VA Assumable Loan Entitlement Update: New Form and Guidelines
The Department of Veterans Affairs (VA) has recently released two important circulars that introduce significant changes to the VA assumable loan process. These updates focus on ensuring that all parties involved in an assumption transaction have a clear understanding of how the assumption may impact their available VA home loan guaranty entitlement. The two circulars we will discuss in this article are:
Circular 26-24-9: New VA Form 26-10291 – Assumption Entitlement Acknowledgement
Circular 26-23-10: VA Assumption Updates
These circulars provide important updates how VA assumable mortgage requests are approved and the impact they have on veteran entitlements.
New VA Form 26-10291: Acknowledgement of Entitlement
One of the most notable changes introduced by the VA is the new Form 26-10291, which is now required for all VA assumption loans. This form is designed to ensure that all parties involved in an assumption transaction are fully aware of the potential impact on the seller’s VA home loan guaranty entitlement.
“This new form was deemed necessary by the VA because some veterans didn’t realize they were losing their entitlement when they allowed a non-veteran buyer to assume their VA loan,” said Michael Lorino, founder and CEO of AssumeList.
The VA expects servicers to provide VA Form 26-10291 to the selling veteran immediately after an application for an assumption is received for their loan. The VA expects the form to be signed byt the veteran seller as soon as possible but no later than the close. The form ensures all parties acknowledge their understanding of the following:
- The assumption may impact the seller’s VA home loan guaranty entitlement.
- The seller’s entitlement may remain tied to the property until the loan is paid in full, unless a substitution of entitlement occurs.
- The buyer (assumer) may be required to substitute their entitlement for the seller’s entitlement to complete the assumption process.
The Importance of Transparency and Clarity
The introduction of VA Form 26-10291 is a critical step in ensuring transparency and clarity in the VA assumable loan process. By requiring the seller to acknowledge the potential impact on their entitlement, the VA is helping to prevent misunderstandings and potential issues that may arise later on.
Safeguarding Veterans’ Interests
This form serves as a safeguard for veterans, ensuring that they are fully informed about the consequences of allowing another party to assume their VA loan.
Educating All Parties Involved
Moreover, the new form helps to educate all parties involved in the transaction about the intricacies of VA assumable loans and the potential impact on the future use of the seller’s VA entitlement.
Promoting Efficiency and Effectiveness
By promoting a clear understanding of the process and its implications, the VA is helping to create a more efficient and effective assumable loan market that better serves the needs of veterans and their families.
Entitlement Impact: Assumption Types and Consequences
VA Circular 26-23-10 focuses on the two ways a VA assumption can be processed. Understanding the differences between these assumption types, and their consequences, is crucial for veterans who are considering whether to allow another party to assume their VA loan.
Assumption Types
As outlined in VA Circular 26-23-10, an assumption involves the transfer of ownership and release of liability of a VA-guaranteed loan. There are two main types of assumptions:
- Assumption without a Substitution of Entitlement
- Assumption with a Substitution of Entitlement
Assumption without a Substitution of Entitlement
In this scenario, the original veteran’s entitlement remains encumbered by the loan until one of three scenarios occur: 1) the loan is paid in full, 2) the new owner refinances out of the VA loan, or 3) the home is sold. The original seller does not receive a restoration of entitlement until one of these three actions occur, meaning that some, or all, of their entitlement will remain tied to the property. This type of assumption can have significant consequences for veterans who may need to use their VA entitlement for a future home purchase.
Assumption with a Substitution of Entitlement
If the buyer is an eligible veteran who intends to occupy the property as their primary residence and has sufficient entitlement, they may agree to substitute their entitlement for the seller’s entitlement. In this case, the seller would receive a restoration of entitlement at closing, freeing up their entitlement for future use. This type of assumption is generally more favorable for the seller, as it allows them to regain access to their VA loan entitlement.
When Sellers Choose to Leave their Entitlement
There are circumstances in which a seller may not need their entitlement for future use and are freely willing to leave their entitlement with the property. In doing so, the potential pool of buyers often increases significantly which can result in more money being offered to the seller. The three most common scenarios that sellers often opt to leave their VA entitlement with the property during an assumption include:
- The seller has enough equity (proceeds) allowing them to purchase their next home with cash
- The seller already owns another home they intent to move into
- The seller is elderly and is moving in with family, thus has no plans to purchase a home again
Reporting Assumption Events in VALERI
After an assumption is closed, the servicer must report the Transfer of Ownership and Release of Liability events to the VA Loan Electronic Reporting Interface (VALERI) within 7 calendar days, as outlined in the VA Servicer Handbook M26-4 Chapter 3.04.
VALERI is the system used by loan servicers and lenders to process VA loans, including both new loans and assumptions. Timely and accurate reporting of assumption events in VALERI is crucial for maintaining the integrity of the VA loan program and ensuring that veterans’ entitlements are properly tracked and managed.
Frequently Asked Questions (FAQ)
What is the purpose of VA Form 26-10291?
VA Form 26-10291, Assumption Entitlement Acknowledgement, is designed to ensure that all parties involved in a VA assumable loan transaction fully understand the impact of the seller’s VA loan guaranty entitlement during an assumption.
Who must sign VA Form 26-10291?
The selling veteran should sign the VA Form 26-10291 immediately after an application to assumption their loan is received, but no later than the date of closing.
How does an assumption without a substitution of entitlement affect the seller’s entitlement?
In an assumption without a substitution of entitlement, the seller’s entitlement remains tied to the property until the loan is paid in full, the new owner refinances, or until the new owner sells the home. The seller does not receive a restoration of entitlement until one of these three events occur.
What is the role of VALERI in the VA assumable loan process?
VALERI (VA Loan Electronic Reporting Interface) is the system used by loan servicers and lenders to process VA loans, including both new loans and assumptions. Servicers must report the Transfer of Ownership and Release of Liability events to VALERI within 7 calendar days of closing an assumption.
The Bottom Line
The recent VA circulars introducing VA Form 26-10291 and clarifying the entitlement impact of different assumption types demonstrate the VA’s commitment to streamlining the assumable loan process and promoting transparency.
As the market evolves, platforms like AssumeList will continue to play a crucial role in helping buyers, sellers, and servicers navigate the complexities of VA assumable loans while ensuring compliance with VA guidelines.
