UPDATED: Jan 6, 2023
There are various types of mortgages for homeowners to choose from to finance their house. Depending on the benefits you’re looking for as a borrower, an assumable mortgage might be right for you.
If you’re on the hunt for an assumable loan with great benefits for the borrower, U.S. Department of Veterans Affairs (VA) loans are assumable – sometimes even for nonveteran borrowers. Let’s take a closer look at how a VA loan assumption could impact your home buying experience.
Most home buyers will apply for a new mortgage to help finance their purchase. However, you can also consider an assumable mortgage. An assumable mortgage is the lending process where a home buyer can purchase a home by taking over the seller's mortgage rather than getting a new one.
Not all mortgages are assumable. However, many government loans are assumable including VA home loans. This means that a borrower can take over the terms of an existing VA loan, potentially even if they are not eligible to take out a VA loan for themselves.
VA loan assumptions transfer the previous borrower’s outstanding loan balance, interest rate, repayment term and monthly mortgage payment to the new borrower.
To assume a VA loan as a home buyer, if you are an eligible VA borrower, you can use your own eligibility and entitlement to replace the seller’s eligibility.
You’re probably wondering, “Can a non-veteran assume a VA loan?” Yes, non-veterans and service members can also assume a VA loan in some cases.
If you aren’t a qualified veteran or service member, you’ll have to qualify with a lender as you would with any other new mortgage. The lender and the VA will decide to approve or deny your application. If you are approved, you will need to agree to the assumption including the original terms and conditions and pay the VA funding fee.
The buyer will need to meet the requirements set by their specific lender. However, some of the common requirements include:
Before closing on an assumable VA loan, the seller will need to obtain their release of liability from their lender. This document protects the previous borrower from any negative credit impacts or financial risk if the new borrower misses payments or fails to meet the original terms of the loan.
Not all lenders can or will offer VA loan assumption. Some lenders may need approval from the VA loan office, and this can be a lengthy process. However, here are some places to consider when looking for an assumable VA loan:
If you are the seller of an assumable mortgage, you must take a few extra steps to ensure your future financial protection and entitlement.
If the new borrower assuming your loan is a veteran with sufficient VA loan entitlement, the seller can ask them to substitute their entitlement for yours on that mortgage. Otherwise, your entitlement used to purchase the home will remain tied up in the property until the loan is fully repaid. That means if the new borrower is a non-veteran or service member, the remaining VA entitlement of the original VA borrower will not be reclaimed. In this case, the seller may not be able to fully take advantage of VA loan benefits in the future for some time.
VA loans come with many benefits in addition to being assumable. Here are some of the benefits and disadvantages to consider.
Instead of buying a home and applying for a new mortgage to finance the purchase, a new homeowner can sometimes assume the previous owner’s mortgage.
Assuming a VA mortgage loan can allow new borrowers to qualify for a lower interest rate, especially if it’s a locked-in rate and lower than today’s rates. Although the new borrower is required to pay the funding fee, it can save thousands of dollars during the closing process.
Just remember to obtain your release of liability from your lender as the seller so you can protect yourself from any potential and future financial harm.
Are you eligible for a VA loan? Start your online application today with Rocket Mortgage!
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