VA Assumption Loans: Pros and Cons

A VA assumption loan allows a buyer to take over a VA mortgage from a seller, often resulting in considerable savings on both closing costs and interest rates—especially valuable in today’s high-interest environment. While there are several reasons to consider assuming a loan, the main draw is the potential for a lower interest rate, helping make homeownership more attainable despite rising housing costs. Below, we’ll outline a few essentials for both buyers and sellers, plus the pros and cons to keep in mind. If you’re interested in a VA assumption loan, contact us; our team has experience representing both sides of VA assumptions and can guide you through the process. 

Below showcase just a few of our closed assumption loans. 

Pros of VA Assumption Loans

• The #1 driving factor – Lower Interest Rates: Assumption loans often come with lower-than-market interest rates, which can result in substantial monthly savings.
• Minimal Closing Costs: Closing costs are usually minimal, being the loan is being assumed you do not have to pay origination Charges to a lender, Appraisal fees and a few other big cost items. You only pay a 0.5% VA funding fee and a couple prorations, and other small fees. —much lower than the typical 2.15% on new purchases.
• No Appraisal Requirement: Skipping the appraisal process can save both time and money compared to taking out a new loan.
• Seller: being there is no Appraisal, you can charge a premium for rates in certain situations. It is also an incentive if your home is not selling to promote your rate.

Cons of VA Assumption Loans

• the #1 con for Buyers – Equity Payout: Buyer has to pay out the equity the seller has from mortgage value to market value. Typically this is a very substantial amount.

         Ex: Mortgage to be assumed is $200k. Home market value is $500k. Buyer owes roughly $300k cash.

• Extended Closing Times: VA assumption loans often take 2-9 months to close due to less staffing,  lower prioritization by lenders and no real money made on their end.
• Non-Veteran Limitations: For non-veteran buyers, assuming a VA loan ties up the seller’s VA  eligibility, which can limit future VA benefits use and if there is a default or foreclosure it will negatively effect the sellers VA Eligibility for life.
• Limited Availability: Not all mortgage companies support VA loan assumptions, and they do not have to participate. They can deny a buyer for any reason.
• Loan Liabilities: The buyer assumes any existing liabilities tied to the loan.

Other Facts

• Eligibility: Both veterans and non-veterans can assume a VA loan, though each status has unique pros and cons.
• History: VA assumption loans have been available since 1988 but recently gained attention due to rising interest rates.
• Qualification: All buyers, whether veterans or not, must still qualify to assume the loan.
• Liability: The new borrower will assume full responsibility for the remaining loan and any associated liabilities.
• VA Eligibility Transfer: VA eligibility is only restored to the seller if the loan is transferred from one veteran to another.
• Non-Veteran Limitations: Non-veterans can assume the loan but may restrict future VA benefits from the seller until the loan is paid off and are liable for any defaults to their va entitlement.
• Terms Remain the Same: The buyer takes on the same payment terms and loan duration as the seller.
• Lender Requirement: Buyers cannot use their own lender; they must go through the mortgage company holding the note. Sellers should verify buyer qualification with this lender before committing.
• Real Estate Agent Expertise: Agents need to understand and draft specific addendums and language unique to VA assumption loans, as these transactions require specialized knowledge and considerable time.
• Mortgagor Prioritization: Due to low fees and the complexity of VA assumptions, many lenders do not prioritize them, potentially causing delays.
• Contingencies: Address inspections, sewer scopes, proof of funds, and other due diligence steps early on to avoid complications after the process has started.
•  Keys to succeed:  You must make certain you contact the lender first to determine if they participate, What their timelines are, costs, fees, processes are. You also need to be certain the buyer can qualify up front with the servicer, and you need to make certain all parties are checked and balanced up front with the correct language to cover all bases in the bigging. remember this is a long process.

This overview provides a basic introduction to VA assumption loans. For more in-depth information and assistance with VA assumption loan processes, consult an experienced real estate professional or lender—or connect with us to determine if this option is right for you. We are specialized in VA assumption loans. 

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