What is a VA Assumable Loan? A Complete Guide

A VA assumable loan allows a buyer to take over the mortgage of a seller with a VA loan. Instead of getting a new loan, the buyer assumes the original loan with its terms and conditions. VA loans are assumable regardless of whether the buyer is a veteran or not.

Assuming a VA loan can save money compared to getting a new mortgage. But it also comes with risks that buyers and sellers should understand before proceeding. In this complete guide, we’ll break down how VA assumptions work, the pros and cons, who is eligible, and how to find assumable VA loans.

What is a VA Loan Assumption?

A VA loan assumption allows a buyer to take over the mortgage of a current VA homeowner Rather than applying for a new loan, the buyer inherits the original VA loan with its interest rate, remaining term, monthly payment and other conditions

It’s referred to as an “assumption” because the buyer assumes all responsibilities and risks associated with the loan going forward.

VA loans can be assumed one time without lender approval. After the first assumption, lenders can impose qualifying requirements for subsequent assumptions.

Key Facts About VA Loan Assumptions

Here are some key things to know about assumptions with VA mortgages:

• Available on all VA Loans: VA loans can be assumed regardless of when the mortgage was originated. Loans made after March 1988 require lender approval of the assuming buyer’s credit.

• Not just for veterans VA loan assumptions are open to all qualified buyers, not just veterans The buyer does not need to be a veteran to assume a VA loan

• Low fees: Assumptions feature lower fees compared to a new purchase loan. VA assumers pay a 0.5% funding fee on the loan balance.

• No lender obligation: Lenders are not obligated to allow assumptions on the VA loans they service. Many do permit assumptions but can impose requirements.

• Risks for sellers: Allowing assumptions poses risks relating to the sellers’ VA entitlement. Veterans should understand these risks before agreeing to let a civilian assume their loan.

The Pros of Assuming a VA Home Loan

Assuming a VA loan offers several advantages to buyers compared to getting a new mortgage:

Lower Interest Rates

Today’s rates are still near historic lows but significantly higher than just a couple years ago. Assuming an older VA loan can allow buyers to lock in a lower rate and payment than they may get with a new mortgage today.

Over the life of the loan, a lower rate can result in tens of thousands in interest savings. This major financial benefit is one of the biggest motivators for considering a VA assumption.

Lower Fees

In addition to a lower rate, assumptions allow buyers to avoid many of the fees that come with a new purchase loan.

On a $200,000 purchase, VA loan assumption fees would total around $1,000. Meanwhile, buying the same home with a new VA loan could cost $4,000 or more in lender, third-party, VA funding and other fees.

Assumptions let buyers enjoy significant upfront cost savings versus a traditional mortgage. This can make home buying more affordable, especially for first-timers.

Cash Flow Flexibility

Since assumptions come with lower rates and monthly payments, buyers may have more room in their budget.

The difference in payment between an assumed older VA loan and a new mortgage today could be $500 or more each month. Buyers can use those extra funds for other financial goals.

Potential Downsides of VA Loan Assumptions

Along with benefits, VA assumptions also come with risks and limitations buyers and sellers should be aware of.

Homeowner Equity

Sellers with equity in their home will want to be paid out at assumption. Otherwise, what’s the incentive to allow a loan assumption?

Coming up with the difference in cash could be a challenge for some buyers. Unique options like home equity loans may help buyers access funds to cash out seller equity.

Risks for Veteran Sellers

Allowing assumptions to non-veteran buyers poses risks for VA borrowers relating to their remaining VA entitlement.

Veterans who let a civilian assume their loan can get their entitlement tied up in that home indefinitely. If the civilian buyer later defaults, the veteran loses that portion of their VA home loan benefit.

Veterans should think twice before letting a non-veteran assume their mortgage because of these impacts on entitlement.

Not All Lenders Allow Assumptions

VA loans are assumable by regulation, but individual lenders can decide whether or not they will permit assumptions on the loans they service. Some lenders opt not to allow assumptions or make the process difficult.

If assumption is important, veterans should shop lenders willing and able to facilitate the process.

Who is Eligible to Assume a VA Loan?

The VA allows assumptions by all qualified buyers, not just veteran and military home buyers. Here are some key eligibility guidelines:

• Veteran status: You do not need to be a veteran to assume a VA loan. The VA allows assumptions by any creditworthy buyer the lender approves.

• Occupancy: The home must be the assuming buyer’s primary residence. VA loans can’t be assumed for investment properties.

• Credit guidelines: The assuming buyer will need a credit profile acceptable to the lender. Many require a 620 FICO score or higher.

• Income thresholds: The lender will verify the assuming buyer has enough income to support the monthly payment. Residual income guidelines also apply.

• Debt-to-income ratio: Income versus existing debts is another key metric lenders consider. Many require a 45% DTI or lower.

As long as buyers meet credit and income qualifications, they can assume a VA loan. Connect with a lender to confirm your assumption eligibility.

How the VA Loan Assumption Process Works

Here are the key steps involved with assuming an existing VA mortgage:

1. Find a home with an assumable loan: Veterans can check MLS listings or major real estate sites like Zillow. Sellers sometimes advertise assumable loans to attract buyers.

2. Review loan details and determine affordability: Get specifics on the loan balance, rate, term and payment and make sure it fits your budget. Figure out how you’ll pay the seller’s equity.

3. Submit assumption application and docs: Work with the loan servicer to complete the assumption application and supply documents verifying your credit, income, eligibility and other details.

4. Loan servicing reviews and processes request: The lender reviews your assumption application and notifies the VA of the proposed assumption if approved.

5. Close on the home and start making payments: At closing, you start making the existing monthly mortgage payments and take over all obligations under the original loan.

From offer to closing usually takes 30-45 days for a VA assumption. It’s less time consuming than a regular 30-year mortgage thanks to less paperwork.

5 Tips for Finding Assumable VA Loans

If you want to assume a VA loan, the first step is finding homes with assumable mortgages listed for sale. Here are some tips for tracking down VA assumptions:

• Check MLS listings: Realtors with MLS access can search for listings with mention of an assumable VA loan. This is the most efficient way to find assumptions.

• Look for “assumable” in listings: Sellers may call out assumable VA loans in their real estate ad descriptions to attract buyers.

• Search by loan origin date: Loans from 2020 or earlier are more likely assumable at lower rates than today’s VA mortgages.

• Consider FHA loans too: FHA loans can also be assumed, expanding your options. The process works much like VA assumptions.

• Get lender guidance: An experienced mortgage pro can explain the process and help you find assumable VA loans that match your budget and goals.

VA Assumption vs Traditional Mortgage

Assuming an existing VA loan provides some clear benefits compared to taking out a new mortgage. Here’s a quick rundown of how the two options differ:

In many cases, assumption makes sense thanks to faster close, lower costs and inheriting better loan terms. But it involves risk trade-offs buyers and sellers should weigh.

Key Takeaways about VA Loan Assumptions

Assuming a VA loan can be an attractive option, especially when rates rise. Here are some key final takeaways about VA assumptions:

• Assumptions allow buyers to take over a seller’s existing VA mortgage instead of getting a new loan.