VA loans have long been a popular home financing option for military members, veterans, and their families. One of the most appealing features of VA loans is that they are assumable – meaning the loan can be transferred to another borrower who takes over the payments. But can non-veterans assume a VA loan?
The short answer is yes. VA loans can be assumed by qualified borrowers even if they don’t have military experience themselves. This flexibility makes VA loan assumptions an attractive option for both sellers and buyers in today’s rising interest rate environment.
In this comprehensive guide. we’ll explain everything you need to know as a non-veteran interested in assuming a VA mortgage including
- What is a VA loan assumption?
- VA loan assumption process
- Requirements for non-veterans
- Finding assumable VA loans
- Pros and cons for non-veteran assumpters
- FAQs
What Is a VA Loan Assumption?
An assumable mortgage is one that can be transferred from the original borrower to another qualified buyer. The new buyer essentially takes over the existing home loan, including its interest rate and outstanding balance.
This differs from a traditional mortgage refinance, where the new borrower must qualify for their own financing at current market rates. With an assumption, they take on the terms of the original loan.
VA loans are assumable by qualified buyers thanks to their flexible guidelines. As a non-veteran, you can assume a VA loan from a current veteran homeowner if you meet the lender’s criteria.
Assuming a VA mortgage passed on from a prior military borrower allows non-veterans to benefit from features like:
- Lower interest rates
- No mortgage insurance requirement
- Potentially easier qualifying guidelines
For sellers, an assumable VA loan can make their listing more attractive in a rising rate environment. Instead of requiring buyers to finance at today’s higher rates, they can offer the below-market rate on their existing VA mortgage.
How Does the VA Loan Assumption Process Work?
If you find an assumable VA mortgage you’d like to take over as a non-veteran, here are the general steps involved:
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Find an assumable VA loan. The first step is locating a home with a VA loan that the seller is willing to let you assume. This typically requires working with a knowledgeable real estate agent.
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Get pre-approved. Initiate the pre-approval process with a lender to confirm you meet their guidelines to assume the loan. Items commonly reviewed include your credit, income, and down payment assets.
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Submit required VA paperwork. As part of the assumption process, you’ll submit documents like a VA Assumption Processing Notice and Certification of Loan Disbursement.
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Negotiate sale terms. Work with the sellers to agree on a purchase price and determine any payout of their equity.
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Close on the home. Finally, close on the property with the lender and formally assume the existing VA mortgage. Typical closing costs range from 2-5% of the purchase price.
The timeline can vary, but expect the process to take 30-60 days in most cases. The key is working with a lender familiar with VA assumptions to streamline the steps for you.
VA Loan Assumption Requirements for Non-Veterans
Since VA loans are designed to help military borrowers, what requirements must non-veterans meet to assume them?
While specific criteria varies by lender, here are some common standards:
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Credit score – Many lenders look for a minimum credit score around 620 or higher for an assumption. Some may accept scores in the 500s with strong compensating factors.
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Debt-to-income ratio – Your total monthly debt payments, including the assumed mortgage, should stay under around 41% of your gross monthly income. Some lenders will go up to 50%.
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Down payment – You’ll likely need funds to pay off the seller’s equity in order to assume their loan. Often 10-20% down.
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Employment history – Expect to provide recent pay stubs and tax returns to document stable income sources.
As a non-veteran, you won’t need to worry about VA entitlement or obtaining a Certificate of Eligibility like military borrowers. But meeting the lender’s credit, income and asset requirements is still crucial for approval.
How Do You Find Assumable VA Loans?
Searching for homes with assumable VA loans to take advantage of isn’t always easy. Here are some tips:
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Work with a knowledgeable real estate agent – Experienced agents may know of listings with assumable VA loans or can help you focus your MLS search.
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Look for “assumable loan” in listings – Some sellers advertise the assumability of their VA mortgage to attract buyers.
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Consider a VA-to-VA refinance – If the current VA borrowers refinanced, their old loan may still be assumable.
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Talk to lenders – VA lenders may know of clients with assumable loans looking to sell.
Casting a wide net improves your chances of finding an assumable VA loan option. It offers major savings compared to financing at today’s rates.
Pros and Cons of Assumption for Non-Veterans
VA loan assumptions offer non-veterans a unique path to homeownership. But are they right for you? Consider these key pros and cons:
Pros
- Lower interest rate than current market
- No mortgage insurance requirement
- Potentially easier qualifying
- Lower fees than refinance
Cons
- Limited inventory available
- Must pay seller’s equity at closing
- Loss of VA entitlement not recovered if defaulted
For buyers able to find and qualify for an assumable VA mortgage, the benefits typically outweigh the drawbacks. But work with your lender and real estate agent to see if it aligns with your homebuying goals.
Frequently Asked Questions About Non-Veterans and VA Loan Assumptions
Here are answers to some common questions non-veteran homebuyers have about assuming a VA mortgage:
Can I negotiate the purchase price of a home with an assumable VA loan?
Yes. The assumption relates to taking over the financing. You still negotiate the home sale purchase price separately with the sellers.
Do credit guidelines vary by lender for assumptions?
Yes. While many lenders look for a 620 FICO score or higher, some may accept scores in the 500s depending on your full financial profile. Shop around for the best fit.
Can I get a co-signer if I don’t qualify on my own?
Yes, some lenders permit co-signers on VA assumptions to help you meet credit or income requirements you fall short on.
What costs am I responsible for at closing?
You’ll pay the 0.5% VA funding fee. Closing costs typically range from 2-5% of the purchase price. Lender and title fees also apply.
How do I determine how much equity to pay the seller?
Work with your lender to calculate the home’s market value minus the outstanding VA loan balance. The difference is the seller’s equity you’ll pay at closing.
Knowing the ins and outs of the process can help make your VA loan assumption journey smoother. Be sure to work with a lender familiar with VA guidelines for non-veteran assumpters.
The Bottom Line
VA loan assumptions allow non-veterans to take over an existing VA mortgage from a military borrower. Although unique requirements apply, it can provide major savings through lower rates and fewer fees.
If you come across an assumable VA loan opportunity on the market, understand the process and guidelines involved for non-veterans. An experienced lender is key to navigating the assumption smoothly.
But in today’s housing market, it offers serious benefits – and veterans don’t get to have all the fun! With the right preparation, you can be on your way to scoring those VA perks too.