You’re interested in VA loan assumption from a veteran. Maybe you’re looking at a property that’s already VA-financed and you want to take over the loan so you can get a lower interest rate, or maybe you’re a veteran yourself and you want to sell your property and transfer your benefits to the new buyer. Regardless of your reasons, if you’re considering assuming a VA loan there are a few things you need to know first. Read on for everything you need to know about assuming a VA loan.
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What Is A VA Loan Assumption?
A VA loan assumption is when a buyer takes over the mortgage payments and other responsibilities of a VA loan from a veteran selling their home. This can be an attractive option for all parties involved: the seller gets out from under the mortgage payments; the buyer gets into the home with a competitive interest rate; and the lender still receives timely payments on the loan.
Sellers with a VA loan typically sell their home because they’ve received orders to transfer to a new duty station, are relocating for work or family or are buying a new home.
With a VA home loan assumption, a buyer takes over the existing loan terms of the seller’s VA loan. This includes the loan balance and the current interest rate which can be a big benefit, especially if rates have risen.
Who Can Assume A VA Loan?
Assuming a VA loan can be done by any home buyer that meets the lenders credit, income and other qualifying requirements. The buyer can be a current military member, veteran or someone who has never served in the armed forces before. There are no military service requirements for a VA loan assumption.
Because the Department of Veterans Affairs only allows for the purchase of primary residences, investors seeking to assume a VA home loan are not likely to be approved.
Seller – Selling your home with an assumable VA loan is an incentive to attract buyers with a low interest rate. Be sure to have your agent mention it in your home’s listing.
Buyer – VA loans have easier qualifying requirements. This includes credit and income. VA loans typically have a lower interest rate than other financing types. This helps buyers save money each month on the mortgage payment. If you are a veteran or current service member, you can substitute your VA loan entitlement for the seller’s VA loan entitlement.
Seller – A VA home loan assumption will require that your current VA loan entitlement remain with the loan. This may prevent you from using a VA loan to buy a new home or require a down payment when using a VA loan. If your home has equity, the buyer will need to pay the difference between the loan balance and the sales price. This can be done with a down payment or other financing, but may limit the number of buyers able to purchase your home.
Buyer – If the home you are purchasing has equity, a down payment will be required. If the equity is more than your available down payment amount, the lender may or may not provide additional financing to cover the difference between the loan balance and the sales price.
Assume VA Loan – Process
The home owner will need to contact the current mortgage lender to get information about the process and VA loan assumption requirements. I recommend this be done prior to the home being listed for sale. Doing so will be of benefit to both buyer and seller. Having knowledge of the VA home loan assumption guidelines beforehand will help ensure the entire transaction goes more smoothly.
Buyers should expect to provide income documentation, credit history, assets (if applicable) and to complete several VA loan assumption forms. Requirements will differ by lender.
How Long Does It Take To Assume A VA Loan?
How long it will take to process a VA loan assumption will depend on the lender who currently services the loan. It is helpful if the seller/veteran requests this information when contacting their lender. I would estimate that the process will take at least 30 days for closing.
Buyers should expect to pay some closing costs for a VA loan assumption. The VA requires a funding fee of 0.5% on the remaining loan balance and the lender may charge reasonable fees for processing the buyer’s application. There may be additional fees charged by a title attorney or title company. The lender should provide the buyer with these fees.
Assuming a VA loan can be a great benefit to both the home seller and a prospective buyer. A VA loan assumption allows a buyer to assume the veteran’s current loan balance, remaining loan term and interest rate. This can result in a big savings to the buyer when interest rates are higher than the rate on the VA loan. With easier loan qualifying guidelines than other financing types other veterans, service members and those without military service can take advantage of the benefits from a VA home loan assumption.