VA assumable loans are a great option for buying a home. Assuming a VA loan can mean lower interest rates and smaller monthly payments for your home loan.
In this blog post, we’ll discuss what is a VA assumable loan, who qualifies for them, and the benefits of using one.
What is a VA Assumable Loan?
There are many ways to use VA benefits to help purchase your dream home. Fortunately, VA loans are also assumable. An assumable loan is when a mortgage is taken over by another borrower. The new borrower acquires the same loan rates as the previous borrower.
VA loans can be assumable, even for non-military. Anyone can take over a VA loan as long as they are approved by the lender.
Are All VA Loans Assumable?
Luckily, all VA loans are assumable. However, to take over a VA loan, the new borrower must still qualify for the loan. Most lenders will require at least the following financials of the new borrower for a VA loan assumption:
- Credit score above 620
- Denb-to-income ratio (DTI) below 41%
- Family residual income high enough to support the loan payments
The process to do so can be difficult and tenuous to navigate. For advice on how to transfer a VA loan, consult an expert.
Who Can Assume a VA Loan?
As long as the new borrower is approved for the loan terms, anyone is able to assume a VA loan. You do not need to have been a member of the military to assume a VA loan. However, there are some additional benefits if the new borrower qualifies for a VA loan.
To assume a VA loan, the seller must be willing to do so. If the new borrower does not qualify for a VA loan on their own, the seller will not be able to acquire another VA home loan until the loan is paid off. This can dissuade a seller from allowing the assumption of their VA loan.
In some cases, the new borrower may agree to pay a slightly increased price on the home in order to receive more favorable loan terms through the loan assumption.
Pros and Cons of Assumable VA Loans
Pros of Assuming a VA Loan
VA benefits: When assuming a VA loan, you’ll receive the same loan terms as the existing loan without needing to be a military service member.
Assuming the loan terms: Assuming loan terms may be especially favorable if loan amounts have gone up since the VA loan was issued.
Reduced closing costs: The fees associated with the loan assumption will likely be less than the cost to secure a new home loan.
Smaller funding fees: Most loan assumptions will have fees involved. For VA loans, the fees will be significantly lower.
Cons of Assuming a VA Loan
Some involved costs: You’ll need to pay the funding fees associated with assuming a VA loan. You’ll be required to pay a VA funding fee, which is 0.5% of the loan amount, and a processing fee.
The processing fee does not usually exceed $300. Some exceptions apply to the VA funding fee. You may also need a down payment to assume the loan.
Drawbacks for non-military assumption: One of the biggest downsides to assuming a VA loan is that the seller may not acquire a new VA home loan until the loan is fully paid off. This may discourage the original borrower from selling. However, if the new borrower also qualifies for a VA loan, the seller is able to acquire a new VA mortgage loan immediately.
Time-consuming: The full process of assuming a VA will take time. This could add weeks or months to your home-buying journey. Working with lenders, real estate agents, and other advisors who have experience will VA loan assumptions can help speed up the process.
Lending requirements: Even if you and the seller come to an agreement on the sale of the home, you’ll still need to meet the lending requirements for their loan. Depending on the loan terms, this might be more difficult to do than securing a new loan.
Qualifications to Assume a VA Loan
To assume a VA loan, you must meet the lender’s qualifications. Typically, this means a good credit score. Many lenders will prefer a score above 620.
The lender will also consider your debt-to-income ratio. Ratios above 41% are preferred. Finally, you’ll need enough residual income to comfortably make the loan payments.
There are also some requirements on the seller’s part. Namely, they must be up-to-date on all of their loan payments and they must pay any appropriate brokerage fees.
Veterans Administration Home Loan Assumption Requirements
During the mortgage assumption process, the original borrower may need to demonstrate their qualifications for a VA home loan. The Veterans Administration requires that you meet one of the following to qualify for a VA loan:
- A veteran
- An active duty service member
- A member or discharged member of the National Guard and Reserve
- A surviving spouse
However, no such requirements exist for those who can assume an existing VA home loan. To be approved to do so, the borrower must still be approved by the lender.
It might be difficult to find an expert to help you navigate the assumption process for VA loans. Luckily, VA Loans For Vets can help. We have a team of dedicated experts ready to take your call. Give us a call at 602-908-5849 to get started.