Find the Perfect Home with a VA Loan Assumption

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.

Buying a home is an exciting milestone in life, but it can also be daunting, especially when it comes to financing. This is where VA loans can help. VA loans are backed by the Department of Veterans Affairs and offer great benefits for eligible buyers, like no down payment and no private mortgage insurance. Even better, some VA loans are assumable, meaning the buyer can take over the existing loan from the seller and inherit the same low interest rate. This saves buyers thousands over the life of the loan compared to current rates In this article, we’ll explore VA loan assumptions and how they can help you find the perfect home

What is a VA Loan Assumption?

A VA loan assumption allows an eligible buyer to assume the seller’s existing VA loan on a home, acquiring the remaining balance, terms, and interest rate. The buyer takes over the payments, so the seller no longer has responsibility for the loan. VA loans can be assumed only once.

To assume a VA loan, the buyer must qualify with a credit check and meet VA guidelines The home must appraise for the purchase price Closing costs may apply. The seller may accept a purchase offer with an assumption contingency allowing time to complete the assumption process.

Benefits of Assuming a VA Loan

Lower Interest Rate – The biggest benefit is inheriting the home’s existing VA loan rate, which could be much lower than current rates. This saves substantially over the loan term.
Less Cash Needed – No down payment is required on a VA loan assumption, only closing costs. This lowers the cash needed at closing vs. a new loan.
Shorter Loan Term – Assuming an existing VA loan with a shorter remaining term can build equity faster than a new 30-year mortgage.
No VA Funding Fee – This 1-3% fee charged on new VA loans is waived when assuming an existing VA loan.
No Private Mortgage Insurance – VA loans don’t require this added cost associated with less than 20% down on conventional loans.

Finding Homes with Assumable VA Loans

The first step is identifying available homes with assumable VA loans. Here are some options:

VA Loan Assumption Sites – Websites like Assumable compile listings of homes with assumable mortgages, including VA loans. This makes it easy to focus your search.
Real Estate Sites – Some major real estate sites now indicate if a listing has an assumable VA loan. You can filter searches for this feature.
Lender Listings – Many lenders list bank-owned foreclosure properties on their site. These often have assumable mortgages.
VA REO Homes – The VA sells homes they’ve acquired through foreclosure through their REO (real estate owned) program. These have assumable financing options.

Once you find a home with an assumable VA loan, contact the listing agent to verify the loan details and assumption eligibility. Act fast if you want to move forward, as competition for low rate assumptions is high in this market.

The VA Loan Assumption Process

After getting an accepted offer on a home with an assumable VA loan, here are key steps in the assumption process:

Review Loan Terms – The lender provides documents to review the loan balance, payments, interest rate, term length, and escrow balance. This helps understand what you are assuming.
Apply for Assumption – You must formally apply for the assumption by completing a credit application and providing documents to determine your eligibility.
Get Appraisal – The home will be appraised to verify its value supports the purchase price. Any appraisal costs may be your responsibility.
Obtain Approval – It takes approximately 30-60 days for the lender to review your application and render a decision. You may continue renting during this time.
Execute Closing – Once approved, you can close on the home, assuming the new loan. Closing costs may range from 2-5% of the purchase price.
Make Payments – You take over making the existing monthly payments on the loan going forward. The seller is released from the loan obligation.

Having an experienced real estate agent to help navigate the process is highly recommended. The seller will also want to work with a knowledgeable agent.

Tips for a Smooth VA Loan Assumption

Get pre-qualified upfront so you know your budget and loan amount.
Hire a real estate agent familiar with the VA loan assumption process.
Act quickly if interested in a home with an assumable VA loan, as competition is fierce.
Negotiate the purchase price below appraisal so the deal can still close if the appraisal is low.
Be thorough in documenting income, assets, debts, and credit history for the lender.
Maintain your current credit standards; don’t apply for new credit before closing.
Research and understand the home’s loan terms before moving forward.
Build time into the closing date for the 30-60 day assumption approval period.
Have funds available for closing costs that may range from 2-5% of purchase price.
Be patient and persistent throughout the application process until you get final approval.

Alternatives to VA Loan Assumptions

If assuming a VA loan doesn’t work out, here are some potential alternatives to consider:

New VA Loan – If current rates aren’t much higher, this may still be affordable and avoid the assumption process.
FHA Loan – FHA loans allow down payments as low as 3.5% and also offer assumable financing.
USDA Loan – For rural properties, USDA loans are 0% down and assumable.
Conventional Loan – If you have at least 5% down, conventional loans can offer competitive rates, but no assumption option.
Seller Financing – Some sellers may agree to finance a portion themselves at an affordable interest rate.
Down Payment Assistance – State and local programs can help provide funds needed for a down payment or closing costs.

Is Assumption of a VA Home Loan Right for You?

Assuming an existing VA loan can be a great way for eligible buyers to obtain financing and significant interest savings on the right home. It opens up possibilities that may not be available with a new mortgage. However, the process requires patience and persistence. If you’re up for the challenge, the reward of getting into your dream home at a low rate may be well worth the effort. Consult with lenders, real estate professionals, and the VA to see if this option deserves consideration for your home buying needs. For buyers with the right qualifications and determination, the assumption of a VA loan can be a great solution.

Frequency of Entities:

Assumable: 3
VA loan: 20
VA loans: 7
VA loan assumption: 5
VA: 8

See What You Qualify For

Select a VA Home Loan Option to Continue:

How To Find VA REO Properties And Learn More

The VA REO program is administered as VRM Mortgage Services and provides a searchable map of available VA REO homes.

VA literature on the official site directs those interested in such properties to use the map or contact VRM Mortgage Services by phone at 855-843-8334. You can also search for VA-owned properties/VA REOs at the Government Sales official site, which is a site owned and operated by the federal government.

VA Loan Assumption – Advantages, Disadvantages, Rules & Process | Know Your Benefit

FAQ

Does VA allow loan assumption?

An important thing to know about VA loans is that they are assumable. This means that a borrower can take over the terms of an existing VA loan, even if they are not eligible to take out a VA loan for themselves. With that, the home buyer will have the same mortgage payment the home seller had.

How much is the VA assumption fee?

Most of the closing costs associated with a VA purchase aren’t part of an assumption. The person assuming the loan does pay a funding fee of 0.5 percent of the loan balance. That fee goes directly to the VA and helps keep the loan program running for future generations of military buyers.

Do assumable mortgages still exist?

Buyer can’t assume a conventional mortgage, in most cases: The only types of assumable mortgages are FHA loans, VA loans and USDA loans.

How to find out if a loan is assumable?

You can check the loan documents to see whether assumptions are permitted. The loan document will typically state whether or not the loan is assumable under the “assumption clause.” The terms may also appear under the “due on sale clause” if loan assumption isn’t permitted.