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FHA MIP and the VA Funding Fee on a New Build
On a new build, FHA mortgage insurance (MIP) and the VA funding fee work much the same way they do on a regular purchase: FHA charges an upfront premium plus an annual premium, and VA charges a one-time funding fee. Both upfront charges can usually be financed into the loan instead of paid in cash, and many disabled Veterans don't pay the VA funding fee at all.
What's different with construction is timing and how your land is treated. Here's what to expect before you budget your build.
What is FHA MIP on a construction loan?
FHA loans are insured by the Federal Housing Administration, and borrowers pay for that insurance through a mortgage insurance premium, or MIP. On an FHA construction-to-permanent loan, there are two pieces:
- Upfront MIP (UFMIP). A one-time premium based on your base loan amount, charged at closing.
- Annual MIP. A yearly premium that's divided into monthly installments and added to your mortgage payment.
HUD sets the premium amounts, and they can change. Your lender will show the current figures on your Loan Estimate.
Can you finance the FHA upfront MIP?
Yes. Most FHA borrowers roll the upfront MIP into the loan rather than paying it at closing. HUD allows the financed premium to be added on top of the base loan amount, so it doesn't use up room under the county loan limit. Financing it means less cash at closing, but you'll pay interest on it over time.
When does annual MIP start on a new build?
With a one-time-close FHA construction loan, there's a single closing before construction begins. How and when monthly MIP is collected during the build depends on the lender's program, so ask early. Some programs structure the construction phase differently than the permanent phase, and your lender should walk you through what's due and when.
What is the VA funding fee on a construction loan?
VA loans don't require monthly mortgage insurance. Instead, most borrowers pay a one-time VA funding fee, which helps keep the program running for future Veterans. VA confirms the fee applies whether you're using your benefit to buy, build, improve, or repair a home.
The fee is a percentage of your loan amount, and VA sets it based on:
- Your loan type (purchase and construction loans share the same fee chart).
- Whether it's your first time using a VA loan or a later use.
- How much you put down, since larger down payments lower the fee.
VA publishes the current chart on its funding fee and closing costs page, and your lender will confirm your exact amount.
Does land equity count toward the VA funding fee?
This is one of the most useful construction-specific rules. For construction loans, VA allows equity in the property, such as a lot you already own, to count as a down payment when calculating the funding fee. If you own your land outright, that equity may put you in a lower funding fee tier even if you don't bring cash to closing. Learn more about building with a VA loan on land you own.
Can you finance the VA funding fee?
Yes. You can pay the funding fee at closing or include it in the loan. VA notes that on a purchase or construction-to-permanent loan, the funding fee is the only cost you can finance. Other closing costs must be paid at closing, though sellers, builders, or lenders can sometimes contribute toward them, depending on the deal.
Who is exempt from the VA funding fee?
You won't pay the funding fee if any of these apply, according to VA:
- You receive VA compensation for a service-connected disability.
- You're eligible for that compensation but receive retirement or active-duty pay instead.
- You're a surviving spouse receiving Dependency and Indemnity Compensation (DIC).
- You're a service member with a proposed or memorandum rating, issued before closing, saying you're eligible for compensation based on a pre-discharge claim.
- You're on active duty and, on or before closing, show evidence that you received a Purple Heart.
Your Certificate of Eligibility (COE) usually shows your funding fee status. If you're later awarded disability compensation retroactive to before your closing date, you may be able to get a refund.
FHA MIP vs. VA funding fee: what's the difference?
| FHA MIP | VA funding fee | |
|---|---|---|
| Who pays | All FHA borrowers | Most VA borrowers, unless exempt |
| Upfront charge | Yes, upfront MIP | Yes, one-time funding fee |
| Ongoing charge | Yes, annual MIP paid monthly | No monthly mortgage insurance |
| Can it be financed? | Upfront MIP, yes | Yes |
| Can land equity help? | Not for MIP itself | Yes, for the fee tier on construction loans |
| Exemptions | None for borrowers | Several, including disability compensation |
If you're eligible for both programs, the VA path often costs less over time because there's no monthly mortgage insurance. Still, the right choice depends on your credit, your land, and the lenders in your area. Compare the basics in our guides to FHA construction loans and VA construction loans.
How to budget for MIP or the funding fee on your build
A few steps help avoid surprises:
- Get your COE early if you're a Veteran, so you know your entitlement and fee status. See VA entitlement for new construction.
- Ask whether the fee or premium will be financed, and how that affects your total loan amount and appraisal.
- Ask how payments work during construction. Programs differ, and you'll want to plan for any costs while you're still in your current home.
- Review your Loan Estimate line by line. It will show the upfront MIP or funding fee and other closing costs.
Requirements vary by lender, so get these answers from each lender you're considering.
Frequently asked questions
Do you pay FHA MIP on a construction loan?
Yes. FHA construction-to-permanent loans carry the same upfront and annual mortgage insurance premiums as other FHA purchase loans. HUD sets the amounts.
Is the VA funding fee different for new construction?
No. Construction loans use the same funding fee chart as VA purchase loans. The main difference is that land equity can count as a down payment when figuring the fee.
Can I roll the VA funding fee into my construction loan?
Yes. On a VA construction-to-permanent loan, the funding fee is the only closing cost VA allows you to finance into the loan.
Who doesn't have to pay the VA funding fee?
Veterans receiving VA disability compensation, certain surviving spouses, some service members with pre-discharge ratings, and active-duty Purple Heart recipients, among others VA lists.
Does FHA mortgage insurance ever go away?
It depends on when your loan closes and how much you put down. HUD's rules decide how long annual MIP lasts, so ask your lender how it applies to you.
Ready to plan your FHA or VA build?
Knowing your upfront costs makes it easier to set a realistic budget. Get started at My Construction Path. Tell us about your project and we'll connect you with lenders who offer FHA and VA construction loans in your area.
Requirements vary by lender, loan program, and location. This article is for general education and is not a commitment to lend. It is not a quote of rates, payments, or loan terms. Not affiliated with or endorsed by HUD, FHA, or the U.S. Department of Veterans Affairs.