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VA Loan Assumption - What Veterans Need to Know

Assuming a VA loan can be a much more convenient way to buy or sell a property without the need for the buyer to apply for a separate mortgage.

However, there are some additional considerations when assuming a VA loan so it’s important to plan ahead. VA loan assumability will depend on the lender’s rules, the type of loan, the age of the loan, and any other specific policies your lender sets out.

What Does Assumable Mean?

An assumable mortgage is one in which the outstanding loan balance and terms are transferred from the current owner to a new buyer. The new buyer assumes the previous owner’s debt which means the buyer doesn't have to get a new mortgage.

Are VA Loans Assumable?

The short answer is yes. At one time, all homes purchased with a VA loan were considered assumable, but now only lenders and the VA can approve a loan assumption. This can be an option even in cases where the buyer is not a military member themselves.

VA Loan Assumption Process

Generally, there are two ways lenders will approve a VA loan assumption:

  1. Loans serviced by lenders who have automatic authority may process assumptions without sending every loan to the appropriate VA Regional Loan Center
  2. Loans serviced by lenders who don't have automatic authority must send all assumption requests to the appropriate VA Regional Loan Center. This can take several weeks to process

On the borrower's side, they must fit into one of the below criteria:

  • The borrower is a qualified Veteran who substitutes their VA eligibility with that of the seller
  • The borrower meets VA standards for the mortgage payment and can assume the loan, taking full responsibility for it from the seller

Requirements for Assuming a VA Loan

The following requirements must be met for a VA loan assumption to be approved:

  • The Veteran must be current on the loan or if they’re not, any past due amounts need to be paid by closing
  • The new buyer must meet any credit and income requirements the VA and lender set out
  • The new buyer must assume all mortgage obligations
  • The VA funding fee of 0.5% must be paid by either the original owner or the new one
  • A processing fee for the mortgage assumption must be paid in advance

Who Can Assume a VA Loan?

While only Veterans, current military service members and surviving spouses are eligible for VA loans, VA loan assumptions are slightly different. The only real requirement for a VA loan assumption is that the assuming borrower is financially qualified for the mortgage, based on lender requirements. The borrower does not need to be a Veteran or military member.

This means that family members can assume a VA loan as long as they meet the financial requirements. If, for example, you wish your child to assume your VA loan, this is entirely possible provided they meet the financial requirements to take it on.

VA Loan Assumptions and Death

What happens to a VA mortgage in the event the owner passes away? The Veteran’s surviving family members or stated beneficiaries must assume the loan and repay it. If they don’t, the VA will foreclose on the property and the lender will repossess the house.

If the surviving family members or beneficiaries prove they can meet the financial requirements to assume the VA loan, then they’ll get to keep it and make the same payments the Veteran did.

VA Loans and Divorce

In the event of a divorce, the Veteran can petition for release from the VA loan and allow their spouse to assume the mortgage. This is typically the case when an ex-spouse was jointly liable for paying the loan prior to the divorce.

On the other hand, VA loan rules state that the Veteran can take on sole ownership of the property while the ex-spouse seeks a release of liability. The same affordability rules apply for any mortgages assumed in this way.

Who is Liable After a VA Loan is Assumed?

When the VA loan is assumed, the new borrower must accept sole liability for all terms and conditions attached to the mortgage. This also includes repaying the VA in the event that a claim is filed.

VA Loan Assumptions and Entitlement

It's important for Veterans to understand that if they choose to have their VA loan assumed, their entitlement may not be restored. That's because the VA loan entitlement will still be tied to the mortgage and the property.

If a non-Veteran buyer assumes your VA loan, you could be liable in the event of a default. The buyer may also 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.

If you're selling your house to another Veteran homebuyer, it may be possible to "swap" entitlement. In these cases, restoration of entitlement is usually possible. Even if your loan is eligible for an unrestricted VA loan assumption, it's important to consult with an approved VA lender and carefully research potential buyers before agreeing to this type of sale.

The VA Funding Fee and VA Loan Assumptions

A VA funding fee is still required after a VA loan assumption. This means that the person assuming the mortgage must pay the VA funding fee, which is 0.5% of the total loan. However, this rule does not apply if the person assuming the loan is also a Veteran who is exempt from paying it.

Other VA Loan Assumption Clauses

Alongside the VA Funding Fee, there are three other clauses that borrowers assuming a loan should be aware of. It is important to note the VA doesn’t require these clauses specifically due to variations in local laws. Therefore, lenders do not have to specifically state these clauses, but they are required in the VA loan assumption process in some capacity.

  • Acceleration Clause: The loan must be declared immediately due and payable upon transfer of property. This can affect the borrower’s ability to transfer a VA loan.
  • Processing Charge Clause: Protects the borrower from paying too much for processing fees. This charge should not exceed the maximum established by the Department of Veterans Affairs.
  • Indemnity Liability Assumption Clause: The assumer must take responsibility for all obligations of the Veteran’s VA loan for the foreseeable future.

VA Loan Assumption Pros and Cons

Pros of VA Assumptions Cons of VA Assumptions
Rates may be lower than what's currently available Sellers could lose all or part of their entitlement if the buyer isn't an eligible Veteran
Reduced closing costs Buyers could potentially need a large down payment to cover the seller's equity
It can help sellers stand out in a high-inventory real estate market Not all lenders consider VA loans assumable

VA loan assumption can be a good option when compared with a traditional mortgage application process. Still, whether you're a buyer or seller, it's important to do your research and always consult a VA loan professional before making any decisions. Ultimately, it will be up to your lender and servicer to determine whether a VA loan assumption is possible.