VA Loan Assumptions

1. Eligibility for VA Loan Assumption:

• VA-eligible buyers: The person assuming the loan doesn’t necessarily have to be a veteran, but they must meet specific criteria to assume the loan (such as being a qualified borrower). If the buyer is not a veteran, the original borrower may be required to substitute the entitlement (which affects their future ability to use their VA benefit).

• Non-VA buyers: A non-veteran buyer can assume the loan, but the seller (original borrower) might need to substitute their entitlement or receive approval from the VA.

2. Process for Assumption:

• Request VA Approval: The borrower and the buyer must both submit a request to the lender (or loan servicer) for the assumption. The lender will assess the new borrower’s creditworthiness to ensure they can handle the mortgage payments.

• Lender’s Requirements: While the VA itself allows assumptions, the lender may have specific policies in place, such as fees for the assumption or requirements for credit verification.

• Timelines: Please be aware that a VA Loan Assumption can take anywhere from 45-120 days to complete.  Most VA loan servicers have a very limited staff that works on loan assumptions and they are not motivated to provide efficient timeframes or high levels of customer service

3. Benefits for the Buyer:

• Lower Interest Rates: If the original VA loan had a lower interest rate compared to current market rates, assuming the loan could save the buyer money.

• No Down Payment: If the loan has a remaining balance within the buyer's VA eligibility, they can avoid the need for a down payment.  This typically only occurs if the loan balance is close to the sales price.  If there is a gap between the loan balance and the sales price, the persons assuming the VA loan may be required to make up the difference in cash.  The source of the cash can come from their own money, a second mortgage or a seller carry back.  Please contact us for more details on this process.

4. Benefits for the Seller:

• Speedier Process: Selling a home to someone who assumes a VA loan can be quicker than a traditional sale, as the buyer doesn’t have to go through the process of securing a new mortgage.

• Potential for Negotiation: Sellers may be able to negotiate the sale price or terms more favorably when offering a VA loan assumption, especially if the current loan rate is low.

5. Considerations:

• Release of Liability: The original borrower needs to be formally released from liability on the loan. If this isn’t done, the original borrower could still be held responsible for the mortgage if the new buyer defaults, even though they no longer own the property.

• Remaining Entitlement: If a veteran sells their home and the loan is assumed by another buyer, their VA entitlement may be tied up until the loan is paid off. This can affect their ability to use their VA loan benefit for another property.

6. VA Loan Assumption Fees:

There may be fees involved in processing the assumption. Typically, the lender may charge a fee, and there might be additional costs like title transfer or legal fees.

In short, VA loan assumptions allow a qualified buyer to take over a VA loan, and it can be beneficial to both the buyer and seller, as long as the buyer qualifies and the original borrower ensures their liability is properly handled.