Yes, VA loans are assumable. However, they do come with specific requirements and important considerations for both the buyer and the seller. If you’re interested in assuming a VA loan or having your VA loan assumed by someone else, keep reading to determine if it’s the right option for you!
What Is an Assumable Mortgage?
There are a variety of mortgage options available to potential homebuyers, including VA loans, FHA loans, and conventional loans. All of them come with their own pros and cons and often have eligibility requirements.
A unique aspect of a VA loan is that it is an assumable mortgage, meaning that a homebuyer may receive the exact terms of the existing mortgage from the home seller. Most importantly, this means that the buyer would assume the same interest rate as the current mortgage. This option is also available for FHA loans but not conventional loans.
Requirements for Assuming a VA Home Loan
VA home loans come with very specific eligibility requirements, including being limited to active-duty service members, veterans, or the surviving spouse of a veteran who died. However, anyone is potentially eligible for assuming a VA loan, even those who have never been affiliated with the military.
The specific requirements for assuming a loan will vary on a case-by-case basis, but the following rules serve as a general guideline for understanding if you would qualify:
- Have a credit score of at least 620
- Have a 41% debt-to-income (DTI) ratio
- Pay the VA funding fee of 0.5% of the loan balance
- Make a down payment that covers the difference between the selling price and the existing loan amount
- Use the home as your primary residence
On top of these requirements, you’ll also need to find a seller willing to let you assume their VA loan. While anyone is potentially eligible to assume a VA loan, there are certain risks involved for the seller. This means the seller might not be interested in transferring their loan terms.
Considerations for the Seller
If you’re a seller interested in having your VA loan assumed, there are a few things worth considering before getting started. First of all, you’ll only be eligible for having your loan assumed if you are up to date on your mortgage payments.
If someone who also qualifies for a VA loan assumes yours, they can formally substitute your entitlement for theirs. This means you’re then free to use your VA entitlement to purchase your next home.
Furthermore, VA loans are assumable by non-military buyers, but you will have to forfeit your VA entitlement until the loan is paid back in full. Also, if the assumer defaults on the loan, you can potentially lose your entitlement entirely.
Transferring your liability is a formal process involving an application for approval. Once your lender or servicer has approved your release of liability application, you will be free from the liabilities of the loan. In the meantime, however, any missed payments by the new owner can negatively impact your credit score.
With these risks and limitations, why would I want to have my VA loan assumed?
Having an assumable low interest rate can be a major selling point for a home if interest rates have increased dramatically since the original purchase. As the seller, this gives you some bargaining power when negotiating the terms of your sale.
Also, having your loan assumed can be especially useful if you will not be using your VA loan entitlement anytime soon. For example, if you are moving abroad, moving into a retirement home, or renting an apartment.
In a competitive market, your assumable loan can be a valuable asset to distinguish your property from the competition.
Considerations for the Buyer
Assuming a VA loan comes with fewer risks for buyers compared to sellers. There are a few things to be sure of beforehand, though.
As mentioned above, you will still need to meet all of the requirements to assume a VA loan outlined by the US Department of Veterans Affairs. Crucially, this means that you cannot assume a VA loan for a secondary residence or investment property.
You will also be required to pay the VA funding fee of 0.5% of the total loan amount unless you qualify for an exemption. Funding fee exemptions are available to:
- Those who receive or are eligible to receive VA compensation for a service-related disability
- Surviving spouses of veterans who died in service or from service-related disabilities
- Active-duty service members who have received a Purple Heart
This funding fee is on top of any other closing costs. These costs can be high if there is a large difference between the remaining loan balance and the purchase price of the home. If you intend to assume a VA loan, be sure to have a plan in place for securing the necessary funds.
So how can I find a home with an assumable VA loan?
Because the process of assuming a VA loan comes with some risks for the seller, this opportunity does not often present itself.
If you’re interested in pursuing an assumable VA loan, contact a real estate agent who can inquire on your behalf. You can also research the available listings on the MLS for potential opportunities.
Is an Assumable VA Loan Right for Me?
If you’re interested in having your VA loan assumed or assuming a VA loan but aren’t sure if it’s right for you, VA Loans for Vets is here to help!
As a veteran-owned business, we are dedicated to assisting other veterans and active-duty service members to navigate the home-buying process. We will guide you through your journey and help you use all of the tools at your disposal so that you can get your family’s dream home.
Give us a call at 602-908-5849 to start your VA home loan journey today!