A veteran borrower is considering a VA loan versus a conventional loan with PMI. The property purchase price is $300,000 with a 5% down payment. Which comparison is most accurate regarding mortgage insurance?
Correct Answer
C) VA funding fee serves the same purpose as PMI but has different characteristics
VA loans charge a funding fee (not MIP or PMI) that protects the VA loan program. Unlike PMI, the VA funding fee can be financed into the loan amount, is typically paid once (not monthly), and the loan doesn't require mortgage insurance since it's government-guaranteed. This makes the cost structure different from conventional PMI.
Why This Is the Correct Answer
VA loans charge a funding fee (not MIP or PMI) that protects the VA loan program. Unlike PMI, the VA funding fee can be financed into the loan amount, is typically paid once (not monthly), and the loan doesn't require mortgage insurance since it's government-guaranteed. This makes the cost structure different from conventional PMI.
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