VA Assumable Loan: Making Homebuying More Affordable

Assuming a VA loan can be an attractive option for both homebuyers and sellers. With the flexibility and benefits it offers, it’s no wonder why many homebuyers choose this route when it comes to homeownership. In this article, we will explore the concept of VA assumable loans, how they work, and the advantages they bring to the table.

What is a VA Assumable Loan?

A VA assumable loan is a type of mortgage loan that allows a qualified buyer to take over the existing mortgage of a VA loan held by a veteran or other eligible VA borrower. In essence, it means that the buyer assumes the remaining balance of the loan along with its terms and conditions, including the interest rate. This can be a huge advantage for both the buyer and the seller.

To assume a VA loan, the new buyer does not need to be a veteran and therefore doesn’t need to have VA entitlement; however, having VA entitlement makes the process easier as it allows the buyer to substitute his entitlement for that of the sellers.

The value in pursuing a VA loan assumption is the potentially massive savings in your monthly mortgage payments. While new loan interest rates are currently topping 7%, buyers can take advantage of assumable mortgages from existing VA loans and obtain an interest rate under 3%! This benefit can translate into thousands of dollars of savings every year on your mortgage payments.

How Does a VA Assumable Loan Work?

When a homebuyer assumes a VA loan, they step into the shoes of the original VA borrower. This means that they become responsible for making the remaining loan payments, while also enjoying the terms and benefits that come with the original loan. These benefits can include lower interest rates and more lenient credit requirements. In addition, the standard VA funding fee is not applicable as the VA only charges a nominal 0.50% assumption fee for any loan assumption.

To assume a VA loan, the buyer needs to meet certain eligibility criteria, including:

1. VA Loan Entitlement: As mentioned, the buyer is not required to be a veteran or have VA loan entitlement to obtain a VA assumable mortgage. However, if the buyer is a veteran and chooses to substitute his entitlement with that of the seller’s, the buyer must have sufficient VA loan entitlement available. To determine if you have sufficient entitlement available, any VA approved lender can assist you, as can the seller’s existing mortgage servicer.
2. Creditworthiness: The buyer must meet the lender’s credit and income requirements. The best way to learn what these are is to contact the seller’s lender since every lender has slight variations in how they process a VA loan assumption.
3. Occupancy: The buyer must intend to occupy the property as their primary residence.
4. Approval: The lender must approve the assumption. All buyers of assumable VA loans must be approved by the seller’s lender to assume the existing VA loan. This can be a lengthy process which can take anywhere from 45 days to more than 120 days depending on the bank involved. Neither interest rate, original loan amount, or remaining loan balance has any any impact regarding VA loan eligibility or approval.

Advantages of a VA Assumable Loan for Homebuyers

Assuming a VA loan can offer several benefits to homebuyers, making it an attractive option for those who qualify. Some of the advantages include:

1. Lower Interest Rates: VA loans often come with lower interest rates compared to other loan types, which can result in significant long-term savings for the buyer.
2. Less Stringent Credit Requirements: VA loans typically have more lenient credit requirements, making it easier for buyers with less-than-perfect credit to qualify.
3. Avoidance of Mortgage Insurance: VA loans generally do not require mortgage insurance, which can save homebuyers hundreds of dollars each month.
4. Assumption Fees: Assuming a VA loan may involve fees, but they are often lower compared to the costs associated with obtaining a new mortgage. For example, the VA funding fee is eliminated, replaced by a much lower VA assumption fee (calculated at 0.50% of the remaining loan balance). The Department of Veterans Affairs requires this fee for all VA loan assumptions; however, this fee is waived for any buyer exempt from paying a funding fee (e.g. disabled veterans).
5. Transfer of Benefits: Sellers can transfer their VA loan benefits to the buyer, including the eligibility for future loan assumptions.

Advantages of a VA Assumable Loan for Sellers

Sellers can also benefit from having an assumable VA loan. Some advantages for sellers include:

1. Wider Pool of Buyers: By allowing assumption of the loan, sellers open their property to a larger audience of potential buyers, increasing the chances of a smooth sale.
2. Potentially Higher Sales Price: By garnering a larger audience of potential buyers with an assumption sale, a seller is more likely to receive their desired price for the property.
3. Save on Closing Costs: If the buyer assumes the loan, the seller can potentially save on some of the closing costs typically associated with selling a home.

To learn more about the unique benefits of VA loans as a seller, please see our article titled Selling a Home with a VA Assumable Loan.

Are VA Loans Assumable by Non-Veterans?

One common question that arises when discussing a VA loan assumption is whether non-veterans are eligible to assume these loans. The short answer is yes, non-veterans can assume a VA loan. However, there are certain restrictions that apply in situations where non-veterans participate in the VA loan program.

Applicability of Non-Veteran Assumptions

While VA loans are primarily designed for veterans and active-duty military personnel, there are a few exceptions where a non-veteran may be able to assume a VA loan:

1. Non-Veteran buyers: Non-veteran buyers seeking assumable VA loans can do so; however, the home seller is required to leave their VA eligibility with the property after the sale. This is because all VA loans require a certificate of eligibility to remain with the property. Non-veterans do not have their own certificate of eligibility and therefore, in order to proceed with a VA loan assumption, the seller’s entitlement will remain tied to the property. That could affect the seller’s ability to purchase a new home using a VA loan, so each seller’s circumstances will vary depending on their future housing needs.
2. Spousal Assumption: If the original VA borrower passes away and their surviving spouse is not a veteran, they may still be eligible to assume the VA loan. This is known as a “spousal assumption” and allows the non-veteran spouse to take over the loan and continue making the mortgage payments.
3. Divorce Settlement: In the case of a divorce, if both parties agree to it, the non-veteran spouse can assume the VA loan as part of the divorce settlement. This would require the lender’s approval and a formal assumption process.

It is important to note that even in these exceptions, the non-veteran assuming the VA loan must meet certain financial eligibility criteria set by the lender.

Exploring Other Loan Options

If you are a non-veteran looking for assumable loan options, there are other alternatives available in the market. It’s worth exploring the following loan types:

1. FHA Assumable Loans: The Federal Housing Administration (FHA) also offers assumable loans. These loans are not limited to veterans and are open to all borrowers. FHA loans will generally come with lower down payment requirements and more flexible credit guidelines. Unlike an assumable VA loan, FHA loans almost always possess mortgage insurance premiums (MIP) that could remain with the loan indefinitely. Even with MIP included, given the current environment of rising interest rates, there is likely to be significant cost savings in pursuing an assumable FHA home loan over applying for new mortgage options.
2. Conventional Assumable Loans: Some conventional mortgages are assumable, although they are less common than FHA or VA assumable loans. It’s best to check with individual lenders to inquire about their assumable loan options.

How AssumeList™ Can Help

At AssumeList™, we specialize in connecting homebuyers and realtors with homes that have assumable loans, including FHA and VA loans. Our platform streamlines the homebuying process by providing a comprehensive database of available properties with assumable loans.

For homebuyers, AssumeList™ offers a user-friendly search tool that allows you to filter and find homes based on various criteria, such as loan type, location, and price range. Additionally, we provide detailed information on how to assume a VA loan in 5 easy steps, helping you navigate the process with ease.

Realtors can also benefit from AssumeList™ by supercharging their prospecting and marketing lead capture by supporting client specific needs. For example, agents can search for off-market homes with both FHA and VA loans. Our Agent membership plan offers exclusive access to our network and additional resources to enhance your marketing efforts.

Remember, assuming a VA loan can be a win-win situation for both buyers and sellers, providing numerous advantages for each party involved. If you are a veteran or eligible VA borrower looking to sell your home or a non-veteran homebuyer interested in assuming a VA loan, take advantage of this unique opportunity and explore the possibilities with AssumeList™ .

Remember, while a VA loan assumption may not be the perfect fit for everyone, AssumeList™ is here to support you in finding the right loan option that meets your needs and helps you achieve your homeownership goals.

To learn more about AssumeList™ and how we can assist you in finding or selling a home using a VA home loan, check out our pricing page or contact our team today.