VA loans require mortgage insurance which is?

VA loans do not require traditional mortgage insurance, but they do have a unique feature known as the VA Funding Fee. This fee is a percentage of the loan amount and can be paid upfront or rolled into the loan itself. The purpose of the VA Funding Fee is to help sustain the VA loan program and reduce the cost of the loans for taxpayers. The fee varies based on several factors, including whether this is the borrower's first VA loan and the amount of their down payment.

In the context of VA loans, this upfront funding fee effectively serves a similar purpose to mortgage insurance, which protects lenders against default. However, it is not classified as mortgage insurance in the traditional sense. While other options, such as monthly insurance premiums or private mortgage insurance, pertain to conventional loan products, they do not apply to VA loans. Homeowner’s insurance safeguards against damage to the home itself but does not protect the lender in the event of a default, which is the purpose of mortgage insurance. Thus, the VA Funding Fee is specifically designed to meet the needs of VA borrowers while providing a unique alternative to standard mortgage insurance requirements.