What do I need to know about a VA loan assumption?


A VA loan assumption is a good option for home shoppers. In times when interest rates are on the rise and when mortgage requirements become tight, assuming VA home loans can be an attractive idea. Nowadays most assumable mortgages are FHA and VA-backed home loans. 

What are the major benefits to a VA loan  assumption?

  • The homebuyer need not be a veteran.
  • The homebuyer may be able to get an interest rate that is lower than what is offered in the current market.
  • The funding fee for an assumption is only .5 percent - for regular VA loans this is from 2.1 to 3.3 percent.
  • There are many areas around the nation, especially those that are near military bases, where VA homes are found.

How does a VA loan assumption work?

For VA home mortgages closed prior to March 1, 1988:

  • Loan assumption has no restrictions - there is no requirement on the part of the home seller, that is, the seller is not required to seek lender or VA approval
  • The home buyer does not have to be a member of the military.
  • However, the home seller retains liability for losses the VA may incur arising from the loan assumption.
  • The mortgage assumption has to be made official, that is, the veteran has to inform the Department of Veterans Affairs about it.

For VA home loans closed after March 1, 1988:

  • The home seller has to secure approval on from the lender.
  • The seller also has to ensure that monthly payments are made current during mortgage closing.
  • The buyer has to agree to assume the seller-veteran's liability to the government.
  • Non-veterans are qualified to assume provided they qualify in terms of credit and income.
  • The original rate is retained on the loan.

For mortgages that closed before March 1, 1988, why does the seller have to secure a release from liability if this is not required?

This is strongly recommended because the VA will be at risk from suffering a loss in case the new homeowner defaults on the monthly payments. In this instance the original homeowner/veteran may incur the debt left behind by the homebuyer.

Do homebuyers need to undergo credit and income checks when assuming a VA mortgage?

Yes. For VA mortgages closed after March 1, 1988 this is a requirement. This is to establish the buyer's credit risk and ability to pay the mortgage.

Are investors allowed to assume VA mortgage loan?

Yes. Investors are allowed on the condition they qualify for the assumption.

How does the original homeowner get a release from liability from the VA?

This is done by having the new homeowner agree to assume all of the liabilities of the original homeowner. When the buyer agrees to assume the liabilities, the loan payments are made current during mortgage closing, and, the buyer is found to be eligible for the assumption, the Department of Veterans Affairs issues a release of liability (ROL) to the home seller/veteran.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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