As a government-backed loan, VA loans are assumable. Assuming a VA loan can be an attractive option for those who want to capitalize on the low interest rates of these loans in a time of rapidly changing mortgage rates.
But VA loan assumption isn’t right for everyone. While military service is not required to assume a VA loan, there are some caveats for transferring this mortgage type to a non-veteran. Even if you find the right veteran, they might not qualify for the loan. For those who do find the right buyer for their VA loan, assumption can be a great way to save on funding fees and other costs.
Assumable VA loans are a type of assumable mortgage — a home loan that can be taken over, or “assumed,” by a new borrower. This financing agreement transfers the debt obligation of one borrower to a new one, maintaining the same mortgage balance, interest rate, and loan terms.
This process can lock in favorable rates and terms while allowing the new borrower to forgo the rigorous application and underwriting process for a home loan. However, it doesn’t account for home equity, which the new borrower is responsible for paying to the seller in cash.
All VA loans, like other government-backed loans, are assumable. VA loans can only be taken out by eligible current or former active duty service members— but non-veterans may also be able to assume a VA loan under certain circumstances.If a VA loan is assumed by a civilian, the seller’s entitlement will not be restored.
A VA loan entitlement is the amount of money that an eligible service-member is entitled to receive. When you use a VA loan to buy a home, you “cash in” some or all of your entitlement. You can restore that amount either by selling your home, paying off your mortgage, or transferring your VA loan to another eligible veteran.
The loan assumption process is different from the mortgage application process. The biggest difference is that borrowers don’t have the option to shop around from lender to lender — they must go through the assumption process with the seller’s lender.
The lender will examine the following in order to approve the assumption:
Just like there are pros and cons to using a VA loan, there are some benefits and disadvantages of assuming one. Here are some of the factors to consider while weighing if VA loan assumption is right for you:
If you’ve decided that assumption is the right choice for you, here are the steps to assume a VA loan:
The hardest part of assuming a VA loan may be finding a seller who is willing to go through the assumption process. To get started, talk to a real estate agent. They may be able to search the MLS for homes with VA assumable loans or personally know sellers who would be willing to transfer their loan to a buyer. Lastly, there are websites devoted to helping connect sellers and buyers who prefer the assumption process. Scan these websites to see if there are any homes in your desired area.
Once you find the home, review your finances to ensure you’re financially able to take on the mortgage. Be prepared to verify your income, assets and debts, and credit score.
If you’re a qualified veteran, get your certificate of eligibility and determine your entitlement amount. This may be a crucial bargaining chip if you’re working with a seller who wants to regain their entitlement.
VA loans typically don’t require a down payment, but assumers of VA loans may need to payout the seller for whatever equity they have accumulated in the home. This will be due at closing in the form of a down payment, in addition to funding fees and other closing costs.
Lastly, the seller will need to obtain a release of liability. This is a crucial document that the lender issues to the seller once the new borrower has assumed the mortgage. Without it, the seller may be held responsible for late or delinquent payments made by the new borrower.
Orchard guarantees your home will sell, so you can buy your next one worry-free.
We provide peace of mind that your home will sell, plus list your home on the market to maximize your earnings.
Use our home sale calculator to estimate your net proceeds.
Our Home Advisors are experienced local agents who know how to sell for top dollar and help win your dream home.
All Orchard Home Advisors are experienced agents who know your local market inside and out. Request a consult today.
Did you know cash offers are 4x more likely to be chosen by a seller? Let us help you make one on your next home.
Orchard’s home value estimates are 30% more accurate.
Orchard Home Loans shops the market to find your best rates.
A cash offer is 4x more likely to be chosen by a seller. Get qualified today.
Make a cash offer now, and Orchard will sell your old home after you move.
Tell us your must-haves to see personalized home recommendations that meet your criteria.
With Orchard, secure your dream home before you list. Avoid home showings, rentals, and double moves.Learn More