VA assumable loans are an intriguing option for eligible homebuyers looking to save money on their mortgage. By assuming an existing VA loan from a seller buyers can take advantage of lower interest rates and skip many traditional mortgage fees.
But how exactly does the VA loan assumption process work, and what are the pros and cons? This guide will explain everything you need to know about VA assumable loans.
What is a VA Assumable Loan?
A VA assumable loan allows an eligible buyer to take over the mortgage of a current VA homeowner Instead of applying for their own VA loan, the buyer “assumes” the seller’s existing VA loan and takes on the responsibility for making the monthly payments
Some key characteristics of VA assumable loans
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The buyer takes on the original terms of the VA loan, including the interest rate, remaining loan balance, and monthly payments.
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The buyer becomes responsible for making the monthly mortgage payments going forward.
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The original homeowner is released from liability for the mortgage loan.
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VA loans can be assumed an unlimited number of times.
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Assumable loans bypass many traditional mortgage fees and underwriting requirements.
VA loans have been assumable since the program began in 1944. It’s a unique benefit not available with conventional or FHA mortgages.
Are All VA Loans Assumable?
The VA guarantees loans rather than issuing them directly. This means individual lenders set their own policies on whether their VA loans can be assumed.
Generally, any VA purchase or refinance loan is assumable as long as the lender allows assumptions. VA streamline refinance loans are also typically assumable.
It’s rare to find a VA lender that prohibits assumptions. But before moving forward with a VA loan assumption, confirm with the lender that the loan can be assumed.
Who is Eligible to Assume a VA Loan?
The VA allows a wide range of buyers to assume existing VA loans, including:
- Veterans
- Active duty military members
- Surviving spouses of Veterans
- Non-veteran civilians
Lenders will approve an assumption as long as the buyer meets a few key requirements:
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Credit – Lenders will check credit reports and scores to verify creditworthiness. Minimum score requirements vary by lender.
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Income – Buyers must document sufficient income to afford the monthly mortgage payments. Specific income requirements depend on the lender.
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VA entitlement – Veteran and active duty buyers must have enough remaining VA home loan entitlement to qualify for an assumption. Entitlement gets used up when obtaining a new VA loan.
For civilians assuming a VA loan, no VA entitlement is required. But civilian assumers may face stricter lender guidelines.
How Does the VA Loan Assumption Process Work?
Assuming a VA loan is less demanding than a traditional mortgage application, but still involves several key steps. Here is the basic VA loan assumption process:
1. Find an assumable VA loan – Search real estate listings for homes advertising assumable financing. Or ask real estate agents to help locate VA assumable properties.
2. Review loan terms – Evaluate the VA loan interest rate, balance, monthly payments, and other terms to ensure they fit your goals. Also confirm the lender allows assumptions.
3. Apply for assumption – Work with the lender to complete a loan assumption application and provide required documents. This streamlined process verifies your credit, income, and eligibility.
4. Get appraisal and underwriting approval – The property will be appraised to verify market value. Underwriters will then approve the assumption based on your qualifications and the appraisal.
5. Reach agreement with seller – Negotiate with the seller to determine the purchase price and how much (if any) cash the buyer needs to bring to closing.
6. Close assumption – Legal documents will be signed to transfer responsibility for the VA mortgage to the new buyer.
The VA loan assumption timeline ranges from 30-60 days in most cases. It’s faster than a traditional mortgage closing, which takes 45-60 days on average.
What are the Benefits of a VA Assumption?
There are several compelling benefits borrowers gain by assuming a VA loan rather than getting a new mortgage:
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Lower interest rate – You take over the home seller’s existing VA loan rate, which is likely much lower than current rates. This results in a smaller monthly payment.
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Reduce closing costs – Assumptions skip appraisal fees, underwriting costs, and other expenses paid with a typical home purchase. VA assumers only pay a 0.5% funding fee.
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Streamlined process – Much less documentation is required compared to a traditional mortgage application and underwriting process.
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Take advantage of seller’s home equity – If the seller has built up equity, the buyer can negotiate to purchase the home below market value.
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Avoid VA entitlement impact – The buyer’s VA entitlement isn’t affected with an assumption, allowing it to be reused.
For eligible buyers, assumptions can make homeownership more affordable and convenient compared to taking out a new VA purchase loan.
What are the Risks of Assuming a VA Loan?
While assumptions come with nice perks, there are also a few potential downsides for buyers:
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Limited inventory – Homes with assumable VA loans can be difficult to find compared to the overall housing market.
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Paying off seller’s equity – Buyers typically have to bring cash to closing to pay off the seller’s home equity. Otherwise the deal doesn’t make financial sense for the seller.
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Credit check required – While streamlined, the lender will still examine your credit report, income, and debts as part of the assumption process.
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Future VA entitlement – Your VA entitlement could get stuck on the assumed loan if you fail to substitute it with the seller’s entitlement. This can limit your ability to reuse the benefit later.
As with any mortgage decision, buyers should weigh the pros and cons to determine if a VA assumption aligns with their home financing needs and goals.
Can I Get a VA Streamline Refinance Loan After an Assumption?
Yes, buyers who assume a VA loan are still eligible for a VA streamline refinance after living in the home for at least 210 days.
The VA streamline refi lets you refinance into a new VA mortgage with lower interest rate without requiring an appraisal or full credit underwriting. It offers an easy way for VA assumption buyers to reduce their monthly payments if rates go down.
Under certain circumstances, it may even be possible to refinance sooner than 210 days. Discuss your specific situation with a VA lender to explore possible refinance options after an assumption.
Finding the Best VA Lender for Assumptions
All VA-approved lenders can facilitate assumptions. But some are more knowledgeable and experienced than others when it comes to this unique financing option.
Here are some tips for finding the right lender:
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Ask about assumption experience – How many VA assumptions has the lender closed over the past 6-12 months? More is better.
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Seek out military expertise – Lenders who specialize in VA loans will best understand the assumption process.
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Compare assumption fees – Assumption requirements and fees vary. Shop around for the best combination of service and cost.
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Look for streamline refi experience – Make sure the lender is able to efficiently process your future VA refinance after the assumption.
Taking the time to find the right VA loan assumption lender will lead to a smoother closing and set you up for long-term savings.
FAQs About VA Loan Assumptions
Here are answers to some of the most frequently asked questions about VA assumable loans:
How many times can a VA loan be assumed?
There is no limit on the number of times a VA loan can be assumed. The same VA mortgage can be assumed and transferred indefinitely.
What is the processing fee for a VA assumption?
Lenders typically charge an assumption processing fee, often between $300-$900. The VA also charges a 0.5% funding fee for assumptions.
How long does it take to close a VA assumption?
The timeline is 30-60 days in most cases. VA assumptions close faster than traditional 30-45 day mortgage closings.
Can the loan amount be increased with an assumption?
No, the original principal balance remains fixed. But buyers can make a down payment to the seller to lower the amount assumed.
Can a non-veteran assume a VA IRRRL?
Yes. VA streamline refis can be assumed by any qualified buyer, not just veterans and service members.
The Bottom Line
Assuming an existing VA loan can help credit-qualified buyers purchase a home at a lower rate and cost compared to other financing options. It does require finding an assumable VA mortgage, which limits inventory. And buyers need to negotiate with sellers to make the deal financially worthwhile for both parties.
But in the right