Are VA Loans Transferable? Everything You Need To Know

VA loans have long been a popular choice for military servicemembers and veterans looking to purchase a home. One of the most unique features of VA loans is that they are assumable, meaning the loan can potentially be transferred to another borrower. But how exactly does this work and what are the pros and cons? This comprehensive guide will provide an in-depth look at whether VA loans are transferable.

What Does It Mean for a VA Loan To Be Transferable?

When a loan is transferable, or assumable, it means the loan obligation and terms can be transferred from the original borrower to another borrower. This is done through a process called a loan assumption.

With a VA loan assumption, the new borrower takes over the mortgage and assumes all rights and responsibilities of repaying the loan The original VA borrower is released from the loan obligation

The new borrower inherits the interest rate loan balance and other terms on the existing VA mortgage. This allows them to take advantage of lower interest rates if rates have risen since the original loan was originated. They also avoid many of the closing costs and fees that come with a new mortgage.

Who Can Assume a VA Mortgage?

VA loans can potentially be assumed by any qualified borrower, not just veterans or military members. The new borrower simply has to meet the credit and income qualifications set by the mortgage lender and VA.

Lenders will evaluate factors like the borrower’s:

• Credit score
• Debt-to-income ratio
• Employment history
• Assets and reserves

If the new borrower meets the qualifications, they may be approved to assume the VA mortgage.

The Benefits of Assuming a VA Loan

There are some major benefits that come with assuming an existing VA mortgage rather than taking out a new loan:

Lower Interest Rate

With interest rates constantly fluctuating, assuming a VA loan can allow the new borrower to lock in a lower rate than what’s currently available. This results in lower monthly payments and savings over the life of the loan.

For example, if mortgage rates are currently 5% but the existing VA loan has a 3% rate, assuming that loan could mean over $300 in savings per month on a $300,000 balance.

Lower Fees

The fees to assume a mortgage are significantly less than what origination, processing, and other upfront costs run for a new purchase loan.

With a new VA loan, fees like the funding fee, appraisal, and credit report can total $4000 or more. To assume a loan, borrowers typically only pay a small VA funding fee of 0.5% of the balance.

Faster Closing

Because there is less paperwork and underwriting involved, assuming a loan can close in a matter of weeks rather than the 45+ days of a normal purchase. This provides flexibility if the buyer needs to close quickly.

**Easier Qualifying **

For borrowers who may not qualify for a new VA loan, assuming an existing mortgage can be easier. VA guidelines are less strict for assumptions than purchase loans.

The Downsides of VA Loan Assumptions

While assumptions offer advantages, there are also some potential drawbacks to consider:

Upfront Costs

To assume the loan, the buyer has to come up with the cash to pay off the seller’s equity. If the seller has built up $100,000 in equity, the buyer needs $100,000 cash at closing to assume.

Entitlement Issues

When a non-veteran assumes a loan, the seller’s VA entitlement used on the loan remains tied up until it’s paid off. This can limit their ability to reuse the benefit in the future.

Rising Payments

While payments are fixed initially, adjustable rate VA loans can see payments rise at the first adjustment period after an assumption.

Difficulty Finding Assumable Loans

Shopping for homes with assumable mortgages is more difficult than a normal home search. Not all sellers advertise assumability.

Short Sale/Foreclosure Risks

If the buyer defaults down the road, leading to a short sale or foreclosure, the original veteran borrower loses that portion of their VA entitlement.

How Does the VA Loan Assumption Process Work?

If you’ve found a home with an assumable VA loan and want to take over the mortgage, here are the typical steps involved:

1. Review the Sales Contract

The real estate contract should specify the home has an assumable VA mortgage. This allows the buyer to take over the loan.

2. Contact the Mortgage Servicer

Reach out to the company servicing the VA loan to begin the assumption process. Obtain paperwork and learn their specific requirements.

3. Submit Required Documents

Provide documents to show creditworthiness, assets, income, and other details to the servicer per their guidelines.

4. Get VA Approval

The servicer sends your assumption package to VA for review and approval. The VA will issue a loan guarantee.

5. Close on the Home

Once approved, set a closing date. At closing, you’ll pay any required fees and down payment proceeds.

6. Record the Assumption

The servicer records the assumption with the local land records office to transfer ownership legally.

And just like that, the VA mortgage is transferred into your name!

Tips for Finding an Assumable VA Mortgage

Assumable VA loans aren’t always easy to find, but here are some tips:

• Ask real estate agents to search the MLS for �assumable’ listings.

• Look for �assumable mortgage’ referenced in property listings on Zillow, Realtor.com, etc.

• Check big real estate broker sites like Redfin and Compass for an assumable filter.

• Talk to lenders about any assumable mortgages in their existing portfolio.

• Join real estate investment groups and let them know you’re seeking assumable loans.

Can I Still Get a VA Loan if I Assume?

This is a common question from veteran and military homebuyers. The answer depends on whether VA entitlement was substituted on the assumed loan.

If you’re a veteran assuming from another vet and your entitlement is swapped in, you can immediately apply for a new VA loan based on your available eligibility.

However, if you assume from a civilian or don’t substitute entitlement, your new VA loan availability becomes restricted. Lenders will look at whether you have sufficient entitlement left based on the loan amount still tied up on the assumed mortgage.

In most cases, a seasoning period of a few years is required before you can fully reuse the VA home loan benefit after assuming a mortgage without entitlement substitution.

Next Steps If You’re Considering Assumption

Assuming an existing VA loan can be a great way for eligible borrowers to save on a home purchase, especially when rates rise. But make sure you go into the process informed and with eyes wide open to both benefits and potential drawbacks.

If you want to move forward with a VA loan assumption, here are some recommended next steps:

• Speak with a real estate agent experienced in assumptions to ask questions and strategize your search.

• Consult a VA-approved mortgage lender to examine your current finances and see if assumption makes sense.

• Research options for cash to pay off the seller’s equity at closing.

• Learn your timeline and work backward to allow adequate time to find an assumable listing.

• Be prepared to act quickly when you locate a good assumable opportunity.

With the right property and loan terms, assuming an existing VA mortgage can be a win-win for both buyers and sellers!