If you’re considering assuming a VA loan, it’s crucial to familiarize yourself with the VA loan assumption requirements to ensure that you meet all the necessary eligibility criteria.
VA Loan Assumption allows a qualified borrower to take over a VA loan from the seller. It’s an attractive option for homebuyers looking to save money on closing costs and interest rates. However, there are specific requirements that must be met to assume a VA loan. We’ll discuss the VA loan assumption process and the eligibility criteria that borrowers need to meet, and where to get the latest information!
What is a VA Loan
A VA loan is a mortgage loan backed by the U.S. Department of Veterans Affairs (VA) and is available to active-duty service members, veterans, and eligible surviving spouses. VA loans typically offer more favorable terms and lower interest rates compared to conventional loans, making homeownership more accessible to those who have served or are serving in the military. This loan is one of the main driving factors in young military members being able to qualify early in their careers to buy their first primary home! Used right, the VA loan can help an eligible VA loan user earn income in the future turning their home into a rental property or even put them in a great place to sell their home and use the cash earned from their sale to buy down their next home they purchase!
What is VA Loan Assumption
VA loan assumption is the process by which a qualified borrower takes over an existing VA loan from the seller. The buyer assumes all of the existing loan terms, including the remaining balance, interest rate, and repayment schedule. VA loan assumption can be an attractive option for homebuyers as it allows them to avoid some of the costs associated with obtaining a new mortgage loan, such as closing costs and appraisal fees. However, there are specific eligibility criteria that must be met to assume a VA loan and a few fees that remain.
VA home loan assumption process
Assuming a VA loan can be a viable path towards homeownership, but it’s crucial to understand the process and requirements to ensure a smooth and successful transaction. Here are the steps to complete a VA loan assumption:
- Find a willing home seller who is open to having their VA loan assumed. This step can be challenging, but your real estate agent or multiple listing service (MLS) can assist you in locating interested sellers.
- Verify that you meet the VA’s requirements for assuming a VA mortgage. While VA loans have fewer requirements, getting lender approval for the transfer is critical.
- Agree to assume all the obligations of the existing loan. Once approved, you’ll take over the current mortgage and assume the same payments and interest rate as the previous homeowner.
- Pay the funding fee, down payment (if required), and closing costs to the lender. The lender will require you to pay these costs and the reduced funding fee as part of the assumption process.
- Exchange your VA loan entitlement. If you’re an eligible active-duty service member, veteran, or surviving spouse, you can exchange your entitlement for the previous homeowner’s entitlement.
- Ensure that the seller requests a release of liability. The seller needs to ask their lender to release their liability for the assumed mortgage to protect their credit score.
Table: VA Funding Fee Rates for Loans Closed on or After April 7, 2023
| Loan Type | Down Payment | First Time Use | Subsequent Use |
| Purchase loan | 0% | 2.15% | 3.3% |
| Purchase loan | 5% – 9.99% | 1.5% | 1.5% |
| Purchase loan | 10% or more | 1.25% | 1.25% |
| Cash-Out Refinance | N/A | 2.15% | 3.3% |
| IRRLs | N/A | 0.50% | 0.50% |
| Loan Assumptions | N/A | 0.50% | 0.50% |
| Loans when you have a disability rating of 10% or more | N/A | N/A | N/A |
What is the main benefit of assuming a VA loan
The main benefit of assuming a VA loan is that it can save the seller and buyer money on closing costs and interest rates. When a buyer assumes a VA loan, they don’t have to pay for a new appraisal, underwriting, or loan origination fees. Additionally, since VA loans typically offer lower interest rates than conventional loans, assuming a VA loan can result in lower monthly payments and overall interest costs. This can be especially beneficial for homebuyers who are looking to save money on the purchase of their home.
What are the requirements for VA mortgage loan assumption
To assume a VA mortgage loan, the buyer must meet specific eligibility criteria, including:
- Creditworthiness: The buyer must have good credit and a stable income to qualify for the loan assumption.
- Assumption agreement: The buyer and seller must execute an assumption agreement and provide it to the VA for approval.
- Funding fee: The buyer must pay a funding fee to the VA, which is typically lower than the fee for obtaining a new loan. As of Apr 7, 2023 The fee for a VA loan assumption is .50% for the first and subsequent uses.
- Occupancy requirement: The buyer must intend to occupy the property as their primary residence.
- Property condition: The property must meet the VA’s minimum property requirements, and the seller must certify that they are not aware of any defects.
- Assumable loan: The loan must be assumable under the terms of the original loan agreement.
It’s essential to know that not all VA loans are assumable, and even if they are,
the seller may still be liable for the loan if the buyer defaults. When a VA loan is assumed, the seller’s VA loan entitlement may be tied up until the loan is paid off in full. This means that the seller may not be able to obtain another VA loan until the loan is released from their entitlement.
To release the seller’s entitlement and transfer responsibility for the loan to the new buyer, the seller and buyer will need to complete a loan assumption process that includes notifying the VA of the transfer of the loan. This process typically involves submitting a VA Form 26-6381,
Request and Consent to Loan Assumption, to the lender and the VA.
Once the assumption process is complete and the VA has approved the transfer of the loan, the seller’s entitlement will be released and the new buyer will become solely responsible for the debt. It’s important to note that this process can take several weeks to complete, so it’s important to plan accordingly and work with a qualified lender and real estate professional to ensure that all requirements are met.
The release of the seller’s entitlement is a critical step in transferring responsibility for the loan to the new buyer. Therefore, it’s crucial to work with a qualified lender and real estate professional to ensure that the loan assumption process is completed successfully.
General VA loan entitlement
The VA has announced plans to increase purchase loan limits in 2023 in response to the increasing property values across the US. For the first time use there is not a limit for your loan. The baseline for single-unit home mortgages were raised to $720,200 and $1,089,300 in most parts of the country when using the VA loan a second time. This will provide buyers with more opportunities such as improved rates, more loan options, lower down payment, and reserve choices. This means that owning a home with zero down payment and receiving the full VA entitlement is now possible.
Minimum credit score
The Department of Veterans Affairs (VA) does not set a specific minimum credit score requirement for assuming a VA loan. Instead, the VA requires lenders to evaluate a borrower’s creditworthiness based on a variety of factors, including their credit score, credit history, and debt-to-income (DTI) ratio.
Lenders generally prefer a credit score of at least 620 for VA loans, including assuming VA Loans. However, some lenders may be willing to work with borrowers who have lower credit scores, depending on their overall financial situation and credit history.
Even if a borrower meets the minimum credit score requirement, their credit history will still be evaluated to determine their overall creditworthiness. Lenders will look at factors such as late payments, collections, bankruptcies, and foreclosures when making their decision.
In some cases it is a good idea to work on improving your credit score before applying for a VA assumption loan if possible. Remember for a VA loan assumption you are not shopping for a lender, you have to use the one that currently holds the loan and qualify with their terms because they are just making you the new payer of the loan!
Maximum DTI ratio
The maximum debt-to-income (DTI) ratio for a VA loan assumption depends on the specific lender’s requirements. VA lenders are allowed to establish their own requirements as long as they meet the minimum guidelines set by the Department of Veterans Affairs (VA).
Generally, most VA lenders will require a maximum DTI ratio of 41% or less for a VA loan
assumption. This means that the borrower’s total monthly debt payments,
including the new mortgage payment, should not exceed 41% of their gross
monthly income.
However, some lenders may allow for a higher DTI ratio if the borrower has strong compensating factors, such as a high credit score, significant savings, or stable employment history. Check with the lender that is currently servicing the loan to see what their requirements are.
Residual income
The person assuming the loan must have enough residual income to cover their monthly expenses after accounting for their mortgage payment. The VA has specific residual income requirements based on the borrower’s location and family size, and lenders may also have their own requirements.
It’s important to note that the lender and the VA must approve the loan assumption, and the person assuming the loan must meet all of the lender’s underwriting requirements. Additionally, the person assuming the loan must pay a funding fee to the VA, which for an assumption is substantially lower than taking on a new loan!
Military members are generally considered to be a safer population when it comes to steady income. This is because we receive a regular salary, and our pay is not affected by the ups and downs of the economy. In addition, we often receive benefits such as housing allowances and retirement plans, which provide us with added financial security. Make sure that you understand as a military member, if that is your current status you are a great candidate for a loan! Don’t assume that just because you make what some consider “not that much ” that you won’t have other factors that will shoot you to the top of the list to get a loan! Make sure you are in constant conversation with lenders to see that they can offer you!
This steady income can be particularly important for military members and our families, as we may face unique challenges such as frequent moves, deployments, and separations. Having a reliable source of income can help us to better manage these challenges and maintain a sense of stability and security.
Overall, military members are typically considered to be a relatively safe population when it comes to steady income.
Can any type of VA loan be assumed
No, not all types of VA loans are assumable!
- Only VA loans that were closed on or after March 1, 1988, are assumable without the need for the seller to obtain prior approval from the lender or the VA.
- If a VA loan closed before March 1, 1988, is assumed, the veteran seller’s VA entitlement may not be automatically restored. The seller may be required to provide a new Certificate of Eligibility (COE) to use for a new VA loan.
- Even if a VA loan is assumable, the lender and the VA must approve the loan assumption, and the person assuming the loan must meet all of the lender’s underwriting requirements.
- The person assuming the loan must also pay a funding fee to the VA. The funding fee can be included in the loan amount or paid in cash at closing.
- VA loans that were closed before March 1, 1988, may have a due-on-sale clause, which means that the entire loan balance may become due if the property is sold or transferred. However, VA loans that were closed after that date are generally not subject to a due-on-sale clause, so they may be assumable even if the property is sold or transferred. Make sure to check with the current lender to verify the loan is assumable.
It’s important to note that VA loan assumptions are not common, and they may be subject to additional fees and restrictions. It’s important to work with a knowledgeable lender and real estate agent to determine whether a VA loan assumption is the right option for your situation.
They typically take longer to close so buyer beware you may have to plan a little for that! But truthfully the money you save on your funding fee alone can typically cover the inconvenience of a longer closing! Make sure to always write up each and every scenario.
Release of Liability for Original Borrower/Loan Entitlement Retention
It is essential for every homeowner to remember that the release of liability is a crucial step in the loan assumption process. While helping the borrower save on fees and processing obligations, it’s also important to protect yourself in the transaction as the seller.
The release of liability means that you are no longer responsible for the repayment of the loan. Once the new homebuyer completes their financial screening and assumes the loan, the seller must ensure that they receive a signed and executed release of liability letter or agreement from the buyer. This step should be completed before all parties leave the final document signing!
Don’t skip this crucial step in the loan assumption process! Protect yourself by obtaining a release of liability to ensure that the borrower is solely responsible for the loan repayment. Work with a qualified lender and real estate professional to ensure a successful VA loan assumption process.
Do you have to qualify to assume VA loans?
Yes, you need to qualify to assume a VA loan. The lender will review your creditworthiness, income, and financial history to determine if you are eligible to assume the loan. Although the VA doesn’t publish minimum borrower requirements for loan assumptions, many lenders will have certain financial criteria that you must meet. Additionally, if you assume a VA loan, you will need to pay a funding fee equal to 0.5% of the loan balance.
A VA loan can be assumed by borrowers without military service, the lender’s approval is required for the assumption to take place.
The process of assuming a VA loan differs from obtaining a new mortgage. You’ll work with the seller’s lender to demonstrate your creditworthiness. If the lender determines that you meet the financial qualifications, you can proceed with the loan assumption.
Once the assuming borrower meets requirements under the lender’s credit and income standards, just as they would for any other loan they can proceed with the assumption. The lender will evaluate the borrower’s credit history, income, and debts to determine if he or she is a suitable candidate to assume the existing VA loan, this is a great way in a changing market to obtain a lower interest rate loan!
Assuming a VA loan can be a complex process, so it’s a good idea to work with an experienced loan officer from the servicing loan (remember you are not shopping for lenders outside of the current loan servicer because you are taking over the loan) and real estate agent who can guide you through the process and answer any questions you may have.
ADPI Pro Tips
Here are some pro tips on VA loan assumption requirements:
- Verify the loan is assumable: Not all VA loans are assumable, so it’s important to verify that the loan you are interested in assuming can be transferred. You can check the loan documents or contact the lender to find out if the loan is assumable.
- Understand the loan terms: Before assuming a VA loan, it’s important to understand the terms of the loan, including the interest rate, repayment schedule, and any fees or penalties. This information will help you determine whether assuming the loan is a good financial decision for you.
- Meet lender requirements: As mentioned earlier, assuming a VA loan requires meeting the lender’s credit and income standards. To increase your chances of approval, make sure you have a good credit score, a stable source of income, and a low debt-to-income ratio.
- If you are a seller and have an assumable VA loan, have your realtor add it to the listing information for the MLS, this will attract more buyers and overall interest!
This blog was written in collaboration with our absolutely amazing DoD SkillBridge employee: Joe
