July 10, 2024

So, you're curious about VA loan assumptions? Let’s break it down step-by-step and weigh the pros and cons. Assuming a VA loan can be a great way to snag a favorable interest rate and lower closing costs, but it comes with its own set of challenges.

The Process

1. Understand VA Loan Assumption

VA loan assumption allows a buyer to take over an existing VA loan, keeping the same interest rate and terms. Both Veterans and non-Veterans can assume a VA loan.

2. Verify Eligibility

• Credit Requirements: You’ll need to meet the lender’s credit score and debt-to-income ratio (DTI) requirements.

• Income Verification: Proof of sufficient income and assets is a must.

• Funding Fee: A 0.5% funding fee of the remaining loan balance is required unless exempt.

3. Find an Assumable VA Loan

Work with a real estate agent to locate homes with assumable VA loans. Check major real estate sites for listings mentioning assumable loans.

4. Negotiate with the Seller

• Equity Payment: Pay the homeowner’s equity, either in cash or through secondary financing.

• Entitlement Transfer: If the buyer is a Veteran, they can substitute their entitlement for the seller’s.

5. Contact the Lender

Apply with the original lender or servicer holding the VA loan. Meet all lender-specific requirements and complete necessary paperwork.

6. Close the Assumption

With lender approval, finalize the assumption process and transfer the loan to your name.

7. Consider Potential Risks

The seller’s VA loan entitlement remains tied to the loan unless the buyer substitutes their entitlement. Also, if the new owner defaults, the original borrower might lose entitlement.

For a detailed guide, check out Veterans United​ (Veterans United Home Loans)​.

Mythbusting VA Loan Assumptions

Let's tackle some common misconceptions:

• Myth: Only Veterans can assume VA loans.

  • Fact: Non-Veterans can also assume VA loans, provided they meet the lender's requirements.

• Myth: Assumptions are always faster than new loans.

  • Fact: Assumptions can often take longer to close due to the detailed process involved.

• Myth: No costs are involved in assuming a VA loan.

  • Fact: There are costs, including a 0.5% funding fee and possibly needing to cover the seller's equity.

Pros and Cons

Pros

1. Lower Interest Rates: Benefit from the seller's potentially lower interest rate.

2. No Need for New Appraisal: Often, no new appraisal or credit underwriting is required.

3. Lower Closing Costs: Assumptions typically have lower closing costs compared to new loans.

4. Easier Process: Simplified process for qualifying buyers, especially Veterans.

Cons

1. Lengthy Process: Assumptions can take a long time to close, often longer than a traditional loan.

2. Equity Gap: Buyers may need significant cash or secure secondary financing to cover the equity gap.

3. Entitlement Issues: Original borrower’s VA loan entitlement remains tied to the loan unless substituted.

4. Complexity: The process can be complicated and requires meticulous attention to details and lender requirements.

Wrapping up, assuming a VA loan can be a beneficial but intricate process. Whether you're a Veteran or a civilian, understanding the ins and outs can save you time and money.

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Thinking about listing your home and advertising a VA Loan Assumption as a perk? Buying soon and wanting to learn more about assuming a VA Loan as a financing option?  Set up a Real Estate Goals Consultation Here: Let's Get In Touch!