The assumable VA loan is an intriguing option that not enough homebuyers know about. VA loans have long been assumable, meaning qualified buyers can take over the mortgage of a current VA homeowner.
With mortgage rates rising in 2022, assumption opportunities can really pay off. You essentially inherit the low rate on an existing VA loan, which saves big on monthly payments.
But assumptions come with unique guidelines and processes. Navigating the world of VA loan assumptions isn’t always straightforward.
In this complete guide I’ll walk through every key part of the assumable VA loan process. You’ll learn
- Exactly how VA loan assumptions work
- Major benefits and risks to weigh
- Step-by-step assumption procedures
- Tips for finding assumable mortgages
- Answers to common VA assumption questions
Let’s start with the basics of this underrated VA home loan option
What Is a VA Loan Assumption?
An assumable mortgage can be transferred to a new, qualified buyer. This buyer then “assumes” responsibility for the existing VA loan.
Rather than get their own new mortgage, the assumer inherits the current balance, remaining term, and interest rate tied to the home.
The buyer also takes over legal liability for making payments and fulfilling all obligations of that original VA loan
Meanwhile, the current VA homeowner is released from the mortgage. Their responsibility for the loan gets transferred to the new assumer.
VA loans have been assumable since the program’s inception back in 1944. It’s a unique perk not found with conventional home loans.
Assumptions offer major savings for qualified buyers when rates rise:
VA loan rates below 5%
- 89% of current VA mortgages
- Assumptions allow inheritence of low fixed rates
This can really expand homeownership opportunities, especially for first-time buyers without a lot of cash.
The Benefits of VA Loan Assumptions
VA loan assumptions offer two major benefits compared to a standard mortgage:
Huge monthly savings
- Assumer inherits low interest rate
- Lower rate = lower monthly payment
For example, on a $400,000 mortgage amount:
- 7% rate has payment of $2,660
- 3% rate cuts payment to $1,686
That’s nearly $1,000 in monthly savings!
Low costs & fees
Closing on an assumption avoids most fees that come with a new purchase mortgage. The assumer pays:
- 0.5% VA funding fee
- Recording fees
- Taxes & insurance
- Title fees (if applicable)
That’s just a fraction of the typical $7,000-$10,000 in purchase closing costs.
Key Risks of VA Mortgage Assumptions
Of course, assumptions aren’t without some drawbacks to consider:
Cashing out homeowner equity
The seller wants fair market value for their home. The assumer must pay out that equity.
If home value is $450,000 with $350,000 balance, assumer pays seller $100,000 difference.
Coming up with those funds can be a challenge. The assumer may need a second loan or cash.
Impact on seller’s VA entitlement
Allowing assumption to a non-Veteran puts original VA entitlement at risk until loan payoff.
This can limit the seller’s ability to reuse the VA home loan benefit.
Overall, assumptions give buyers a chance to enter homeownership at a lower cost. Sellers must weigh benefits against entitlement risks.
Now let’s walk through general guidelines and procedures for getting a VA loan assumption done.
VA Assumption Guidelines & Processing
The Department of Veterans Affairs (VA) has laid out policies around implementing assumptions.
But individual mortgage lenders set more specific requirements. Here are key guidelines:
- VA requires loan be current before transfer
- Assumer must qualify fully under VA credit standards
- There’s a 45-day processing timeline for lenders
Assumptions fall into two main categories:
With entitlement substitution
If assumer is a Veteran, they substitute their entitlement.
Seller gets entitlement restored for reuse.
Without entitlement substitution
Seller’s entitlement stays with loan until payoff.
Seller doesn’t get entitlement back right away.
How to Find an Assumable VA Mortgage
If you want to assume a VA loan, the first step is finding one! Here are two options to locate assumable mortgages:
Work with a real estate agent
Experienced agents can search for listings with assumable loans. Access to MLS data makes this much easier.
Search major listing sites yourself
Some sellers proactively advertise an assumable VA loan to attract buyers. Look for it mentioned in the listing details.
In most cases, a home with any VA or FHA loan can potentially be assumed. Conventional loans generally can’t be assumed.
Once you find a candidate, it’s time to navigate the assumption process.
Step-by-Step VA Loan Assumption Process
Here is an overview of what to expect when going through a VA assumption:
1. Submit assumption application
You and seller fill out required paperwork to start the ball rolling.
2. Underwrite assumption
The lender reviews your credit, income, and eligibility like any mortgage.
3. Lender decision
Within 45 days, the lender approves or denies based on VA guidelines.
4. Close on the loan assumption
Work with lender to finalize transfer of mortgage into your name.
5. Make funding fee payment
0.5% fee goes to VA to process the assumption.
6. Record transfer on VALERI
Lender registers completed assumption in VA system.
And that’s the basics of how to get a VA loan assumption done!
Now let’s look at some common questions homebuyers have about this process.
Frequently Asked Questions About VA Loan Assumptions
Here are answers to some key questions you may have around assuming a VA mortgage:
Can a non-Veteran assume a VA loan?
Yes. VA loans can be assumed by qualified Veterans and civilians alike.
What is the VA funding fee on an assumption?
The VA charges a 0.5% funding fee on assumptions. For example, $2,000 on a $400,000 loan balance.
How can I check my VA loan entitlement?
You can call the VA at 1-877-827-3702 to verify your remaining entitlement.
Can all VA loans be assumed?
Generally yes, but some mortgages have restrictions against assumptions written into loan documents.
How long does a VA assumption take?
The lender has 45 days maximum to process the assumption application and render a decision.
Explore Your VA Home Loan Benefits
The assumable VA mortgage remains an underutilized option that smart homebuyers should absolutely consider.
While it comes with some unique guidelines and steps, the process is very manageable with an experienced VA lender at your side.
Hopefully this guide gave you a solid overview of what VA loan assumptions entail. The biggest challenge is actually finding an assumable VA mortgage listed for sale.
Ready to explore your full range of VA loan benefits? The expert loan officers at [COMPANY] stand ready to help.
We’ll walk through mortgage options to fit your family’s unique needs. See if you’re eligible for $0 down with the VA home loan!