Who Can Assume a VA Loan? A Complete Guide

The VA loan program offers incredible benefits to eligible borrowers, including the ability to purchase a home with no down payment. But one little-known feature of VA loans is that they can be assumed by a new borrower, even someone who is not a veteran. This guide will explain exactly who is eligible to assume a VA mortgage.

What is a VA Loan Assumption?

Assuming a mortgage simply means taking over the loan from the current homeowner. The person assuming the loan takes on the remaining balance, the interest rate and monthly payments.

With a VA loan assumption, the new borrower goes through a simplified process compared to applying for a brand new mortgage. They don’t have to qualify from scratch or pay most closing costs and fees

VA loans can be assumed by qualified veterans reusing their benefit. But the VA also allows assumptions by civilian borrowers who meet lender guidelines.

The Benefits of Assuming a VA Mortgage

There are two major benefits to assuming an existing VA loan versus taking out a new mortgage

1. Lower Interest Rates

Today’s average 30-year VA loan rate is over 6%. But many existing loans have rates below 4%. Assuming a lower rate loan can save hundreds of dollars per month.

2. Low Fees

On a $300,000 purchase loan, total closing costs often exceed $6,000. But the VA only charges a 0.5% funding fee when assuming a loan. With assumptions, borrowers avoid appraisal fees, origination charges, and more.

For buyers, assumability opens up affordable options even when rates rise. And for sellers, it can attract more buyers.

Who is Eligible to Assume a VA Mortgage?

The VA allows assumptions by the following types of new borrowers:

• Veterans using their VA loan benefit
• Veterans substituting their entitlement
• Civilian borrowers (no military service required)

The key is being financially qualified. Lenders review credit, income, assets, and other factors before approving an assumption, just like with a new loan.

Veterans Reusing Benefits

For a veteran who hasn’t used their full VA loan eligibility, assuming another veteran’s loan is possible. This preserves entitlement for future VA loans.

Veterans Substituting Entitlement

Veterans who have fully used their VA loan benefit can still do an assumption. They formally transfer entitlement from the seller, freeing up the seller’s eligibility.

Civilian Borrowers

When a civilian assumes a VA loan, the seller’s entitlement remains tied to that loan. This can limit their ability to reuse the benefit later. But the VA still allows assumptions by qualified civilians.

The VA Assumption Process

The process to assume an existing VA loan includes these primary steps:

• Find a Home with an Assumable Loan – Veterans can ask realtors to search for VA loans in their MLS. Home listings may advertise if the mortgage is assumable.

• Review Lender Guidelines – Each lender has their own qualification standards for assumptions. Work with the servicer on the loan to submit documents and determine eligibility.

• Prove Financial Stability – The assumer reviews income, assets, credit, and overall finances with the lender, just like during a purchase.

• Pay any Required Down Payment – If the home’s value exceeds the loan balance, the assumer typically pays the difference to the seller at closing.

• Close on the Assumption – After approval, the assumer formally takes over the payments and other loan obligations.

• Obtain Release of Liability – The original borrower requests this VA form confirming they are no longer responsible for the mortgage.

VA assumptions require much less paperwork than a new home loan. While still a major financial commitment, it simplifies the transaction.

Pros and Cons of VA Loan Assumptions

Assuming an existing VA mortgage has multiple advantages – but also some drawbacks to weigh.

Pros of Assumptions

• Lower Interest Rates – Assume a loan well below today’s average and save monthly
• Minimal Fees – Much lower out-of-pocket costs than a typical purchase
• Preserves Entitlement – Veterans can reuse benefit without taking on new loan
• Expanded Options – Allows buying homes even when rates rise
• Attract More Buyers – Gives veteran sellers a strong marketing point

Cons of Assumptions

• Complicated Down Payments – Cash out equity difference between loan balance and home value
• Risks for Sellers – Entitlement can be tied up if civilian assumes loan
• Not Always Allowed – Some lenders don’t permit or limit assumptions
• Qualification Required – Assumer still needs to prove they can repay the loan

There are risks around entitlement and financing the down payment. But for the right buyers and sellers, assumptions can make VA homeownership possible.

Alternatives to VA Loan Assumptions

Assuming an existing VA loan isn’t the only option. Here are two other paths potential buyers can consider:

VA Streamline Refinance

Also called the Interest Rate Reduction Refinance Loan or IRRRL, this option refinances an existing VA loan into a new lower rate mortgage. Less qualifying and paperwork is required compared to a cash-out refinance. Closing costs can often be rolled into the new loan balance.

New VA Purchase Loan

This is the traditional method of buying a home for veterans and military spouses. It requires full underwriting and standard closing costs. But buyers can shop for the best rates. New VA loans go up to $647,200 without a down payment in most areas.

Consider all programs – assumptions, streamline refis, and new purchases – to identify the most fitting VA home loan.

Finding Homes with Assumable VA Loans

If you’ve determined a VA loan assumption could be right for you, the next step is finding available properties. Here are some options:

• Ask real estate agents to search local MLS listings for VA loans
• Look for “assumable loan” mentioned in property listings on Zillow or realtor.com
• Search sites like vettedva.com that list homes with assumable mortgages
• Connect with lenders who work with assumptions about inventory they know of
• Consider for sale by owners marketed directly by the veteran seller

Cast a wide net when looking for assumable VA loans. Homes priced below current market value due to lower existing rates are ideal candidates.

Working with an Expert VA Loan Lender

VA loan assumptions involve a lot of moving parts. There are major financial implications around interest rates and fees. Plus, sellers must consider how assumptions impact entitlement.

Connecting with a VA mortgage expert is highly recommended before moving forward. Here are some key questions to ask potential lenders:

• Do you allow VA loan assumptions? What are your specific policies?
• What are your qualification standards for assumers?
• How much does the 0.5% VA funding fee cost based on current rates?
• What’s your process and timeline to approve assumptions?
• How can we structure a down payment if the home’s value exceeds the loan balance?

Their guidance can help you decide if an assumption, streamline refinance, or new VA loan is the optimal choice. Rely on a lender familiar with assumptions to ensure it goes smoothly.

The Bottom Line

While not very common, VA loan assumptions remain a possibility for both veterans and civilians. This guide explains the pros, cons, guidelines, and process around taking over someone else’s VA mortgage.

Key highlights:

• Assumers get lower rates and costs than a new purchase loan
• Veterans can assume and reuse benefits; civilians can assume too
• Lenders approve assumptions based on financial qualifications
• Down payments are often required to cash out the seller’s equity
• Work with a lender experienced in the assumption process

Explore if assuming an existing VA loan could allow buying a home even when market rates are high. But look at all options like streamline refinancing and discuss details with specialists. Assumptions are complex – make sure you fully understand the