How to Assume a VA Home Loan in 2023: A Complete Guide

Assuming a VA home loan can be an excellent way for buyers to purchase a home with a low interest rate. With mortgage rates on the rise, being able to take over the low rate on an existing VA loan provides significant savings.

In this comprehensive guide, we will explain everything you need to know about assuming a VA mortgage in 2023. We will cover:

• What is a VA loan assumption?
• Benefits and drawbacks of assuming a VA loan
• VA loan assumability and eligibility
• Finding assumable VA loans
• The VA loan assumption process
• Tips for a smooth assumption

What is a VA Loan Assumption?

A VA loan assumption allows a buyer to take over the mortgage of the current VA homeowner Rather than getting a new loan, the buyer “assumes” the original VA borrower’s loan, including the interest rate and remaining loan balance

Essentially the buyer steps into the shoes of the current homeowner and takes over their mortgage. The loan stays with the property when it’s sold.

This differs from a traditional purchase, where the buyer gets a brand new mortgage. With an assumption, there’s no new loan or appraisal needed.

Benefits of Assuming a VA Mortgage

There are some major perks to assuming a VA home loan rather than taking out a new purchase mortgage

Lower Interest Rate

The #1 benefit is inheriting the low rate on the current VA loan. Rates are over 6% right now, while most existing VA loans are below 5%. That 1-2% rate difference translates into huge monthly savings.

Lower Fees

Assuming a loan costs significantly less than a normal purchase in upfront fees. Buyers pay no origination fee and benefit from no appraisal cost.

The only fee is a 0.5% VA funding fee, which goes directly to help future Veterans use their home loan benefits.

Faster Closing

Because there’s no new appraisal or underwriting needed, the assumption process is generally much quicker than a purchase loan. That means buyers can close faster.

Drawbacks of VA Loan Assumptions

VA loan assumptions also come with a few potential disadvantages:

Paying Homeowner Equity

The buyer has to pay out the homeowner’s equity at closing. The VA loan stays with the property, so buyers have to compensate sellers for the equity they’ve built.

Coming up with 10-20% of the purchase price in cash can be tough. Buyers may need to tap other sources like retirement funds or secondary financing.

Entitlement Issues for Homeowner

If the buyer isn’t a Veteran, allowing the assumption can tie up the current homeowner’s VA entitlement. That can limit their ability to reuse the benefit down the road.

Homeowners have to consider if assumptions are worth the entitlement risk.

Are VA Loans Assumable?

Yes, VA loans are assumable regardless of current market conditions or interest rates. Assumability is a key feature of VA loans that conventional and FHA loans don’t offer.

The VA doesn’t restrict when or how a VA mortgage can be assumed, within certain guidelines. Lenders set more specific rules for the assumptions they allow.

VA Loan Assumption Eligibility

The VA has broad eligibility standards for assumptions. As long as the buyer is financially qualified and creditworthy, the VA gives the greenlight.

Specific requirements may include:

• Minimum credit score of 620 or 640
• Stable income and employment
• Clean credit history
• Sufficient assets and reserves
• Manageable existing debts

Every lender has their own eligibility criteria. It’s critical to check on their guidelines before pursuing an assumption.

Who Can Assume a VA Home Loan?

Veteran Status Not Required

The big surprise about VA assumptions is that buyers don’t have to be Veterans. The VA allows anyone to assume, as long as they’re financially qualified.

Veterans Do Get Key Protections

If the buyer is a qualified Veteran assuming the loan of another Veteran, they can substitute their entitlement. This preserves the seller’s entitlement for future use.

Only Veterans can substitute entitlement. Otherwise, the seller’s entitlement stays tied up with the assumed loan until it’s paid off.

Finding an Assumable VA Mortgage

Buyers have a few options for locating an assumable VA loan:

Check MLS Listings

Many real estate agents list whether a property has an assumable loan right in the MLS listing. This is the easiest way to zero in on options.

Look at Online Listings

Some sellers highlight assumability when marketing their home for sale online. Review listing details on realtor.com and Zillow for any references to an assumable VA mortgage.

Ask Your Agent

Tell your real estate agent you’re interested in assuming a VA loan. They can keep an eye out for listings that fit the bill when sending you options.

Contact Local Lenders

Connecting with lenders familiar with your market is another route. They may know of clients with assumable VA loans planning to list soon.

The VA Loan Assumption Process

Here are the typical steps to assume an existing VA mortgage:

1. Find a Home with an Assumable Loan

Search using the options above to locate VA listings open to assumptions. Compare terms of any assumable loans.

2. Make an Offer and Enter Contract

Craft an offer with the help of your agent. Make sure to account for paying the seller’s equity. Get the home under contract once an offer is accepted.

3. Provide Documents for Review

Work with the loan servicer to provide credit, income, employment and asset documentation. This is how they’ll assess your financial eligibility.

4. Get VA Loan Approval

The servicer reviews your documentation and issues a decision on the assumption. This is similar to getting underwritten and approved for a new purchase loan.

5. Close on the Home Purchase

Once approved, move forward with closing on the home. The seller gets paid out their equity, and the home and VA loan transfer to you.

Tips for a Smooth VA Loan Assumption

Follow these pointers to help the assumption process go smoothly:

• Get pre-qualified – Having a pre-approval shows sellers you’re serious and ready
• Know the loan terms – Compare loan details of multiple assumable options
• Hire a real estate agent – An experienced agent is key for negotiating and paperwork
• Document everything – Keep notes and copies of all terms, requirements and decisions
• Connect with the lender early – Contact the servicer right away to get info and discuss process
• Be ready to close quickly – Assumptions can close much faster than normal purchases

Wrap Up

Assuming an existing VA loan can unlock huge savings for buyers when rates are high. It comes with risks around homeowner entitlement that need careful evaluation.

Following this guide will give you a solid overview of what’s involved with VA assumptions. The process is different than a regular purchase, but the savings make it worth exploring in today’s market.

With lower rates, fewer fees, and faster closings, VA loan assumptions are an exciting option for buyers and Veterans. Finding the right opportunity just takes some savvy searching and working closely with your real estate agent and lender.