Nobody purchases a home intending to miss payments due to financial hardship. Homeowners will typically do anything they can to avoid defaulting on their loan. When homes go into foreclosure, those properties must be reclaimed by the lender and put up for sale in one form or another.
One such type of sale involves repossessed homes purchased with VA mortgages. These properties are known as VA REO homes. “REO” stands for “Real Estate Owned,” which are homes purchased with VA mortgages, repossessed, and put up for sale with a low down payment required, or none at all.
With the purchase of any property usually comes the need for a mortgage loan of some kind. Repossessed houses are often fixer-uppers, and such properties may not pass muster when it comes to building code compliance, the ability to pass an appraisal, etc. That’s why these properties are sold under a program called VA Vendee Financing or VA Vendee Loans.
Finding an assumable VA loan can be a great way for eligible buyers to purchase a home with favorable loan terms without going through the full mortgage application process. With VA loan assumptions rising in popularity, many buyers want to know – how do I find VA assumable loans that meet my needs?
In this complete guide we will cover everything you need to know about locating assumable VA loans in 2023 and securing your ideal home through a VA mortgage assumption.
What is a VA Assumable Loan?
First, let’s start with a quick refresher on what exactly VA loan assumption is.
An assumable mortgage is a home loan that can be transferred from the original borrower to another homebuyer. The buyer taking over the mortgage loan is referred to as the assumptor while the seller passing along their mortgage is the original borrower.
Specifically, a VA assumable loan allows eligible buyers to take over the existing VA home loan of a current VA borrower when purchasing their home. This means the assumptor inherits the original loan amount interest rate, and other terms of the seller’s VA mortgage.
Assuming a VA loan can provide several benefits compared to getting a new mortgage, including:
- Avoiding high closing costs and origination fees
- Locking in a lower, fixed interest rate if rates have risen
- Skipping extensive credit checks and income verification
- Potentially qualifying for a larger loan amount than conventional mortgages
However, VA loan assumptions do come with eligibility requirements and fees that we will outline later on.
Why Assume a VA Loan?
Before we dive into where to find assumable VA loans, let’s explore the key reasons a buyer may want to go this route when purchasing a home.
Low Interest Rates
Rising mortgage rates have priced many buyers out of homeownership. Assuming an existing VA loan with a lower fixed rate can provide significant interest savings over the life of the loan. This benefit increases the lower the rate is on the assumed VA mortgage.
Skip the Mortgage Process
The mortgage application and approval process can be stressful and time consuming. VA loan assumption only requires basic eligibility verification, not full underwriting. This allows buyers to skip arduous paperwork and potentially close faster.
Buy Above Budget
Low rates and no origination fees mean assumable loans provide more buying power. Buyers may qualify for a larger loan amount than they would using current rates and closing costs.
Qualify Easier
VA guidelines are more lenient than conventional loans. Those with past credit issues or high debt-to-income ratios may still qualify to assume a VA loan.
Take Advantage of Seller’s Equity
When a home has appreciated significantly, assuming the mortgage means paying the lower original price instead of current market value. This allows tapping into the seller’s equity.
If these benefits align with your home buying needs, finding an assumable VA loan could be the right move.
VA Loan Assumption Eligibility
While the VA assumable loan process is easier than a purchase mortgage, there are still eligibility requirements to be aware of:
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Credit – Must meet lender minimum credit score, typically 620. Past bankruptcy or foreclosure may disqualify.
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Income – Stable monthly income needed to cover mortgage payments and other debts.
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VA Status – Must be eligible for VA home loan benefit to assume. This includes veterans, active military, and surviving spouses.
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Loan Status – Assumed VA loan must be current. Past due payments must be paid off before closing.
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Occupancy – Assumptor must use home as primary residence. Not eligible for investment properties.
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Funding Fee – 0.5% of the loan balance must be paid to the VA at closing.
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Processing Fee – 1% of the loan amount is common. Covers lender assumption costs.
VA lenders will verify credit, income, VA eligibility, and more during the loan assumption process. Meeting these requirements is key to approval.
How to Find VA Assumable Loans
Assumable mortgages are not as common as conventional loans. This means finding available VA loans to assume requires proactive searching. Here are some proven ways buyers locate assumable VA loans:
Check MLS Listings
The Multiple Listing Service (MLS) compiles property listings from real estate agents in an area. Agents sometimes market homes as having assumable financing. VA loan assumptions must be disclosed. Checking the MLS regularly can uncover new opportunities.
Contact Lender Databases
Mortgage lenders have access to databases that flag assumable VA loans in their portfolio. Ask lenders you trust if they can search for assumable loans that match your preferences. Credit unions with military ties commonly hold VA mortgages.
Utilize Military Resources
Websites like MilitaryByOwner.com connect military buyers and sellers. Members can advertise homes for sale with VA financing that can be assumed. Veteran and military Facebook groups are another place to find listings.
Talk to Relocation Agents
Military relocation professionals help service members buy and sell homes. They work frequently with VA loans and may know of borrowers open to assumption when they move.
Search Online Ads
Websites like Craigslist, Zillow, and Trulia have search filters to locate “lease option” or “rent to own” homes. Sellers using these terms may consider a VA assumption if presented properly. Facebook Marketplace is another source.
Network Locally
Speaking with real estate professionals, lenders, and community members can uncover VA loan assumptions not actively advertised. Word of mouth and networking are powerful tools for finding deals.
With persistence and creativity, you can find VA mortgages open for assumption in any market.
How to Verify Assumable Loan Terms
Once you locate a VA loan assumption opportunity, it is important to verify the specific loan terms and conditions before moving forward. Key items to review include:
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Interest rate – Confirm the fixed rate and term on the VA mortgage. Lower rates provide more savings.
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Loan balance – Remaining principal owed on the loan. This is the amount you will assume.
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Loan type – Most VA loans are 30-year fixed rate. But some older loans may have different terms.
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Seasoning – Review when the loan originated. Loans less than 1 year old often cannot be assumed.
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Assumption policy – Request the lender’s assumption policy. Some prohibit assumptions or have restrictions.
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Closing costs – Ask the lender to estimate fees for processing, credit checks, and other assumption expenses.
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Loan status – Verify the loan is in good standing and not delinquent before moving forward.
Taking these steps upfront ensures you have accurate information to assess if assumption is the right move.
The VA Mortgage Assumption Process
Once you’ve found an assumable VA loan that fits your needs, here is the general process to complete the assumption:
1. Hire a Real Estate Agent
A knowledgeable agent can help negotiate the home purchase and facilitate the assumption. Ensure they have experience with VA loan assumptions.
2. Make an Offer
Submit a purchase offer for the agreed upon price. Include a contingency for you to assume the existing VA mortgage.
3. Apply with Lender
The lender must approve the assumption. They will order credit reports and verify income, assets, and VA eligibility.
4. Negotiate Loan Terms
Work with the lender to re-qualify for the loan at current rates in case the assumption falls through. Offering this backup plan can ease seller concerns.
5. Obtain Approval
It can take up to 60 days to receive final VA loan assumption approval. Timeline varies by lender and region.
6. Complete Closing
Closing is similar to a purchase transaction. The assumptor pays closing fees and records change. Loan transfers to you.
Hiring a real estate agent and lender familiar with the VA assumption process is key to smooth closing.
Pros and Cons of VA Loan Assumptions
Like any big financial decision, weighing the pros and cons can help determine if assuming a VA loan is your best move.
Pros
- Lower mortgage rate than current market
- Avoid lender fees and origination costs
- Faster closing timeline
- Easier to qualify than conventional mortgage
- Buy above your budget
Cons
- Limited inventory and search required
- Inherit condition of existing property
- Processing and closing costs still apply
- Loan balance may be higher than needed
- Shorter loan term if seller has been paying for years
As you can see, there are compelling benefits but also drawbacks to consider before moving forward.
Alternatives to VA Loan Assumption
If you exhaust all options but cannot find an ideal VA loan to assume, here are two alternatives to consider:
1. VA Cash-Out Refinance
VA Vendee Loans For VA Foreclosures
VA Vendee loans are radically different than VA mortgages offered to qualifying military members and surviving spouses. Vendee loans are offered to a wide range of buyers:
- Veterans
- Non-veterans
- Owner-occupiers
- Investors
For most loans associated with the Department of Veterans Affairs, investors and non-military borrowers are excluded. Not so for Vendee Financing; investors can apply for these loans as well as owner-occupiers. Vendee Financing allows purchasing REO homes as investment properties OR primary residences.
Perks of VA Vendee loans for REO properties include:
- Low or no money down
- Origination fees can be included in the loan (for qualified borrowers)
- Funding fees may also be included in the loan (for qualified borrowers)
- 15- or 30-year loan terms
- Seller contributions toward closing costs are permitted
- No mortgage insurance
- No limits on how many VA REO properties can be owned as investments
The zero-down option applies to owner-occupiers, but an investment property purchase of a VA REO home could require a downpayment. Lender standards, state law, and other variables will apply, and your experience may vary.
VA REO homes are sold as-is and are not guaranteed in any way. It’s best to consider these homes as fixer-upper properties that need additional spending to meet building codes, state or local requirements, etc.
If you are daunted by the idea of performing a lot of do-it-yourself improvements or paying to have them done, a VA REO home may not be for you. Those who understand they are not getting a brand-new home in perfect condition will generally be more satisfied with their purchase decisions where REO properties are concerned.
Many websites discussing VA REO homes mention a feature of this program that involves no credit score requirements–your experience may vary depending on the lender, state law, program changes, and other variables. Ask a loan officer about the current perks and requirements for VA REO home purchases under the Vendee Financing program.
See What You Qualify For
Select a VA Home Loan Option to Continue:
How to Find VA Assumable Loans (A Step by Step 2024 Guide) | Everything You Need To Know
How do I find an assumable VA loan?
There are several ways for home buyers to find an assumable VA loan. Believe it or not, print media is still alive and well. Some home sellers advertise their assumable home for sale in the newspaper, or in a local real estate publication. There are a number of online resources for finding assumable mortgage loans.
Are assumable VA loans a good option?
Assumable VA loans can offer several advantages over new home loans. With current mortgage rates on the rise, assumable VA mortgage loans are a great option for home buyers. Time to make a move?
Should you assume a VA loan?
Depending if you are the home buyer or home seller, there are reasons both for and against assuming a VA loan. Buyers need to thoughtfully consider all loan options, because assuming a VA loan may not work in your favor. Consulting a loan specialist with VA loan assumption experience is highly recommended.
Should you get an assumable loan?
Buyers can pocket cash when getting an assumable loan, as the upfront costs are generally less than with a fresh mortgage. Another advantage is speed. The VA Loan process for an assumable loan usually moves quicker than getting a brand-new mortgage because much of the paperwork already exists.
Is a home with a VA or FHA loan assumable?
Generally, a home with a VA or FHA loan is assumable. Conventional mortgages in most cases are not. The VA has broad assumption guidelines. Lenders and servicers holding these loans will likely have their own unique requirements that would-be assumers must meet.
Is a VA loan assumption a good idea?
VA loan assumption is just one of many options home buyers have available today. The home buying hunt should always start with plenty of research on topics like location and affordability, finances, and home ownership responsibilities. MilitaryByOwner is the leading provider of military life related real estate resources.