Are VA Loans Assumable by Civilians?

VA loans are mortgage loans guaranteed by the U.S. Department of Veterans Affairs (VA) to help eligible veterans, active-duty service members, and surviving spouses purchase homes. These loans offer generous terms like low or no down payment and competitive interest rates.

One question homebuyers often have is – can a non-veteran assume a VA loan? The short answer is yes, VA loans can be assumed by civilians who are qualified buyers.

What Does It Mean to Assume a Mortgage?

Assuming a mortgage simply means taking over the remaining balance on an existing home loan from the current owner

When you assume a mortgage you take on the liability for repaying the loan as per the original terms and conditions. The loan balance interest rate, repayment period, etc. remain the same.

The person assuming the mortgage takes title to the home and makes the monthly payments, while the original borrower is relieved of the repayment responsibility.

Can Civilians Assume VA Loans?

Yes, civilians who are qualified buyers can assume existing VA loans on homes they wish to purchase.

VA loans are assumable an unlimited number of times without the approval of the lender or VA. So subsequent buyers after you can also assume the same VA loan for that property.

That said, the lender will still need to approve you specifically as the new borrower. You’ll have to meet the lender’s credit, income, employment, and other eligibility criteria.

The VA does not need to re-qualify or re-approve the loan when a new borrower assumes it. But the lender will validate whether you meet the standards for assuming the VA mortgage.

Benefits of Assuming a VA Loan

• Lower interest rate: If the existing VA loan has a lower fixed rate versus current rates, you benefit from the savings.

• Avoid funding fee: The VA charges an upfront funding fee on new VA loans, which can be 2-3% of the loan amount. With an assumption, this fee is waived.

• No downpayment required: You can assume a no downpayment VA loan. This helps greatly with affordability.

• No mortgage insurance: VA loans don’t require private mortgage insurance that adds to costs.

• Save on closing costs: You can save on lender fees, title insurance, appraisals when assuming a loan. Seller can also contribute to closing costs.

• No homebuying courses required: First-time homebuyers need VA-approved counseling, but not for assumptions.

• No loan limits: VA has county-wise loan limits for new loans. These don’t apply when assuming an existing VA loan with a higher balance.

• Lock in home price: If rates rise significantly before closing, the seller cannot back out. The contracted price stays.

• Easier process than new loan: Much of the legwork like appraisals and underwriting are already done.

Risks of Civilians Assuming VA Loans

While there are many benefits, civilian buyers should also be aware of the potential risks:

• Lose VA home loan entitlement: Your one-time VA loan eligibility is exhausted with an assumption. You won’t have this financing option later.

• Stuck with loan terms: Even if market rates improve later, you cannot refinance or change the loan terms, beyond minor modifications allowed by VA.

• Loan acceleration: If the original borrower stops paying, the lender can call the loan due and ask you to pay it off immediately.

• Ineligible for future VA benefits: You won’t be able to access other VA benefits like the home loan guarantee on another purchase.

• Limited financing options if you sell: It will be difficult for the next buyer to get financing other than a VA loan.

VA Loan Assumption Process

If you have found a home with a VA loan that you would like to assume, here are key steps in the process:

• The home seller starts by requesting a ‘release of liability’ from the existing lender once you agree on sale terms.

• You complete a VA loan application with the same lender or another willing lender.

• The lender reviews your credit, income, employment, and assets to approve you as the new borrower.

• The lender orders a Veteran Statement from VA to confirm the property’s eligibility and if the veteran’s entitlement was restored.

• Closing is scheduled once the lender gives the final clear to close.

• At closing, you assume the existing VA mortgage and the home seller is released of liability.

• The home and loan title transfer to you once the deed records.

Alternatives to Assuming VA Loans

If the risks make you hesitant about assuming an existing VA loan, discuss the following options with your lender:

• VA purchase with downpayment: Use your VA entitlement for a new purchase loan with a downpayment.

• Conventional loan: Explore fixed-rate conventional loans that allow non-veterans to buy with 3-5% down.

• FHA loan: FHA allows first-time buyers to purchase with 3.5% down and low credit scores.

• USDA loan: In eligible rural areas, USDA guarantees 100% financing for low-income borrowers.

• Special financing: State and local housing agencies offer special loans and downpayment help for buyers.

The Bottom Line

VA loan assumptions allow civilians a unique opportunity to buy a home with no downpayment and potentially lower costs. But the risks around losing your one-time VA entitlement must be carefully weighed.

Thoroughly examine your specific situation, financing options, and long-term plans before deciding to assume an existing VA mortgage versus applying for a new purchase loan. Consulting mortgage and real estate professionals can provide guidance to make the best choice.