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A common scenario for VA loan assumptions involves the following frequently asked question:
"I inherited my parents’ home. I want to know if I can do an assumption on the VA loan and who I contact for this. Will I have to pay for any fees?"
It is true that VA loans are assumable, but the borrower is required to work with the lender and/or get VA approval for the transaction, as instructed in VA Pamphlet 26-7:
"Transfers of ownership on properties securing loans for which commitments were made on or after March 1, 1988, must have the prior approval of the loan holder or its authorized servicing agent if either of them have automatic authority. If neither the holder nor the servicer has automatic authority, the servicer must submit a credit package to VA for underwriting."
These rules also feature instructions to the lender. How is a VA loan assumption required to be carried out? According to the VA:
"A seller must apply for approval of the transfer prior to completing the sale. Servicers and holders with automatic authority must examine the application to assess compliance with the provisions of 38 U.S.C. 3714. VA will make the determination in a case where neither the servicer nor the holder has automatic authority, following receipt of a complete application package from the servicer."
In order to successfully process the loan assumption, the VA loan "must be current or will be brought current at the closing of the sales transaction." The person assuming the loan must be creditworthy. Not all lenders allow VA loan assumptions.
What about any fees associated with VA loan assumptions? VA Pamphlet 26-7, Chapter Five states, "A processing fee may be collected in advance, including a reasonable estimate for the cost of the credit report.” For more information on VA loan assumptions, contact the Department of Veterans Affairs or discuss the situation with your VA loan officer.