VA Loan Articles
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VA Loan Assumption--What Veterans Need to Know
If you purchased a home with a VA guaranteed mortgage loan, you may find yourself in a position someday where you need to sell. Active duty military members facing permanent change of station moves, or those who simply want to upgrade to a larger home in a different area must deal with the sale of a home before their VA loan is paid in full. In some cases, a VA loan may be assumable, that is the buyer can take over the VA loan regardless of whether they are civilian or military.
At one time, all homes purchased with a VA loan were considered assumable, but since then the rules have changed. Do you know the circumstances where you are allowed to sell the home and have the seller assume the VA mortgage?
In cases where a veteran home owner is getting a divorce, the VA allows what's known as an unrestricted transfer. This is allowed in cases where the military spouse and non-military partner are co-borrowers. The VA mortgage can be assumed in cases like these, but the VA strongly urges both parties to sign a release of liability so the departing co-borrower is not held liable for any credit issues that may come as a result of default or foreclosure should the occur. In cases of unrestricted transfer, the VA must approve the transaction, not the bank.
VA home loans may also be assumed if the loan closed before March 1, 1988. In these cases, the loan assumption is unrestricted--the buyer assumes the VA loan without requiring the approval of the bank or the VA. One caveat to this, however--the veteran remains liable for any losses the VA may incur as a result of the loan assumption. It's very important to get some VA advice on how to protect yourself before agreeing to this type of sale, as the purchaser may be allowed to sell the home once more and let a third party assume the loan, with the veteran still liable for losses to the VA.
In cases where VA loans were closed after March 1, 1988, VA loan assumption is not allowed unless you obtain prior approval from the lender. This extra step may be time consuming, but there is a benefit at the end of the process--the veteran is released from liability to the VA and doesn't have to worry about the sale of the home coming back to haunt them at a later date if the purchaser defaults on the loan.
The VA warns VA mortgage holders not to proceed with a VA loan assumption in these cases without prior bank approval. Those who do could get a notice from the VA that the VA loan is "due on sale", even if all payments are on time and current.
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