require 3- to 5-percent down payments, a VA loan has no required minimum down payment, allowing even borrowers with no down payment at all to secure a mortgage.

In a very few cases, a VA loan won't cover the entire price of a home, or a VA lender is not willing to extend the full amount necessary to purchase the home. In cases where the value of the home is exceeded by the sale price, the VA loan program lends only up to the appraised home value; a private lender may cover the rest, requiring PMI. Also, while the VA does not limit a loan's size, there is a limit to how much they will guarantee. Loans in excess of the VA's guaranteed limit may need PMI covering that excess amount.

While a VA loan guarantees repayment of mortgages and thus acts as mortgage insurance, a borrower must still pay for several other types of insurance. Title insurance and homeowners' insurance in at least the amount of your loan is usually required by your lender. You may also be required to purchase flood insurance and a few other types of insurance.

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