VA Funding Fee vs PMI: What Actually Costs More Over 10 Years
Every eligible veteran who buys with a conventional loan instead of a VA loan makes a quiet tradeoff: no VA funding fee, but monthly PMI until the equity catches up. Comparing the VA funding fee vs PMI is really a question about time horizons, because one is paid once and the other is paid every month for years. Here is the honest math on both, so the comparison stops being vibes and starts being numbers.
The two fees are built differently
PMI is a monthly insurance premium that protects the lender, not you. It kicks in on conventional loans whenever your down payment is below 20 percent, costs roughly 0.5 to 1.5 percent of the original loan amount per year, and keeps billing until you hit 20 percent equity. You can request cancellation at 80 percent of the original value, and the servicer has to drop it automatically at 78 percent.
The VA funding fee works the opposite way. It is a one-time fee paid at closing (or financed into the loan) that funds the VA loan program itself. At 2026 rates, a first-use borrower with no down payment pays 2.15 percent of the loan amount. Put 5 percent down and it drops to 1.5 percent; put 10 percent down and it drops to 1.25 percent. Subsequent-use borrowers with no down payment pay 3.3 percent. And there is no ongoing monthly charge. Ever.
The 10-year math on a $350,000 loan
Take a first-use VA borrower buying at $350,000 with nothing down. The 2026 funding fee is 2.15 percent of $350,000, which is $7,525. One payment, done. Even if you finance it into the loan (the subject of my earlier piece on rolling the fee in), the fee itself is still a single $7,525 charge plus interest.
Now the conventional version: same $350,000 loan, nothing down, PMI at a middle-of-the-road 0.75 percent a year. That is $2,625 a year, about $219 a month. PMI does not last forever; it drops once you reach 20 percent equity. On normal amortization at 6.5 percent, that takes roughly 12 years. With typical appreciation, it often happens around years 7 to 9. Either way, assume it lasts close to the full decade for comparison.
Over 10 years, PMI costs roughly $26,000. The VA funding fee cost $7,525. PMI is more than three times as expensive, and that is not even the worst case. At the high end of the PMI range (1.5 percent a year), the ten-year bill exceeds $50,000 against the same $7,525 fee.
| VA loan | Conventional + PMI | |
|---|---|---|
| Upfront cost | $7,525 funding fee | $0 |
| Monthly insurance cost | $0 | ~$219 |
| Insurance cost over 10 years | $7,525 | ~$26,000 |
| When the cost stops | Day one | At 20% equity |
The one scenario where PMI can win
There is a genuine exception, and it is worth naming because this is where people make the wrong call. If home prices surge and you hit 20 percent equity fast, PMI drops off early. Say appreciation carries you past 20 percent equity in year 3. You paid $219 a month for 36 months: about $7,900. That is nearly even with the $7,525 fee, and if your credit was strong enough to get PMI at 0.5 percent, you paid closer to $5,250 and actually beat the fee.
The other exception is the subsequent-use borrower. At 3.3 percent, the fee on $350,000 is $11,550. Against cheap PMI that drops off quickly, the gap gets much smaller, and a subsequent-use borrower with a fast-appreciating home can plausibly lose this comparison. That is also exactly the situation where the 5 percent down payment discount matters most: putting 5 percent down cuts the subsequent-use fee to 1.5 percent, which reopens the gap. I covered the second-use math in detail in VA Funding Fee on Your Second Loan: The 3.3% Surprise.
There is also the cleanest version of the exception: if you can put 20 percent down, PMI is zero and there is nothing to compare. The VA loan's other advantages (no down payment requirement, usually competitive rates) still apply, but the fee-versus-PMI argument disappears.
Do not forget the exemption check
Before you run any of this math, check whether you owe a fee at all. Veterans receiving VA disability compensation, surviving spouses receiving DIC, and active-duty Purple Heart recipients pay no funding fee. Against a $0 fee, PMI loses by any margin, at any hold period, under any market conditions. If a disability rating arrives after closing with a retroactive effective date, you may even be owed a refund. The process is covered in VA Funding Fee Refund: When Your Disability Rating Comes After Closing.
Also worth a look while you are comparing: starting in 2026 the funding fee is tax deductible as an upfront mortgage insurance premium, which softens its effective cost further. I broke down the three catches in Is the VA Funding Fee Tax Deductible?.
Frequently Asked Questions
Do VA loans have PMI?
No. VA loans never charge private mortgage insurance, regardless of down payment. Instead, most VA borrowers pay a one-time VA funding fee at closing, which can be paid in cash or financed into the loan.
How much does PMI cost per month on a $350,000 loan?
PMI typically costs 0.5% to 1.5% of the original loan amount per year. On a $350,000 loan that is roughly $145 to $435 a month. At 0.75% a year, about $219 a month, or $2,625 a year.
When does PMI go away?
On a conventional loan you can request PMI removal once your loan balance reaches 80% of the original home value, and the servicer must cancel it automatically at 78% of the original value on the amortization schedule. If appreciation gets you to 20% equity sooner, you can request an early removal, usually with a new appraisal.
Is the VA funding fee cheaper than PMI over 10 years?
Almost always, yes. On a $350,000 first-use VA loan with no down payment, the 2026 funding fee is about $7,500 paid once. Comparable PMI runs $145 to $435 a month and typically lasts close to a decade, totaling $17,000 to $50,000+ over ten years.
When is a conventional loan with PMI cheaper than a VA loan?
Mainly when you can put 20% down and avoid PMI entirely, or when PMI drops off fast. If appreciation pushes you past 20% equity in 2 or 3 years, total PMI paid can come in under the VA funding fee, especially on a subsequent-use VA loan where the fee runs 3.3%.
Run Your Own Fee Numbers
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