Are VA Loans Assumable by a Non-Veteran?

VA loans offer unique benefits to eligible veterans active duty service members and surviving spouses. One of those benefits is loan assumability – the ability to transfer a VA loan to another borrower. This opens the door for non-veterans to assume a VA loan and take advantage of the program’s typically low interest rates and lenient guidelines.

In this comprehensive guide, we’ll explain everything you need to know about non-veterans assuming VA loans.

What is a VA Loan Assumption?

A VA loan assumption allows an eligible borrower to take over the mortgage of a current VA homeowner. Instead of applying for a new loan, the assuming borrower inherits the original loan terms including

• Remaining principal balance
• Interest rate
• Monthly payments
• Loan maturity date

Assuming a loan can provide significant savings compared to taking out a new mortgage. With today’s rising rates, assuming a VA loan with a low fixed rate locked in years ago can lower monthly payments by hundreds of dollars.

VA loans can be assumed an unlimited number of times. The process is straightforward and can be completed in as little as 30 days.

Can Non-Veterans Assume VA Loans?

Yes, VA guidelines allow non-veterans to assume VA loans.

Originally, VA loans were restricted to military borrowers who met service requirements. But the rules have expanded over time. Now, the VA allows any qualified borrower to assume a VA loan – veterans and non-veterans alike.

When a non-veteran assumes a VA loan, they must meet the lender’s credit and income requirements. VA guidelines prohibit lenders from imposing overly restrictive standards. As long as the assuming borrower demonstrates a willingness and ability to repay the loan, the assumption can be approved.

Benefits for Non-Veterans

Assuming a VA loan offers civilian borrowers several advantages:

Lower Interest Rates

Today’s average 30-year fixed VA mortgage rate exceeds 7%. But many existing VA loans have rates around 3-4%.

Non-veterans who assume a low VA rate can realize significant interest savings over the long run. This directly lowers the monthly payment.

For example, on a $300,000 loan amount:

• 7% rate = $1,998 monthly P&I payment
• 4% rate = $1,432 monthly P&I payment

That’s a $566 reduction by assuming a lower rate VA loan.

Relaxed Guidelines

VA underwriting guidelines are more flexible compared to conventional loans. There are no strict credit score or debt-to-income requirements.

As a result, borrowers who may not qualify for a traditional mortgage can still assume a VA loan. The VA focuses more on willingness vs. ability to repay.

Limited Fees

A VA assumption comes with lower upfront fees compared to a purchase loan. Non-veterans pay a 0.5% VA funding fee, but most other closing costs are waived.

On a $300,000 loan amount, the funding fee would equal $1,500. Still far less than the typical $5,000-$10,000 in closing costs for a new mortgage.

No Down Payment Needed

Non-veterans can assume a VA loan with 100% financing. No down payment is required.

With a traditional purchase, borrowers often need 5-20% down. But those funds aren’t needed for a VA assumption.

The VA Loan Assumption Process

Now let’s walk through the typical VA loan assumption process from start to finish:

1. Find an Assumable VA Loan

The first step is locating a qualified home with an eligible VA loan to assume. Non-veterans can ask real estate agents to search for listings with assumable mortgages. VA loans made after March 1988 will clearly indicate assumability in the origination documents.

2. Review Loan Terms

Before moving forward, review the loan terms to ensure they meet your needs and budget. Pay close attention to the interest rate, loan balance, monthly payment, and remaining term.

3. Submit an Application

Once you find a home to your liking, submit a VA assumption application with the current lender. Be prepared to provide financial documentation to prove your ability to repay the loan.

4. Get Appraised

The property will need to be appraised to verify its value exceeds the outstanding loan balance. VA appraisals cost around $500 on average.

5. Receive Approval

The lender will review your application and determine if you meet the requirements to assume the loan. If approved, you’ll receive a consummation letter with closing instructions.

6. Close on the Home

At closing, you’ll officially assume the seller’s VA loan. Make sure to bring a cashier’s check for the 0.5% VA funding fee. In a few weeks, you’ll begin making the monthly mortgage payments.

Drawbacks to Consider

While assumptions come with benefits, there are also a few drawbacks to keep in mind:

• Limited inventory. Relatively few VA loans are openly assumable. Home choices may be restricted.

• Cash needed to close. You’ll need funds to pay the seller’s equity and other closing costs.

• Loss of VA entitlement. The original veteran loses future use of their VA entitlement when their loan is assumed by a non-veteran.

• Credit impact. A hard inquiry will be run when applying to assume the loan.

• No home improvements. It may be difficult to tap home equity for improvements down the road.

• Restricted financing options. You can’t use a VA cash-out refinance or other secondary loans.

Alternatives for Non-Veteran Homebuyers

If assuming a VA loan isn’t the right fit, non-veterans have other options:

• FHA loans – Feature low down payments and flexible credit guidelines like the VA. But maximum loan limits are lower.

• Conventional 97 – Requires just 3% down payment. But you’ll pay mortgage insurance without 20% equity.

• USDA loans – Offer 100% financing for homes in designated rural areas. Limited availability.

• Home Possible – Freddie Mac program with 3% down payment option. Household income limits apply.

• Bank statement loans – Use bank statements instead of tax returns for income verification.

Should Non-Veterans Consider a VA Assumption?

Assuming a VA loan can provide a clear pathway to homeownership for eligible non-veteran borrowers. Between the low rates, limited fees, relaxed guidelines, and no down payment requirements – it’s an option worth exploring.

That said, VA assumptions aren’t for everyone. Make sure to evaluate your specific homebuying goals and financial situation. A mortgage professional can help you determine if assuming a VA loan is your best course of action.

Overall, VA assumptions open the door for more borrowers to benefit from this flexible government-backed loan program. When used strategically, they can save thousands over the life of your mortgage.