Buying or Selling Using a VA Loan

If you’re reading this, you’re most likely interested in purchasing a property with an Assumable VA Loan or you may want to sell your home and allow the purchaser to assume your current loan and interest rate.  You’ve come to the right place, because we are here to address everything you need to know about assuming a VA loan in today’s market!

Let’s get started…

What Is an Assumable Loan?

When you assume a loan, the seller is allowing a buyer to essentially come in and take over their loan.  The buyer takes over ALL aspects of the loan including interest rate, current loan balance, loan terms, payments amounts, and payment due dates.  All VA loans are technically assumable, although the lender is not required to approve every requested assumption. 

When you begin a loan assumption, you will be dealing with the loan servicer or directly with the lender of the current loan.  You do not choose a new lender.  Does this sound amazing?  It can be, but it’s not a simple process. 

Read on friends.

Timeline

Loan assumptions take time, commonly 60 – 120 days, sometimes longer.  Think of it from the lending side – lenders don’t necessarily want to transfer loans with historically low interest rates to new buyers, they don’t make much money!

Before the assumption begins, the buyer must qualify with the lender.  The lender has roughly a 30 day period to review the purchasers file to see if they even qualify for the assumption.

What the Seller and the Purchaser Need to Know

Below are important details for both the seller and purchaser. We encourage you to read BOTH if you’re considering a loan assumption to gain clarity of risks and rewards for each party.

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Details for the Seller

  • Eligible loans must be current and paid up.
  • May be a great alternative for divorcing couples allowing a spouse to take over the loan and its benefits without qualifying as a veteran.
  • Beneficial for those who are PCSing OCONUS or to another duty location where they will not be purchasing another home.
  • Beneficial for sellers who have money saved up and do not need their entitlement right away to purchase a new home, or for those who can make a down payment with a lessened entitlement.
  • Excellent alternative for people who have only owned the home for a short period of time and do not have a ton of equity in the home.
  • Anyone is eligible to assume the loan, as long as they qualify.  If a non veteran assumes the loan, the entitlement utilized for the original purchase by the seller will remain tied up until the loan is paid in its entirety.  This can leave the seller in a bind – forcing them to come up with a down payment for their next purchase, or forcing them out of future homeownership due to lack of full entitlement. 
    • If the sold home goes into foreclosure, the seller can lose all of their entitlement and their credit will be affected.  This is why some sellers who offer VA loan assumptions look for VA buyers so they can substitute entitlement.

If selling to a veteran, the seller must request a release of liability form to be signed in order to free up their entitlement.  Do NOT skip this step.

Details for the Purchaser

  • Low fees.  Assumable loans require a $300 processing fee.  The VA funding fee is reduced to .5% of the remaining loan balance.  If the buyer is exempt from the funding fee, they are exempt from the assumable loan funding fee as well.  Very low closing costs are paid and appraisals can be done but are not required.
  • The purchaser is responsible for a down payment – or in other words, the seller’s equity.  This is generally paid for in cash, or the buyer needs to secure financing through a different source.  For example, if the home is being sold for $300,000 and the remaining balance on the loan is $200,000, the buyer must come to closing with $100,000.  You cannot add this amount to the VA loan.
  • Buyer must qualify for the loan, just as the seller did at the time of purchase. VA credit and financial standards must be met.
  • Buyers may substitute in their own VA entitlement to restore the seller’s entitlement.

And Two More Things…

  • We recommend using a vetted agent to help navigate and negotiate through this process.  Agents with experience and a strong support system are your best way to go.  Need one?  We can help you!

Do the math before jumping in!  Giving up a large down payment solely to assume the loan may not be beneficial.  Talk with your lender or financial advisor to work out numbers and make sure you really love the house and you’re not just falling in love with the interest rate!

Looking for a military-friendly real estate agent in your area to buy or sell a home? Click here to fill out our Military Real Estate Questionnaire and we will help find you an agent that is a great fit or send a us a message.