Are VA Loans Assumable?


Explore whether or not VA loans are assumable, their benefits, and eligibility criteria for assuming a loan with a lower interest rate for both veterans and non-veterans.  When most mortgages are not assumable, it makes you wonder are VA loans assumable? The answer is: yes, they are! In this article, BD Nationwide will explain the eligibility, benefits and requirements for achieving assumable VA loans. 

What is an Assumable VA Loan?

assumable va loan

When someone qualifies for a VA loan, they are usually expected to maintain that loan for an extended period. With a VA assumable loan, individuals can take over the existing terms of a VA loan, including the interest rates and overall structure of the loan.

A VA loan puts both, the seller and buyer, in a unique position. In a climate of rising interest rates, giving a buyer the ability to assume a mortgage gives them significant benefits. 

However, the process of assuming a VA mortgage can become slightly complicated because you would need to protect your VA loan benefits. Let’s explore this in detail so you can make an informed decision. 

Simply put, a VA loan assumption is when the home and mortgage owner sign the existing mortgage and hand it over to a buyer. 

Now, the buyer will be the new owner of the home and loan and will be responsible for paying the monthly mortgage, and the seller can move on to their next home. 

A mortgage assumption has two main benefits. 

  1. Less Paperwork: The buyer who assumed the loan would skip a lot of paperwork that would go with a typical sale. 
  2. Lower Interest Rate: The biggest and real benefit of assuming a VA loan is the lower interest rate compared to getting a new mortgage with the current VA mortgage rates

If you are wondering, ‘Are all VA loans assumable?’, the answer is: yes. However, it is important to remember that an assumable mortgage is rare. 

Conventionally, home loans and mortgages are not assumable, however, there are some exceptions to the rules regarding VA and FHA loans

How to Assume a VA Loan

VA home loans give home sellers a competitive edge in the buyer’s market and are a fantastic opportunity for home buyers to save money. The following are the steps to assume a VA loan. 

Check for Eligibility 

The first step is to find out if the property is up with the benefit of an assumable loan.  Normally, the seller’s home listing mentions if the property has an assumable loan in the listing.

However, in case this is not mentioned, it is worth asking the seller or real estate agent if the property they are offering is an assumable mortgage. 

Sometimes, a seller may not have considered it and might be open to the possibility.  

Check Seller’s Current Mortgage 

To determine if you have sufficient funds for the assumable loan’s down payment, you need to know the seller’s existing mortgage balance. 

Moreover, it is also important to know the interest rate. This would help you decide whether the savings are significant enough to go through a VA loan assumption process, or just getting a new loan would make more sense. 

Make An Offer 

Once you feel that the VA loan fulfills your requirements and helps you with your budget, you can make an offer on the home. 

The offer would detail your terms, including the condition that the purchase is contingent upon assuming the existing VA loan. 

Submit Required Paperwork 

The lender would require you to submit paperwork. Make sure to submit all the needed paperwork so that you can qualify for the VA loan assumption.  

How Much Do You Want to Borrow?

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See Lenders for Terms and Conditions

Typically, they ask for proof of income, bank statements, and information on other debts and liens. Then you wait patiently to assume the VA loan if all criteria are met.

How Long Does a VA Loan Assumption Take?

Assuming a VA loan can bypass the complex underwriting processes that comes with other loan types. 

Even though VA loans are less stressful and demanding, it is not an instant process. 

On average, assumable loans require time for approval and take 30-60 days to close. 

To expedite the process, assumptors should provide all required information promptly to avoid unnecessary delays and get the process moving. 

Who is Eligible to Assume a VA Loan?

Can anyone assume a VA loan? Yes, almost anyone can assume a VA loan, whether they are veterans or have no connections at all with the military service. 

The core requirements for a VA loan assumption are like those for new home loans. These include the buyer needing to be financially qualified. 

To do so, they must submit a loan application to the seller’s servicer (aka the lender) that owns the original loan.

Once the home offer is made, and the buyer comes to a formal purchase agreement with the seller, the seller would contact the mortgage lender to begin the loan assumption process. By now you how t answer the question, are VA loans assumable?

The VA Assumable Loan Eligibility Criteria 

Firstly, the lender would require the buyer to complete a packet of information, and this includes the mortgage application to initiate the qualification process. 

Then, to determine whether you qualify for the loan assumption, the lender will process the application and other dimensions to make a decision. 

As with any loan, the service wants to determine whether the buyer is eligible to make monthly payments on the property depending on their assets and income. 

So, the financial qualifications would be the same whether you are a veteran or a non-veteran and these would include: 

  • Income requirements: this is to assess your ability to repay the loan depending on your income and employer history. 
  • Credit score: Although the VA does not have a minimum credit score requirement, the servicers are typically looking for a minimum score of 620. 
  • Debt-to-income ratio (DTI): This ratio compares your monthly debt payments to your gross monthly income. Generally, a lower DTI is better.
  • Financial stability: The Servicer takes a look at your overall financial stability by considering any late debt payments or bankruptcies. 

What is the Down-Payment of a VA Loan?

A VA loan does not require a down payment. The assumption process allows the buyers to take over the existing mortgage terms, including interest rates, payment terms, and any remaining balance or to make an upfront down payment. 

According to the Veteran Home Buyers Survey, the number one reason veterans chose a VA loan over other loan types is because of the no down payment. 

The VA guarantee provides mortgage servicers with a safety net. In case a buyer defaults, VA backs with a portion of the loan against it. This gives the service favorable terms. 

How Many Times Can You Assume a VA Loan?

There is no limit to how many mortgages you can take out over the course of your life, as long as you are eligible for a VA loan and the lender qualifies you.  In fact, you can also have simultaneous VA loans if certain guidelines and circumstances are mentioned.

However, you must have a sufficient income and the entitlement to support multiple loans. As long as the borrower meets all the eligibility requirements, they do not need to repay previous loans completely to apply for a new one. 

Besides that, just as VA loans are not just for first-time buyers and the zero-down program is also not a one-time benefit. 

Potential VA Loan Assumption Challenges

Whether you are a potential buyer or a VA homeowner, there are some challenges you may need to consider before moving forward. Let’s take a look. 

Cashing Out Homeowner Equity

They can not just step in and expect to pay for the opportunity. Assumptors must compensate the Veteran’s mortgage for the equity built on the property.

For instance, if a veteran home owes $300,000 in mortgage, but sells the home for $400,000, the assumptor would pay the $100,000 at closing. 

Typically, assumptors would cover this in cash; however additional financing would be an option. Services also consider this new debt in their determination for the assumer’s financial situation. 

Impact on VA Loan Entitlement

If the assumptor is a veteran, they can substitute their sufficient entitlement to the seller’s on the mortgage. However, if not, then the seller’s VA loan entitlement depends on the loan until it’s fully repaid, which may affect it. 

For instance, in case of a foreclosure or a short sale, the assumptor has the power of forfeiting the seller’s entitlement portion. 

This also affects the future VA loan benefits. While some homeowners are willing to take this risk, others limit their assumptions to veterans or go for a traditional sale. 

Summary on Assuming VA Loans 

  • An assumable loan can be transferred to another borrower.
  • VA loans can be assumed by individuals with VA benefits as well as civilians.
  • Assuming a VA loan can provide the borrower with savings and increased flexibility in their mortgage.

A VA loan being assumable simply means that someone can take over it and its terms. A VA loan assumption has high benefits for both assumptors and sellers. 

Once you cross the hurdles of a VA loan requirement, you can enjoy your saved money on the mortgage and interest.

Both veterans and non-veterans can assume a VA home loan after meeting all the eligibility criteria. 

More VA Loan FAQs

Is a VA loan a guaranteed loan?

Since the VA loan is VA-backed, it makes it a guaranteed loan if the application is approved.  The guarantee protects the lender against any loss if the borrower forfeits. 

Is a VA loan a conventional loan?

No, it is not. While VA loans are backed by the Department of Veteran Affairs, a conventional mortgage loan is backed by private lenders such as banks, online lending companies, and credit unions. 

Is a VA loan a government-backed loan?

Yes. VA loans are government-backed loans, however, they are not lent by the Department of Veteran Affairs but by private lenders. It is available to veterans, military service members, and surviving spouses. 

Get More Info on Assumable Mortgage Loans

New borrowers can benefit from potential savings and an easier path to homeownership, while existing borrowers are relieved of their mortgages. Assuming a VA loan is not for everyone. You must consider the impact on their credit and any associated closing cost or lending fees. All parties should carefully evaluate these factors to ensure a successful and advantageous loan transition. Contact BD Nationwide to discuss your VA mortgage opportunities today!