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VA loans are an excellent financing option for qualified veterans, active service members, and families. With no down paymentor mortgage insurance, it makes an attractive offer. But are VA loans assumable? Can incoming buyers take over the seller’s mortgage payments when buying a property?
Are VA Loans Assumable?
Not all types of mortgages are assumable, but VA home loans, backed by the U.S. Department of Veterans Affairs (VA), are assumable. Buyers looking to assume a VA mortgage need not be veterans or active service members to qualify.
>> More: What Are Assumable Mortgages?
What Is a VA Assumable Loan?
A VA assumable loan is a VA loan that is passed from the home seller to the home buyer purchasing the property. The buyer assumes responsibility for the loan moving forward and is subject to the existing VA loan’s terms, conditions, and balance. Buyers do not have to be active military or veterans, but they must meet certain qualification requirements (COE) to assume the loan.
How Do VA Assumable Loans Work?
Buyers and sellers may create an agreement about the mortgage assumption. This means that the existing VA mortgage on the property will pass to the buyer at closing. Before this can happen, the buyer will need to apply for the assumption and get approved by the lender. Once the lender gives the green light, both parties will sign paperwork confirming the loan transfer at closing.
>> More: See the Best VA Mortgage Lenders
What It Means to Assume a VA Loan: Buys & Sellers
So, what’s in it for everyone? The assumption is one of the lesser-known advantages of a VA loan, but one that can be beneficial to both parties. Here’s what buyers and sellers need to know about VA loan assumptions.
For Buyers
The first thing for buyers to know is that they do not need to meet the military service requirements of a VA loan to qualify for a VA loan assumption. There are, however, financial qualifications to meet, including an adequate credit score, debt-to-income ratio, income, and more.
Once you assume the loan, buyers take on the mortgage as-is, paying the same monthly paymentwith the same interest rate on the seller’s remaining balance. This can mean getting a lower interest rate than you otherwise would have and even saving on closing costs.
For Sellers
As the seller, passing your mortgage on is not as simple as signing a document and being relieved of all responsibility. You need to make sure the mortgage lender issues a formal release for all liability. Otherwise, any payments the buyer misses will reflect on your credit reports. Additionally, if the assuming buyer does not qualify for VA loan entitlement, you will not be able to take out another VA loan until the current one is paid in full.
How to Assume a VA Loan
Assuming a VA loan requires several steps. The lender will examine the buyer’s finances to vet their reliability as a borrower. As the buyer, you’ll need to gather paperwork related to your finances, such as your income, debt, assets, and credit, just as you would with a regular lender. Once approved, you will pay a VA funding fee and sign off on the assumption agreement.
How to Find a VA Assumable Loan
You have a few options to find sellers with a VA assumable loan. It would help if you let your agent know so they can ask around in their circles and browse the internet. The MLS is a great place to visit, and sites like TakeList or Zumption can show you sellers willing to go through a VA loan assumption.
Pros and Cons of VA Loan Assumption
Not sure if a VA assumable loan is right for you? Let’s weigh the advantages and disadvantages.
Pros:
- Buyers can get a lower interest rate, save on closing costs, and may not need a down payment
- May save time on lender underwriting
- Seller may use loan assumption as leverage in negotiations
Cons:
- Buyers have to assume mortgage as-is
- Buyers may need to pay the difference between the sales price and the VA loan
- Sellers may not be eligible for another VA loan until the existing one is paid off
Can a VA Home Loan Be Transferred to Another Person?
A VA home loan can be transferred to another person through the assumption process. The incoming buyer will take over the seller’s loan payments after closing.
When Can A VA Loan Be Assumed?
A VA loan can be assumed after the buyer and seller have been approved by the lender. The lender will vet the incoming buyer to ensure they can make the monthly mortgage payments.
Can I Give My VA Loan to Another Family Member?
Anyone can assume a VA loan if they meet the lender’s qualifications. The lender will examine their finances and approve them to take over the loan.
VA Loan Entitlement after Assumption
If the assuming borrower does not meet certain VA loan entitlement, the seller can request substitutions. If they do not qualify for the substitutions, the VA loan entitlement will stay with the home until the mortgage is paid off. This means that the seller will not be able to obtain another VA loan while there is an existing balance on the loan. To prevent this, check with the lender beforehand to ensure the borrower meets entitlement.
Release of Liability
Transferring a VA loan to an incoming buyer will not automatically relieve the seller of all responsibility. It’s crucial to obtain a release of liability from the issuing mortgage lender, so you are not held accountable for the buyer’s payments. Before you agree to the mortgage assumption, you should ensure that the lender is willing to issue this release; otherwise, you may need to consider other options.
Bottom Line: VA Loan Assumption
VA loans are one type of mortgage loan that is assumable and provide several benefits to both sides. Before going through with the assumption, it’s important to do your due diligence and ensure it’s the best decision for you.
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