VA loan assumptions aren’t common, but the ability to assume a loan is a benefit to both buyer and seller.
Assuming a VA home loan means that a buyer is taking over the seller’s mortgage.
The buyer will inherit the same interest rate and mortgage payment as the home seller.
Looking to apply for an assumption? Here is the form.
What’s the benefit of assuming a VA Loan?
A VA assumption has several advantages for both the buyer and the seller.
Benefits for buyers
- One of the most significant benefits is that a buyer might be able to secure a lower-than-average interest rate, especially if the seller got their mortgage when interest rates were low.
This could mean lower monthly payments for the buyer versus what the current market has available.
- Buyers closing costs are reduced. Since the buyer doesn’t have to go through the normal mortgage underwriting process, which requires an appraisal, the closing costs to the buyer are significantly reduced.
- When buying a home, the VA funding fee is 2.3% for first-time users of the program; this is reduced to 0.5% for the VA assumption.
- Buyers who aren’t veterans can take advantage of assuming a VA loan.
Benefits for sellers
- Sellers can ask for a higher sales price because the buyer has so many benefits for assuming a VA Loan.
- Sellers could sell their home more quickly when offering a VA assumption because an appraisal isn’t required.
- Sellers can advertise that the house comes with a low-interest rate mortgage. For example, if the loan has a fixed rate of 3.25%, but current market rates are 5%, that would make the home more appealing to potential buyers during a time of higher interest rates.
The seller benefits the most during a buyer’s market.
What is the downside of assuming a VA loan?
Lenders are not required to approve the assumption. The buyer must meet the lenders’ credit, income, and debt requirements.
There is no guaranteed approval.
If a civilian assumes the VA loan, the veteran’s VA entitlement stays with the loan.
What does this mean?
Suppose the civilian defaults on the home loan and goes into foreclosure.
In that case, the veteran’s certificate of eligibility will be affected, which may prevent the veteran from qualifying for a VA loan in the future.
Seller may even be subject to the foreclosure waiting periods.
One more downside – lenders may have to send VA assumption requests to be reviewed by a VA loan office, and everyone involved is subject to waiting for the VA to respond.
VA approval could be a lengthy process and can extend closing timeframes.
Buyers who want to assume a VA loan could be on the hook for a down payment.
If the current veteran sells their home for more money than they owe on the home loan, the buyer assuming the VA loan, would have to come up with the difference for a down payment.
- Purchase Price of Home: $620,000
- Balance on seller VA loan: $425,000
- Down Payment Needed from Buyer: $195,000
Remember, the buyer is only assuming the loan, so the balance on the home loan can’t be increased to cover the purchase price.
Are you ready to apply? Start the process by completing the form below.