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One of the most challenging parts of the home buying process for military members is securing financing, whether they choose a conventional loan, a VA Loan, or an assumable VA loan. There’s a mountain of information to learn and process, hopefully with the help of seasoned real estate professionals.
Understanding VA Loan Assumptions
Although military home buyers have a longer learning curve during a VA home loan assumption, military home sellers need to brush up on the logistics so that they can confidently accept the right offer. VA loan assumptions can be a lucrative option for home buyers and sellers in typical real estate markets, but especially so in challenging times.
A VA loan assumption is more than a simple property transfer—it’s a nuanced process. A qualified buyer steps into an existing VA-backed mortgage and inherits its original terms, interest rate, and remaining balance. When things go well, an assumption offers a more streamlined and financially advantageous path to homeownership.
The VA Loan Assumption Process: A Quick Walkthrough
1. Seller’s Initial Exploration
- Contacts current mortgage lender
- Discusses loan assumption possibilities
- Gathers necessary documentation
- Markets home with VA loan assumption possibility
2. Buyer/Assumer Preparation
- Determines if they have enough VA loan eligibility
- Collects financial records
- Prepares detailed application
- Obtains pre-qualification documentation
3. Lender Review of Buyer
- Comprehensive credit check of assumer
- Detailed financial underwriting
- Verification of submitted information
4. Approval and Documentation
- Loan assumption agreement drafting
- Detailed review of existing loan terms
- Negotiation of specific transfer conditions
5. Closing
- Final documentation signing
- Transfer of property ownership
- Mortgage assumption finalization
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Who Can Apply for a VA Loan Assumption?
Military and non-military members can apply to assume a VA loan, but if the seller chooses a non-military buyer, they lose their VA loan benefit because it remains with the property until the mortgage is paid. As the seller, your future VA loan benefits are attached to the current homeowner while you wait in hopes that they continue to make payments and clear the mortgage on time.
The buyer also needs to meet lender-specific requirements. Keep in mind not all lenders approve VA loan assumptions.
For the assumer, your lender will likely require some, if not all, of these guidelines.
- Takes on all mortgage terms.
- Has a 12-month history of on-time mortgage payments.
- Meets the lender’s financial benchmarks: income, credit, and a debt-to-income ratio.
- Shows an excess of cash after the month’s expenses.
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Why Military Home Buyers Love VA Loan Assumptions
In short, military buyers love VA loans because they can save thousands of dollars over the life of the loan. They also prefer assumptions because:
- They don’t have to apply for a new VA loan.
- They have access to lower locked-in interest rates.
- They won't pay closing costs or appraisal fees but will pay the funding fee, which is 0.5% of the loan balance.
- An assumption might be a housing solution for a major life change, like a divorce or family expansion.
- There’s potential for a faster closing process and less red tape.
Financial Obligations and Terms Buyers Should Know
As a home buyer and assumer, you’ll learn a whole new set of terms and conditions for your new home.
- First, you should know that VA assumption loans can only be used for a primary residence.
- Second, you must have enough VA loan eligibility to qualify for an assumable loan.
- Always remember that with a VA loan assumption, you inherit all loan terms, not only the low interest rate. This includes monthly payments and the number of years left on the loan.
- You must cover the difference between the home price and the amount left on the loan. This is your down payment, and you can’t finance it through a VA loan assumption. For example, if there’s $600,000 left on the mortgage and the sale price is $800,000, it's up to you to find $200,000. Depending on your finances, an assumption might not be a possibility.
- Unless you’re a surviving spouse or have a service-related injury and can provide a waiver, you’ll likely pay a VA loan funding fee of 0.5% of the loan.
VA Loan Assumption Requirements and Responsibilities for Home Sellers
Even though home buyers have work to do during an assumption, home sellers aren't passive participants during the process. You must:
- Be current with loan payments (or make up the difference with sale.)
- Initiate the assumption process with the lender and provide comprehensive loan documentation.
- Pay a processing fee of a few hundred dollars, depending on your state, and possibly the cost of a credit report.
Most importantly, you need a signed Release of Liability and Substitution of Entitlement from the potential assumer. The release clears the current owner of their VA loan obligation to the property so the buyer can insert their VA loan availability. If you don’t clear their VA loan obligations, you're responsible for the loan if the assumer defaults.
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Tips for Success with a VA Loan Assumption
Work With an Experienced Real Estate Team
It’s crucial that you have a team of experienced real estate professionals working diligently on your behalf. First, because it’s complex, and a VA loan assumption is different than buying a house with a conventional or VA loan.
Also, new real estate agents and lenders lack the experience to take on the assumption process nuances. You need pros with many transfers under their belt.
Your team can help you see the big picture and, through market analysis, determine whether there are long-term savings opportunities, unusual financial complications, or future financing possibilities.
Risk Mitigation Strategies
In other words, real estate agents and lenders with ample assumption experience bring down your risks in many ways, from financial terms to current technology that is crucial for long distance buyers.
Comprehensive due diligence:
- Detailed loan term review
- Independent financial consultation
- Thorough property valuation
Technology to streamline VA loan assumptions:
- Digital document verification
- Online application platforms
- Enhanced transparency in loan transfer processes
- Readily available communication
The Marketing Power of VA Loan Assumptions
If you have an assumable loan, market your property using this financial benefit. Include a few bullet points about the attractive interest rates and terms. Low interest rates are a key selling point for some buyers—for example, a $300,000 home with a remaining mortgage balance of $250,000 at 3%. Your real estate agent will know how to highlight the financial benefits best.
VA loan assumptions continue to be popular with home buyers and sellers for a long list of reasons, including long-term savings for the buyer and potentially more expeditious sales for the seller. If you’re interested in buying or selling with an assumption in mind, surround yourself with experienced real estate agents and lenders who can make the process a positive experience.
By Dawn M. Smith
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