Categories: ATG Title News

Understanding VA Assumptions

Since the rise in interest rates in 2023, many buyers have explored other financing options like assumption. Assumption is the practice of “taking over” the loan of the seller usually for the benefit of receiving a lower interest rate. While various loans technically offer assumable features, they are often unpopular due to lender preferences and challenges for sellers. Veteran’s Affair loan assumption, however, has gained popularity as some lenders have become hesitant towards general assumptions. Amidst widespread confusion and resistance to this strategy, particularly in a time when homebuyers are actively exploring creative financing options, this blog aims to assist those considering assumption to determine if it suits their needs.

A VA loan is a home loan program offered by the Department of Veterans Affairs (VA) to assist servicemembers, veterans, and their families in purchasing homes. The VA sets loan qualification rules, arranges mortgage terms, and guarantees loans, with benefits such as no down payment requirements and limitations on closing costs, though lenders participating in the program may vary. Applicants must produce a Certificate of Eligibility (COE) through the VA.

The benefits of a VA loan are:

VA-backed home loans offer a guarantee from the Department of Veterans Affairs, providing assurance to private lenders that they can recover some or all of their losses in case of default.
Reduced risk for lenders results in more favorable loan terms for borrowers, including the possibility of obtaining a loan without a down payment.
Nearly 90% of all VA-backed home loans are made without a down payment.
Lenders must adhere to VA standards when making VA-backed home loans.
Additional lender-imposed requirements may include a minimum credit score and an updated home appraisal to meet specific eligibility criteria.

Non-veterans can assume a VA loan but with lender approval. Common requirements are:

Credit Score: A minimum median credit score of 580.
Down Payment: Generally, VA home loans do not mandate a down payment. However, in certain cases, the new borrower might be required to make one.
Income: Sufficient income is necessary to support the loan amount when applying for a VA loan.
Funding Fee: When assuming a VA loan, a funding fee equivalent to 0.5% of the loan balance will be applicable.

The actual process to assume a VA loan starts with finding one. Working with a real estate agent is a great way to start as they have access to the Multiple Listing Service (MLS). You can also try online and printed ads or check out websites like www.takelist.com. Once you come to an agreement with your VA seller, you’ll then contact their current lender to see if you are eligible to apply to take over their loan. Some things to be considered by buyers:

Buyers can access a lower interest rate than they may get in our current market.

Eligibility can be tricky.
Often loan assumptions can take between 30-90 days to close.

Some things to be considered by sellers:

Sellers could be giving up a great interest rate.
There could be liabilities when passing on a loan to someone else.
Advertising a VA assumption can make your listing extremely attractive in a tough market.

As we wrap up this exploration of loan assumption – could this be the right path for you in your home-buying journey? As you ponder the potential advantages of assumption, remember that the real estate landscape is ever evolving. Whether you find this avenue enticing or opt for a different route, may your home-buying endeavors be filled with informed choices that resonate with your unique situation. Happy house hunting!

ATG Staff