Assumable VA Loans: Can They Help You Buy a House?

Can I assume a VA loan if I am not a veteran?

The short answer is yes, you can assume a VA loan even if you are not a veteran or in the military. This aspect of VA loans is not widely known and can open doors for many potential homebuyers. Here are key points to understand:

• Eligibility for non-veterans: Non-veterans are eligible to assume VA loans. However, they must meet the lender’s credit and income requirements, just like any borrower would.
• Seller’s VA entitlement: If a non-veteran assumes the loan, the original borrower (who is a veteran) may not have their VA loan entitlement fully restored. This means the veteran may be limited in obtaining another VA loan until the assumed loan is fully repaid. For the seller, the most favorable VA loan sell/buy transaction would be a veteran-to-veteran assumption.
• Lender approval: Regardless of your veteran status, the lender must approve the assumption, ensuring that you are financially capable of taking over the loan.

What is the process to assume a VA loan?

Assuming a VA loan involves several steps, and understanding this process can help ensure a smooth transition. Here’s what you need to know:

1. Find a VA loan to assume: Start by identifying properties with assumable VA loans. This can be done through real estate listings or by working with a Realtor.
2. Review the loan terms: Before proceeding, review the existing loan’s terms, including the interest rate, remaining balance, and monthly payment amounts.
3. Apply for assumption: Contact the lender servicing the VA loan and apply for the assumption. You’ll need to provide financial documents, similar to a standard mortgage application, to prove your creditworthiness.
4. Lender’s approval: The lender will review your application to ensure you meet the VA’s credit and income standards. This process can take several weeks.
5. Pay required fees: If approved, you’ll need to pay any assumption fees set by the lender, which can vary but are usually nominal. A typical VA funding fee is 0.5% of the loan amount.
6. Release of liability: Ensure that the seller requests a release of liability from the lender. While there are entitlement considerations, this step can absolve the original borrower from responsibility for the loan after the assumption.
7. Closing the assumption: Similar to a traditional home purchase, there will be a closing process where you officially assume the loan and all necessary paperwork is finalized.

How can I find a VA assumable mortgage?

Finding a VA assumable mortgage requires a bit of research and the right approach. Here’s how you can start your search:

• Work with a real estate agent: A knowledgeable real estate agent can be invaluable in this process. They can help identify listings with assumable VA loans and provide guidance on the assumption process.
• Check online listings: Some online real estate listings may indicate whether a home has an assumable VA loan. Pay close attention to the details in the property descriptions.
• Search assumption websites: You can search real estate sites like Roam that specialize in identifying home listings with low-interest-rate assumable mortgages. In addition, some areas have regional websites that break out local assumable mortgage listings, such as these examples in Washington and Portland.
• Hire an assumption service: There are specialized consulting and list firms such as Assumption Solutions and Take List that help homebuyers, sellers, and their agents complete a successful mortgage assumption.
• Contact local lenders: Reach out to lenders who specialize in VA loans. They might have information on properties with existing VA loans that are assumable.
• Explore military communities: Homes near military bases or in military communities might have a higher likelihood of having VA loans.
• Network with veterans: Veterans who are selling their homes — or know others who are — might be aware of available assumable VA loans.
• Social media and real estate forums: Joining relevant online groups and forums can help in finding leads on homes with assumable VA loans.

”If you are on the hunt for a home with an assumable mortgage,” Broesamle says, “this is where the value of an experienced agent shines. Your agent can search for you. That’s one way to make sure a property qualifies.”

He adds. “Once you find the home that you like, you need to reach out and talk to the seller’s agent and work with the seller in order to find out who their loan company is to make sure that you can assume the loan. Some mortgages are not assumable.”

Remember, while finding a VA assumable mortgage might require some extra steps, it could lead to significant savings and benefits. There are also new products and programs entering the market to help walk buyers and sellers through the assumption process.

Pros and cons of assuming a VA loan

Assuming a VA loan can be an attractive option for homebuyers, but it’s important to weigh its advantages and disadvantages. Here’s a breakdown of the pros and cons:

Pros

• Lower interest rates: If the existing VA loan has a lower interest rate than current market rates, you can save significantly on interest over the life of the loan.
• Fewer closing costs: Assuming a loan often involves lower closing costs compared to getting a new mortgage.
• Faster closing process: The process can be quicker than applying for a new mortgage, as some steps, like property appraisal, may not be necessary.
• No down payment required: In many cases, assuming a VA loan doesn’t require a down payment, which can be a significant financial relief. However,  you’ll need to pay the seller their equity.

Cons

• Eligibility and approval: You must meet the lender’s credit and income requirements, and the lender must approve the assumption, which isn’t guaranteed.
• Limited availability: Finding the home you want with an assumable mortgage can take time and effort.
• Potential for higher costs: If the assumed loan’s balance is less than the home’s purchase price, you may need additional financing to pay the seller’s equity. See more on this below.
• Seller’s VA entitlement: If you’re not a veteran and the assumption process is not handled properly and thoughtfully, there is a chance that the seller might not regain their full VA loan entitlement until the loan is paid off. Using an assumption service program can provide peace of mind for both the seller and the buyer.

How much does it cost to assume a VA loan?

The costs associated with assuming a VA loan are generally lower than those for obtaining a new mortgage, but there are still some expenses you should be aware of.

You’ll typically need to pay the 0.5% VA funding fee for a loan assumption. The funding fee applies only to the loan amount, not the purchase price of the home. For example, on a $400,000 loan, the fee would be $2,000. This fee can be waived for veterans receiving VA disability compensation.

Other fees you might encounter can include:

• Credit report fee
• Lender processing fee
• Title search and insurance
• Miscellaneous fees (inspection, document prep, notary, etc.)

And don’t forget to budget in the seller’s home equity we mentioned above.

Unlike traditional mortgages, most assumable mortgages don’t require that you pay for an appraisal, but it’s often recommended. Some lenders may still require one.

While these costs can add up, they are often less than the expenses involved in closing a new mortgage. It’s important to get a detailed breakdown of all fees from the lender before proceeding with a VA loan assumption.

Which other mortgage loans are assumable?

Apart from VA loans, there are other types of mortgage loans that are assumable, although they are less common. Here’s a brief overview:

• FHA loans: Loans insured by the Federal Housing Administration (FHA) are typically assumable. Like VA loans, the person assuming the loan must qualify and be approved by the lender.
• USDA loans: Mortgages backed by the United States Department of Agriculture (USDA) can also be assumable. These loans are specific to rural and suburban homebuyers.
• Some adjustable-rate mortgages (ARMs): Some ARMs may be assumable. This depends on the lender, and the new borrower may need to agree to give up the option to convert the ARM to a fixed-rate mortgage. In some situations, an ARM loan can be disqualified from being assumed by a third party.
• Some jumbo loans: While not common, some jumbo mortgages (loans originated by larger banks and not sold to Fannie Mae and Freddie Mac) can be assumed. However, and it can be difficult to know which jumbo mortgages are assumable.

It’s important to note that the terms and conditions for assuming these loans can vary. If you’re considering assuming a mortgage, consult with the lender or a professional advisor to understand the specific requirements and processes involved. Partnering with a top-rated buyer’s real estate agent is a good place to start.

Should I assume a VA mortgage loan?

Deciding whether to assume a VA mortgage loan is a significant decision that hinges on your individual circumstances and the specifics of the loan in question. Here are some final considerations to help guide your decision:

• Assess the interest rate: If the VA loan’s interest rate is substantially lower than current rates, assuming the loan could lead to considerable savings.
• Evaluate financial readiness: Ensure you meet the lender’s credit and income requirements and can comfortably manage the loan payments.
• Consider the long-term impact: Understand how assuming the loan will affect your financial situation over time, including any potential limitations for the seller if you are not a veteran.
• Review the costs: Be clear on the costs involved in assuming the loan and how they compare to obtaining a new mortgage.
• Seek professional advice: Consult with a financial advisor or a mortgage professional to get personalized advice based on your financial goals and situation.

“It’s a great tool for this market,” Broesamle says. “And right now, with the high interest rates, this is a great way to maintain a lower rate, especially if you have some cash to put down. So it could be a big gain for you.”

Ultimately, assuming a VA loan can be a smart financial move for many homebuyers, offering potential savings and a streamlined purchasing process. However, it’s crucial to approach this decision with a thorough understanding of the benefits and responsibilities involved.

HomeLight can connect you with a top real estate agent familiar with assumable VA mortgage home listings in your market. With the right agent and the right home, an assumable VA loan can put you on the front doorstep of affordable homeownership.

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