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As a government-backed loan, VA loans are assumable. Assuming a VA loan can be an attractive option for those who want to capitalize on the low interest rates of these loans in a time of rapidly changing mortgage rates.

But VA loan assumption isn’t right for everyone. While military service is not required to assume a VA loan, there are some caveats for transferring this mortgage type to a non-veteran. Even if you find the right veteran, they might not qualify for the loan. For those who do find the right buyer for their VA loan, assumption can be a great way to save on funding fees and other costs.

What is an assumable VA loan?

Assumable VA loans are a type of assumable mortgage — a home loan that can be taken over, or “assumed,” by a new borrower. This financing agreement transfers the debt obligation of one borrower to a new one, maintaining the same mortgage balance, interest rate, and loan terms.

This process can lock in favorable rates and terms while allowing the new borrower to forgo the rigorous application and underwriting process for a home loan. However, it doesn’t account for home equity, which the new borrower is responsible for paying to the seller in cash.

Who can assume a VA loan?

All VA loans, like other government-backed loans, are assumable. VA loans can only be taken out by eligible current or former active duty service members— but non-veterans may also be able to assume a VA loan under certain circumstances.If a VA loan is assumed by a civilian, the seller’s entitlement will not be restored.

A VA loan entitlement is the amount of money that an eligible service-member is entitled to receive. When you use a VA loan to buy a home, you “cash in” some or all of your entitlement. You can restore that amount either by selling your home, paying off your mortgage, or transferring your VA loan to another eligible veteran.

Requirements of VA loan assumption

The loan assumption process is different from the mortgage application process. The biggest difference is that borrowers don’t have the option to shop around from lender to lender — they must go through the assumption process with the seller’s lender.

The lender will examine the following in order to approve the assumption:

  • Credit score: There is no minimum credit score to take out or assume a VA loan, but lenders typically look for a score of 620 or higher.
  • Down payment: VA home loans don’t require a down payment in most cases, but the borrower will be responsible for paying out the seller for any equity in the home. 
  • Income: The lender will verify that the borrower has steady and sufficient income for the loan.
  • Funding fee: VA funding fees are a one-time payment that the borrower pays for the loan. Funding fees for assumption are 0.5% of the total loan amount.

Is VA loan assumption right for you?

Just like there are pros and cons to using a VA loan, there are some benefits and disadvantages of assuming one. Here are some of the factors to consider while weighing if VA loan assumption is right for you:

Pros

  • Save on closing costs: Since the balance on an assumable mortgage is typically lower than if the borrower were to take out a new loan entirely, the closing costs for a VA loan can be lower too. This can amount to thousands of dollars in savings.
  • Save on funding fees: Funding fees for a new VA loan typically amount to 2.3% to 3.6%, but the funding fee for assumption is just 0.5% of the total loan amount.
  • Inherit low VA interest rates: VA loans tend to carry some of the lowest interest rates of home loans. By assuming a VA loan, borrowers lock in these rates.
  • Sellers can regain entitlement: If the borrower is an eligible current or former service member with a certificate of eligibility, the seller can regain their VA entitlement amount — a huge pro if the seller wants to take out another VA loan in the future.

Cons

  • Less oversight: Borrowers don’t go through the same underwriting process that they would if they were to take out a new mortgage. While this can be a relief for borrowers, it means they may be at risk of taking on a debt amount larger than they can handle. 
  • Still need to meet lender requirements: Not just anyone can assume a VA loan — they have to meet the requirements of the lender. It can be heartbreaking for the seller and the buyer if the lender doesn’t approve the assumption and both parties have to start from scratch.
  • Limited entitlement benefits: Sellers only regain their entitlement if the loan is assumed by another eligible service member. This can be a huge drawback if the seller plans to use their benefits to buy their next home.

How to assume a VA loan

If you’ve decided that assumption is the right choice for you, here are the steps to assume a VA loan:

Find a VA-loan homeowner

The hardest part of assuming a VA loan may be finding a seller who is willing to go through the assumption process. To get started, talk to a real estate agent. They may be able to search the MLS for homes with VA assumable loans or personally know sellers who would be willing to transfer their loan to a buyer. Lastly, there are websites devoted to helping connect sellers and buyers who prefer the assumption process. Scan these websites to see if there are any homes in your desired area.

Figure out if you meet VA loan requirements

Once you find the home, review your finances to ensure you’re financially able to take on the mortgage. Be prepared to verify your income, assets and debts, and credit score.

If you’re a qualified veteran, get your certificate of eligibility and determine your entitlement amount. This may be a crucial bargaining chip if you’re working with a seller who wants to regain their entitlement.

Sign and pay

VA loans typically don’t require a down payment, but assumers of VA loans may need to payout the seller for whatever equity they have accumulated in the home. This will be due at closing in the form of a down payment, in addition to funding fees and other closing costs.

Lastly, the seller will need to obtain a release of liability. This is a crucial document that the lender issues to the seller once the new borrower has assumed the mortgage. Without it, the seller may be held responsible for late or delinquent payments made by the new borrower.

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