Private Mortgage InsuranceWhen it comes to insurance (auto, health, homeowners, etc.) they all have the same thing in common: it is never fun having to pay the premiums, but always a relief when the insurance company foots the bill. But what if you have to write the check to pay the premiums, yet you are not the one being insured?

Private Mortgage Insurance

This is the case with Private Mortgage Insurance (PMI). PMI is insurance the lender requires their borrowers to pay when they don’t put a minimum of a 20% down payment on a home purchase. Not to be confused with homeowners’ insurance, PMI does not insure the homeowner, instead – mortgage insurance insures the lender in the event the borrower goes into default and the lender needs to foreclose on the property. In this circumstance, PMI insures the lender (up to a certain percentage of the loan) to offset loses incurred during the foreclosure process.

Not Required on VA Loans

In the case of a VA mortgage, the VA Department serves as the insurer for all VA loans. So if a lender has to foreclose on a VA loan, the VA Department will be responsible to cover any losses during this process (again, up to a certain amount). From a lenders perspective, they don’t care who insures the property, as long as they are protected in the event that the homeowner (who does not put at least 20% down) defaults on their mortgage.

Typical Savings

What does this mean for a VA eligible buyer? No mortgage insurance required on a VA loan. This translates to monthly savings of around $200-$400 (depending on the loan amount & if applicable, down payment). Without having to pay PMI, a VA borrower has two distinct benefits vs. getting that same loan with a conventional mortgage:

1. Pay a lower monthly housing payment.
2. Qualify for a higher loan amount with the same monthly payment.

In both cases, a Veteran definitely comes out ahead with not having to pay mortgage insurance, thanks to a VA Loan.