As a Veteran exploring your home financing options, you may have heard about VA assumable loans. These unique loans allow a buyer to take over the mortgage of a current VA homeowner.
Assuming a VA loan can be an excellent way for buyers to get into a home with a low interest rate And it gives VA homeowners a useful sales tactic when rates rise
But assumable VA loans come with specific qualifications for buyers Understanding these VA assumable loan qualifications is key to navigating the process smoothly,
In this comprehensive guide, we’ll break down:
- What is a VA assumable loan?
- Benefits and challenges of VA loan assumptions
- VA assumable loan qualifications
- How to find assumable VA loans
- The VA loan assumption process
Let’s get started!
What is a VA Assumable Loan?
VA loans are assumable, meaning the buyer can take over the mortgage of the current VA homeowner. This transfers property ownership while releasing the seller from future loan liability.
It differs from a traditional sale in some important ways
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Lower mortgage rate: The buyer inherits the fixed rate on the current VA loan, which is likely lower than current market rates. This makes the monthly payment more affordable.
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Limited fees: Assumptions skip many of the closing costs that come with a conventional purchase, like origination charges.
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Flexible guidelines: The VA has flexible credit and underwriting standards for assumptions. Lenders add their own requirements.
In other words, assumptions provide a pathway to homeownership with a built-in low rate and low fees. Now let’s explore the pros and cons of VA loan assumptions.
Benefits and Challenges of VA Loan Assumptions
Assumable VA loans offer buyers the chance to land an ultra-low rate and affordable monthly housing payment. But the process also comes with some unique considerations.
Benefits of VA Loan Assumptions
Here are some of the biggest benefits of assuming a VA mortgage:
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Huge monthly savings: Lower rates save buyers hundreds of dollars per month. Rates below 5% are common on assumable VA loans.
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Low upfront costs: Assumptions skip many closing fees tied to a normal purchase, like origination charges.
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Pay off the seller: Buyers can agree to cash out the seller’s equity at closing. This makes the deal work for both parties.
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Dip your toes in: First-time buyers can “test drive” homeownership without a long-term commitment.
For buyers, lower rates and costs make assumptions an intriguing option when rates rise. But what about risks for sellers?
Challenges of VA Loan Assumptions
There are also some key considerations around assumptions for current VA homeowners:
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Tying up entitlement: Allowing assumptions to non-Vets ties up your VA entitlement until the loan is paid off. This can limit your ability to reuse the benefit.
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Losing entitlement: You also lose that entitlement forever if the assumer defaults down the road.
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Finding a qualified buyer: Not everyone will meet the VA’s credit standards to assume your loan.
As you can see, there are trade-offs around VA loan assumptions for both buyers and sellers. Now let’s explore the qualifications to assume a VA loan.
VA Assumable Loan Qualifications
To assume a VA mortgage, buyers must meet certain credit and underwriting requirements:
Minimum VA Assumable Loan Qualifications
The VA guidelines around assumptions are relatively flexible. But at minimum, assumers must prove:
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Able to qualify: Assumers should meet VA credit standards, like a minimum 620 FICO score. Actual requirements will vary by lender.
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Willing to occupy: The VA has rules around how soon an assumer must move in and for how long. These help ensure it remains a primary residence.
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Able to pay: The assumer must prove enough steady income to cover the monthly payment and other obligations. Minimum residual income rules apply.
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On the hook: The assumer becomes fully liable for the VA mortgage. Their name goes on the deed.
In other words, the VA will assess whether the buyer can afford the monthly payment and intends to use the home as a primary residence.
Additional Lender Requirements
Specific lenders will overlay their own assumption qualifications, which may include:
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Employment history: Many require at least two years of stable income in the same line of work.
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Assets: Some want assumers to have enough cash reserves post-closing to cover several mortgage payments.
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Down payment: While the VA doesn’t require a down payment on assumptions, individual lenders might.
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Appraisal: Most will require an appraisal to ensure the home’s worth supports the sales price.
Bottom line: Assumers must prove their creditworthiness to the VA and lender alike. Now let’s talk about finding available assumable VA loans.
How to Find Assumable VA Loans
Assumable VA loans won’t just fall in your lap. As a buyer, you’ll have to actively search out homes with loans that can be assumed.
Work With a Real Estate Agent
The best way to find an assumable VA loan is to work with an experienced real estate agent.
Agents with access to the multiple listing service (MLS) can filter for listings with assumable mortgages.
Be clear that you only want to see homes with VA or FHA financing. Conventional loans are rarely assumable.
Check Online Listings
You can also scour major real estate sites on your own to find homes with assumable loans.
Some sellers will advertise “assumable VA mortgage” or “take over payments” to attract buyers.
This do-it-yourself approach just takes more active searching on your part.
Talk to Your Lender
Don’t forget to loop in your mortgage lender! They can help connect you to realtors who frequently deal with assumptions.
And they’ll make sure you understand the qualification process before you get too far down the road.
Now let’s walk through the typical loan assumption process.
The VA Loan Assumption Process
Once you’ve identified an assumable VA loan on a home you want to buy, here are the typical next steps:
1. Submit an Assumption Application
You and the seller must complete an application with the servicer of the current VA loan.
This initiates the formal assumption process. The servicer will be the VA lender who made the original loan.
2. Prove Your Eligibility
Next, you’ll go through the underwriting process to prove you meet all credit and eligibility requirements.
This includes documenting income, assets, debts, credit history and more.
You may also need a Certificate of Eligibility for the entitlement transfer.
3. Get Approved
The servicer will review your application and notify you within 30-45 days if you’re approved.
If denied, you can appeal to the VA within 30 days. They’ll re-review your full credit profile.
4. Finalize Logistics
Once approved, it’s time to handle logistics:
- Get an appraisal to confirm the home’s value
- Agree on paying out the seller’s equity
- Final walkthrough of the property
- Schedule the closing date
5. Close and Occupy
At closing, the home’s title transfers to you. You become liable for the VA mortgage and begin making the monthly payments.
Be sure to move in within 60 days and occupy for at least a year, per VA requirements.
And that wraps up the typical assumption process!
Wrap Up
Assuming a VA loan allows buyers to take over a home with an existing VA mortgage. This provides access to low rates and limited fees.
But both buyers and sellers need to understand the qualifications and process around VA assumptions.
As the buyer, you’ll provide extensive documentation to prove your creditworthiness per VA and lender guidelines. This allows you to take over liability for the loan.
Frequency of Entities:
va: 33
assumable: 18
loan: 50
qualifications: 14
assumption: 20
veteran: 7
home: 14
buyer: 15
seller: 10
rate: 7
process: 7
mortgage: 13
requirements: 5
benefit: 2
guidelines: 4
lender: 6
real estate: 3
agent: 3
application: 2
underwriting: 3
approval: 2
appeal: 1
VA: 0
homneowner: 0
Veterans: 0
VA Loan Assumption – Advantages, Disadvantages, Rules & Process | Know Your Benefit
FAQ
Under what conditions is a VA loan assumable?
Who qualifies for an assumable loan?
What credit score do I need to assume a VA loan?
Is assuming a VA loan a good idea?
Are VA loans assumable?
One of the under-the-radar benefits of VA loans is that they’re assumable. That hasn’t meant much in recent years, with mortgage rates at modern-day lows. But with today’s higher rates, the ability to essentially take over someone else’s mortgage — including their low interest rate and monthly payment — is a huge opportunity.
What are the requirements for a VA loan assumption?
Income: You’ll need to have enough income to support the loan amount. Funding fee: A VA loan assumption will come with a funding fee equal to 0.5% of the loan balance. If you are considering a VA loan assumption as a path to homeownership, then meeting the requirements above is a great first step.
How much does a VA loan assumption cost?
Funding fee: A VA loan assumption will come with a funding fee equal to 0.5% of the loan balance. If you are considering a VA loan assumption as a path to homeownership, then meeting the requirements above is a great first step. But keep in mind that each lender has its own standards.
How do I get a VA assumable loan?
Getting the VA assumable loan process started is really as easy as contacting your preferred VA lender and letting them know that you would like to assume a VA loan. Most commonly, the assumptor of a VA loan is a military member themselves, a veteran, or a surviving spouse of a service member.