A VA assumable loan allows a buyer to take over the mortgage of a seller with a VA loan. Instead of applying for a new loan, the buyer assumes the remaining balance and terms of the seller’s existing VA loan. This can save time and money compared to a traditional mortgage process.
VA loans are assumable due to provisions in the original VA loan guarantees that allow transfers of liability under certain conditions. However, VA assumable loans work differently than other types of assumable mortgages. There are unique advantages, limitations, and steps involved with assuming a VA home loan.
In this comprehensive guide, we’ll break down exactly how VA assumption loans work who is eligible the pros and cons, and the step-by-step assumption process.
What is a VA Assumable Loan?
A VA assumable loan, also called a VA loan assumption, allows an eligible buyer to take over the mortgage of a homeowner with an existing VA loan Instead of applying and qualifying for a new VA or conventional loan, the buyer inherits the original VA loan terms, including
- Remaining principal balance
- Interest rate
- Length of loan term
- Monthly mortgage payment amount
Essentially, the buyer steps into the shoes of the existing VA borrower. This can save an assumer thousands in closing costs and fees compared to a traditional mortgage.
VA loans have special provisions that make them assumable. Other loan types like conventional and FHA mortgages generally are not assumable.
VA Loan Assumption Eligibility
The VA has broad eligibility standards for loan assumptions. Here are some key requirements:
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The buyer must be found creditworthy by the lender to assume the VA mortgage. This involves submitting an application and documentation.
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Lenders will evaluate the buyer’s income, assets, debts and credit to determine if they can afford the mortgage payment.
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The home must become the buyer’s primary residence.
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A veteran buyer can substitute their VA entitlement on the loan. This returns eligibility to the seller.
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Civilian buyers can assume VA loans, but the seller’s entitlement remains tied to the mortgage until it’s paid off.
Meet with a lender early when considering a VA assumption. Every lender has their own overlaying guidelines borrowers must meet.
Pros of VA Loan Assumptions
There are some distinct advantages to assuming a VA mortgage versus a traditional home purchase:
Cost savings – Assumers avoid thousands in closing costs and fees paid by buyers in a normal purchase transaction. The VA charges only a 0.5% funding fee on the loan balance.
Lower rate – Assuming a low fixed rate loan can save substantially each month compared to current rates. This savings is especially impactful if rates rise significantly.
Fast process – Assumptions can close much quicker than a regular purchase since there’s less documentation and underwriting.
Increased buying power – Assumable VA loans may allow more buyers to afford a home, increasing demand for sellers.
Cons of VA Loan Assumptions
However, there are also potential drawbacks of VA assumptions home buyers should consider:
Limited inventory – Only homes with assumable VA loans qualify. Conventional loans are generally not assumable.
Cash needed for equity – The buyer must pay the seller’s equity to assume their mortgage. This can require tens of thousands in cash.
Risks for sellers – Allowing assumptions by non-veterans leaves sellers liable and can impact reuse of VA entitlement.
Not all lenders allow – Each lender has their own guidelines. Some don’t permit assumptions or restrict eligible buyers.
Rates may be better now – Current rates could be lower than an existing VA loan you’re assuming. Shop and compare options.
Carefully weigh the pros and cons of assuming versus a traditional VA purchase loan or refinance. Connect with a lender to explore your home financing options.
How Does the VA Assumption Process Work?
If you determine a VA loan assumption makes sense, here are the key steps involved:
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Find an assumable VA loan – Work with a real estate agent to locate FSBO listings with assumable VA financing. Veterans United agents have access to the MLS.
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Review loan terms – The seller provides info on the current balance, interest rate, loan type, lender, etc. Calculate the monthly payment based on your situation.
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Submit assumption application – Work with the servicer of the existing VA loan to apply to assume it. Be prepared to document income, assets, credit, etc.
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Get approved – The lender reviews your application and notifies if you meet requirements to assume the loan.
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Work out home price and equity – Negotiate a purchase price with the seller. Determine the equity you’ll pay at close. Get prequalified for any secondary financing needed.
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Sign purchase contract – Make an offer contingent on the VA approving the assumption.
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Schedule closing – After the home appraises and VA assumption is finalized, book a closing date with the title company.
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Close and move in – Bring cashier’s checks to closing for equity payoff to seller and VA funding fee. Then get the keys and move into your new home!
It’s critical to involve your real estate agent early on when considering a VA loan assumption. Veterans United agents have extensive experience guiding buyers through the VA assumption process.
Frequency of Entities
VA loan: 23
Assumable loan: 7
VA assumption: 6
Loan assumption: 5
Mortgage: 4
VA mortgage: 3
VA borrower: 2
VA lender: 2
VA purchase loan: 2
VA entitlement: 2
Conventional loan: 2
FHA loan: 1
Existing VA loan: 1
VA home loan: 1
Can Civilians Assume a VA Loan?
Yes, civilians can assume an existing VA loan if they meet the lender’s qualification guidelines. However, there are risks for the VA homeowner allowing assumption by a non-veteran buyer.
When a veteran assumes another veteran’s VA loan, they can substitute their VA entitlement. This releases the seller’s entitlement to be restored and reused.
But when a civilian assumes the loan, the seller’s entitlement remains tied to that mortgage permanently until it’s paid off. This impacts their ability to reuse the VA home loan benefit in the future.
Another risk is if the civilian assumer later defaults, resulting in foreclosure or short sale. In that scenario, the original veteran borrower loses that portion of entitlement for good.
For these reasons, some VA homeowners only allow assumptions by other eligible veterans. But it’s ultimately the seller’s choice who can assume their VA mortgage.
Are Veterans United VA Loans Assumable?
Yes, VA loans issued by Veterans United are assumable based on current VA assumption guidelines and overlays. However, Veterans United does not permit assumptions on non-VA loan types like conventional and FHA mortgages.
Veterans United will review assumption applications from creditworthy buyers who intend to use the home as their primary residence. Approval is subject to VA review and appraisal of the property.
Our VA-specialized loan officers have extensive experience with the VA assumption process. We help ensure buyers and sellers understand the risks, benefits and steps involved before moving forward.
How to Find a VA Loan Assumption
If you’ve determined a VA assumption aligns with your homebuying goals, here are some tips for finding available VA loans to assume:
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Contact a real estate agent who can search for FSBO listings with assumable VA financing in the MLS.
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Look for key terms like “VA assumable” or “owner financing” in property listings on Zillow, Realtor.com and other sites.
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Talk to lenders about any assumable VA loans they service that may not be actively listed for sale.
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Check with family, friends or colleagues in your social networks selling homes with VA loans.
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Talk to builders or developers selling new construction with possible assumable VA mortgages.
Cast a wide net when searching for assumable VA listings. Homes with these loans are sometimes marketed differently than normal for-sale-by-owner properties.
FAQs About VA Assumable Loans
Here are answers to some frequently asked questions about VA loan assumptions:
Can I assume a VA IRRRL refinance? Only VA purchase loans can be assumed. Refinances like the IRRRL are not assumable.
How much cash do I need? You’ll need funds to cover the seller’s equity, VA funding fee and any closing costs. Shop lenders to minimize fees.
How do I get approved to assume? Submit an application with income/asset documentation to the servicer. Get prequalified early so you know the amount you can assume.
Can I remove a co-borrower? No, the original borrowers remain liable unless VA releases them. Any assumer simply joins liability on that mortgage.
Does my credit need to be perfect? Not necessarily. The lender sets credit