Everything You Need to Know About Assuming a VA Home Loan

Assuming a VA home loan can be an attractive option for both buyers and sellers in today’s housing market. With mortgage rates on the rise assuming an existing VA loan with a lower interest rate can provide significant savings for buyers. For sellers being able to transfer their low-rate VA loan to a buyer can make their listing more appealing.

In this comprehensive guide, we’ll break down everything you need to know about assuming a VA home loan, including:

• What is a VA loan assumption?
• Pros and cons of assuming a VA loan
• VA loan assumption eligibility
• How to find assumable VA loans
• The VA loan assumption process

What is a VA Loan Assumption?

A VA loan assumption allows an eligible buyer to take over the mortgage of an existing VA home loan borrower. Instead of applying for a new loan, the buyer “assumes” the original VA loan including its interest rate and loan terms.

With a VA assumption, the buyer takes on the monthly mortgage payments and inherits the interest rate of the original VA borrower. This can provide significant savings if the assumed loan has a lower rate than what the buyer could get on a new mortgage today.

For example, if a buyer assumes a 30-year VA loan originated in 2019 with a 3.5% fixed rate, they lock in that low rate instead of financing at current rates, which are over 6% as of late 2022.

Pros of Assuming a VA Mortgage

There are some major benefits that make assuming an existing VA home loan attractive to buyers:

Lower Interest Rate – Assuming a lower rate VA loan originated years ago provides immediate and long-term savings. The buyer locks in the lower rate for the remainder of the mortgage term.

Lower Fees – A VA assumption comes with lower closing costs since you aren’t originating a new mortgage. Buyers pay a 0.5% VA funding fee, but avoid lender fees and closing costs that come with a new purchase mortgage.

Faster Process – There’s less paperwork involved with an assumption versus a purchase loan. VA assumptions can close in as little as 15-30 days.

Easier to Qualify – Qualifying is based on the transferred loan’s existing terms. Buyers still have to meet lender qualifications but there are no VA credit or income requirements.

No Down Payment Required – Like a traditional VA loan, buyers can assume with no down payment. However, they may need funds to pay off the seller’s equity.

Overall, lower costs, a faster timeline, and locking in a low rate make assumptions very appealing to buyers in many circumstances.

Cons of Assuming a VA Mortgage

However, there are also some potential drawbacks of a VA assumption that buyers should be aware of:

Paying for Homeowner Equity – While you can assume with no money down, buyers must have funds available to pay off the homeowner’s equity. On a $300k home with a $220k VA loan balance, the buyer would need $80k to pay the seller their equity.

Risks for Veteran Sellers – Allowing a non-Veteran to assume their VA loan ties up their VA entitlement until the loan is paid off. This can limit their ability to reuse the benefit.

Loan Options Vary – Lenders have individual assumption policies and can decline to allow an assumption. Buyers are limited to lenders willing to take on the transfer.

Harder to Find – Assumable VA loans aren’t as common as conventional loans. It can take more effort to locate an eligible VA loan assumption opportunity.

While still an excellent option in many cases, buyers should carefully weigh the pros and cons before moving forward with a VA assumption.

VA Loan Assumption Eligibility

The good news is that VA loan assumptions are open to both veterans and non-veterans. The VA has flexible guidelines when it comes to who can qualify to assume an existing VA loan. Basic eligibility includes:

• Credit – VA doesn’t dictate minimum credit scores but most lenders want at least a 620 FICO score or higher for an assumption. Some may approve scores in the 500s.

• Income – There are no income limits but lenders will verify employment and income. Debt-to-income ratios around 50% or lower are generally preferred.

• Qualifying for Loan Terms – Buyers must qualify for the loan terms of the existing VA mortgage based on their current financial profile.

• Occupancy – Like any VA loan, assumed loans require buyers to use the home as their primary residence.

Outside of these baseline requirements, lenders can set their own assumption qualifications. As long as you meet their criteria, veterans and civilians alike can assume eligible VA home loans.

How to Find Assumable VA Loans

Finding available VA loans that can be assumed takes some proactive effort. Here are a few tips for locating assumable VA mortgage opportunities:

• Check MLS Listings – Many real estate agents and brokers will note if a VA loan is assumable right in the MLS listing. This can make filtering for assumables easier.

• Online Listings – More homeowners are touting the assumability of their VA loan in their home’s online description. Sites like Zillow often mention it among the listing highlights.

• Ask Your Lender – Mortgage lenders may know of assumable VA loans they financed that will soon hit the market. They can let prequalified buyers know of upcoming opportunities.

• VA Assumption Lists – Some sites like AssumableLoans.com compile lists of available assumable mortgages, including VA loans. These can provide assumption leads.

With some effort, buyers can find VA loans meeting their needs that provide assumption opportunities.

The VA Loan Assumption Process

If you’ve found an assumable VA loan you want to take over, here is an overview of what’s involved with the assumption process:

1. Review Lender Guidelines

Each lender will have their own set of criteria for approving assumptions. Review their requirements first to make sure you’re eligible before proceeding.

2. Submit Your Application

Provide the necessary documents to the lender, including a copy of the purchase contract, financial details, and verification of funds needed to pay the seller’s equity.

3. Get Approved

The lender will review your application and inform you if you meet their assumption qualifications. If approved, you can move to the next steps.

4. Order Appraisal (Optional)

An appraisal isn’t required, but getting one ensures the home’s value supports the sales price and loan balance.

5. Sign Closing Disclosure

Your final Loan Estimate and Closing Disclosure will reflect the assumable loan terms you’re taking over. Sign documents to move to closing.

6. Attend Closing

Bring certified funds needed to pay seller equity and closing costs. Execute final mortgage assumption paperwork.

7. Occupy Home Within 60 Days

The VA requires you to move into the home as your primary residence within 60 days of closing on the assumption.

And that’s it! Follow the lender’s guidelines throughout the process to ensure a smooth assumption of your new VA home loan.

Key Takeaways on VA Loan Assumptions

Assuming an existing VA mortgage can be a great way for eligible buyers to save on their home purchase. Here are some key points to remember:

• Assumptions allow buyers to take over a veteran’s VA loan and its lower interest rate
• Buyers can realize significant interest savings and lower fees versus a new VA loan
• Both veterans and civilians can qualify to assume VA loans
• Paying off the seller’s home equity is required as part of the assumption
• VA lenders have flexibility in approving assumptions based on their own guidelines
• Finding available assumable VA loans takes research and a qualified real estate agent

Overall, VA loan assumptions are a lesser-known but viability strategy for buyers to land a low VA mortgage rate and affordable monthly payment in today’s rising rate environment. Following the proper process is key to ensuring a smooth transition of the assumable VA loan.

Frequency of entities:
VA loan – 28
Assumption – 17
VA home loan – 7
Interest rate – 7
VA mortgage – 6
Buyer – 20
Seller – 10
Lender – 10
Down payment – 3
Equity – 5
Veteran – 9