Are you asking yourself, “Are VA loans assumable?” The short answer is yes. Even borrowers without the usual military service qualifications may be able to tap into the cost savings of a VA loan. That’s because VA loans are assumable.
Let’s take a closer look at how this fact could impact your home buying prospects.
An important thing to know about VA loans is that they are assumable. This means that a borrower can take over the terms of an existing VA loan, even if they are not eligible to take out a VA loan for themselves.
With that, the home buyer will have the same mortgage payment the home seller had. If the seller had a great interest rate locked in, the assumable nature of the loan can be a big selling point.
Most government loans are assumable loans . Most mortgages are not assumable. But this feature of the VA loan can act as a benefit for both buyers and sellers.
While a VA loan is assumable, not just anyone can take advantage of this option.
When originally taking out a VA loan, the borrower must meet specific military service requirements. In addition to the service requirements, lenders will evaluate the borrower’s financial information to ensure they can repay the loan.
But when assuming a VA loan , the new borrower will not need to meet any military service requirements. With that, non-veterans can assume a VA loan. As with the original loan, the new borrower will need to prove their financial qualifications to the lender.
Although borrowers without military service can assume a VA loan, the lender will need to approve the assumption.
As a borrower, the process will differ from taking out a new mortgage . Instead of shopping around for the best available rate, you’ll work with the seller’s lender to prove your creditworthiness. If the lender approves your financial qualifications, then you can move forward with a VA loan assumption.
The VA doesn’t publish minimum borrower requirements. But many lenders will only work with borrowers that meet certain financial criteria. Here are a few of the common requirements:
If you are considering a VA loan assumption as a path to homeownership, then meeting the requirements above is a great first step.
But keep in mind that each lender has its own standards. You may need to hit different financial requirements when working with different lenders. For example, it’s common for other lenders to require a 620 credit score, even though Rocket Mortgage is willing to work with borrowers that have a minimum median score of 580 on a VA loan.
Rocket Mortgage ® uses information about your income, assets and credit to show you which mortgage options make sense for you.
As a borrower seeking to assume a VA loan, here are the steps you’ll need to take.
First, determine whether you meet the military service requirements for a VA loan. As a qualified veteran, you can use your VA loan eligibility to replace the seller's eligibility.
If you aren’t a qualified veteran, you’ll need to qualify for the mortgage based on your financial situation. In either case, the lender will require paperwork from you that verifies your income, outstanding debts, and creditworthiness.
The lender will determine your eligibility to assume the VA loan in question. Depending on the lender's speed, you may find out about your eligibility within hours or weeks.
If approved, you will need to sign off on the assumption, plus pay the funding fee and any required down payment.
If you want to assume a VA loan, you’ll need to find one first. Here are some places to look for a VA loan to assume:
Although it may take some time to find the right home with an assumable loan option, it could be worth the wait.
In order for an original VA loan to be issued, the borrower must have a VA loan entitlement .
If the new borrower has a sufficient VA loan entitlement, the seller can ask to officially substitute the entitlements. But if the new borrower doesn’t have an adequate entitlement to make the substitution, then the seller’s entitlement will remain attached to the home until the loan is paid off.
As a seller, it’s critical to confirm whether the borrower has sufficient entitlements for a substitution. Otherwise, your VA entitlement would stay attached to this home and prevent you from using it elsewhere until the loan is paid off.
Unfortunately, your liability for the outstanding mortgage debt will not vanish when the assumption is complete. Instead, the seller will need to obtain a release of liability from the lender.
Without this critical document, you may be held liable for late payments made by the new borrower. That could lead to negative credit impacts or financial repercussions if the new borrower is unable to uphold their end of the bargain.
Before closing on a VA home loan assumption, the home seller should confirm with the lender that a release of liability will be provided when requested. If the lender is unwilling to meet your request, that might be a dealbreaker for some.
As with all financial decisions, some advantages and disadvantages are associated with a VA home loan assumption. Here are the benefits to consider.
As the buyer, there are many advantages. Most notably, you’ll potentially be able to tap into an interest rate lower than the current going rate. Plus, you can potentially save money on closing costs.
Now, let’s take a look at the drawbacks of a VA loan assumption.
Buyers and sellers will need to be careful when choosing to move forward with a VA loan assumption. As a buyer, you’ll want to make sure that you can meet the qualifications. Plus, it can be difficult to find a seller willing to execute a VA assumable loan.
But as a seller, you’ll want to consider the downside of potentially losing your entitlement. In most cases, veterans seeking future homeownership will be unwilling to part with their entitlement that comes with the potential to avoid a down payment on their next home purchase.
Ultimately, the question shouldn’t be whether VA loans are assumable. Instead, you’ll need to decide for yourself if pursuing this option is the right fit for your finances.
VA home loans are assumable. The potentially lower interest rates provide a tempting opportunity that may be worthwhile for some. But other home buyers and sellers may find that another home loan will suit their needs.
Take the time to weigh the advantages and disadvantages of this option before diving in.
Are you ready to start the loan application process? Take the first step and get preapproved with Rocket Mortgage.
Victoria Araj is a Team Leader for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 19+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.
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