is va loan assumable

Is a VA Loan Assumable? An In-Depth Guide for Veterans and Homebuyers

If you’re a veteran exploring your home financing options, you may be wondering: is a VA loan assumable? As a fellow veteran and homebuyer, I can tell you the answer is yes! VA loans come with some unique benefits that set them apart from conventional loans – and assumability is one of the biggest.

In this comprehensive guide, I’ll walk you through everything you need to know about assuming a VA mortgage. We’ll cover the basics of how VA loan assumptions work, who can assume them, the pros and cons, and step-by-step instructions for assuming a VA mortgage. My goal is to provide veterans and homebuyers with a thorough resource so you can decide if assuming a VA loan is the right move for your homebuying goals.

What is a VA Loan Assumption?

First, let’s define what a VA mortgage assumption is. When you assume a loan, you take over the mortgage of the current homeowner. This allows you to inherit the low interest rate on their existing VA loan – which can save you a ton of money compared to taking out a new mortgage at today’s rates.

You take over legal responsibility for the loan making the monthly payments and fulfilling all other obligations. The original homeowner is released from liability on the mortgage once you assume it. They walk away free and clear.

VA loans are assumable regardless of whether interest rates have gone up or down since the original mortgage was taken out. This differs from conventional loans, which typically can only be assumed when rates go up.

The VA’s supportive assumption rules aim to help veterans reuse the home loan benefit and make homeownership more affordable. This is just one of the many consumer-friendly features that set VA loans apart.

Who Can Assume a VA Mortgage?

The VA has flexible assumption guidelines – you do not need to be an eligible veteran to assume a VA loan. Both veterans and civilians can take over a VA mortgage through the assumption process.

However, there are some specific considerations for veteran homeowners who allow civilians to assume their VA loan:

• If the civilian assumer does not substitute their entitlement, the seller’s VA entitlement will remain tied up in the loan until it is paid off. This could limit their ability to reuse the benefit.

• Veterans also risk losing their entitlement permanently if the assumer later defaults on the loan.

Because of these risks, some homeowners only allow assumptions to veterans who are eligible to substitute their entitlement. But it’s ultimately the seller’s choice who can assume their mortgage.

Benefits of Assuming a VA Mortgage

Assuming a VA loan offers major benefits for homebuyers, mainly in the form of cost savings:

Lower interest rate – You take over the low rate the seller locked in when they first obtained the mortgage. Rates are significantly higher today, so you save big compared to a new VA loan.

Lower monthly payments – That lower interest rate also means lower monthly principal and interest payments. This improves affordability and frees up cash flow.

Lower costs and fees – Assumptions don’t come with all the fees that a new mortgage does. You may pay a small assumption fee and VA funding fee, but that’s it.

Less cash needed at closing – Since there are fewer fees and you aren’t starting a new loan term, you don’t need to bring as much cash to closing.

Easier approval – Lenders mainly just need to verify your income, credit, and overall ability to handle the monthly payments. The process is less rigorous than a normal mortgage.

For these reasons, assumptions can be an excellent option whether you’re a first-time or repeat homebuyer. You get to skip the tough lending market and capture the low rates of past years.

Downsides of VA Loan Assumptions

Of course, there are also some potential downsides of assumptions that buyers should be aware of:

Home equity payout – Sellers want to capture their equity when they allow an assumption. Buyers must bring extra cash to closing to pay this equity to the seller.

Risks for veteran sellers – As mentioned above, veterans can lose their VA entitlement or have it limited if the wrong type of borrower assumes their loan.

Rising payments – If the loan has an adjustable rate, payments could rise at some point in the future when the rate adjusts. Fixed rates don’t have this risk.

Difficult to find – Assumable mortgages aren’t always easy to find, as they aren’t advertised as heavily as traditional real estate listings. It takes some digging.

As with any major financial decision, you have to weigh the pros and cons carefully. But for many homebuyers, the benefits of assuming a VA loan far outweigh the downsides.

How to Find Assumable VA Loans

If you’ve decided to pursue a VA loan assumption, the next step is tracking down available mortgages to assume. Here are some tips for finding assumable VA loans:

• Work with a real estate agent – An agent who has access to MLS listings can easily filter for homes with assumable VA and FHA mortgages. This is the simplest route.

• Check individual listings – Some sellers advertise that their home has an assumable mortgage to attract buyers. Browse Zillow, Trulia, realtor.com, and other listing sites.

• Ask your lender – Mortgage lenders may know of assumable VA loans that veterans are trying to get off their books. It never hurts to ask!

• Look for telltale signs – FHA and VA loans originated after 1986 likely have assumable mortgages. Homes bought in the last few years when rates were low are prime targets.

Assumable mortgages are out there if you’re willing to hunt! The $1,000+ monthly savings over today’s rates makes it well worth the effort.

Step-by-Step VA Loan Assumption Process

If you’ve found an assumable VA mortgage you want to take over, here is a step-by-step overview of the assumption process:

1. Submit an application – You’ll need to complete a loan assumption application with the lender/servicer holding the mortgage. This states your intent to assume.

2. Get evaluated – The servicer will evaluate your credit, income, debts, and assets to ensure you qualify and can handle the monthly payments.

3. Negotiate home equity payout – Work with the seller to determine the amount of home equity you’ll pay them at closing for the privilege of assuming their loan.

4. Submit loan documents – You’ll need to provide documents that verify income, tax returns, bank accounts, and other financial information.

5. Get appraisal and inspection – Most assumers choose to get a new appraisal and home inspection done before moving forward. This is optional but smart.

6. Sign final assumption agreement – This legally transfers responsibility for the mortgage from the current owner to you. All terms are formalized here.

7. Close the loan – At closing, you’ll pay any closing costs and the homeowner equity payout. Ownership is then transferred to you!

For veterans, there will be a few extra steps if you want the seller to substitute their entitlement or if lender approval is needed from the VA. But in most cases, the process is straightforward. Be sure to stay in close contact with your loan officer throughout so you know what needs to be done.

VA Assumption Rules and Guidelines

The VA published Circular 26-23-10 in May 2023 to clarify assumption rules and procedures for lenders. Here are some key details on VA assumptions:

• The loan must be current or made current before closing. Past-due mortgages cannot be assumed.

• Assumers must be creditworthy and able to make monthly payments. Lenders check credit, income, debts.

• Closing costs are limited – mainly just the 0.5% VA funding fee and up to $300 in lender fees are allowed.

• Assumption processing should take less than 45 days with automatic lenders and less than 60 days if VA approval is needed.

• Assumptions can be appealed to the VA if the lender denies the application.

• The VA has no restrictions on the interest rate gain allowed through an assumption.

Always refer to the VA’s circular for the latest policies around assumptions. Lenders may also impose their own requirements.

Pro Tips for Maximizing VA Loan Assumptions

If you’re going to take over someone’s VA mortgage, you want to make sure you get the best deal possible. Here are my pro tips for maximizing a VA loan assumption as either the assumer or seller:

• Shop around for the lowest rate – Don’t take the first assumable loan you see. Compare options to find the best interest rate and loan balance combination.

• Negotiate the equity payout – As the assumer, politely negotiate a lower equity buyout if you can. As the seller, start higher and let the buyer talk you down a bit.

• Get a substitution of entitlement – Veterans selling should require the assumer to substitute entitlement so your own entitlement isn’t impacted.

• Consider bridge financing – If you need help financing the home equity p