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The VA loan program offers an often-overlooked but powerful benefit: loan assumption. This unique feature can give both buyers and sellers a competitive edge in today’s high-interest-rate environment. Below, we’ll break down what VA loan assumption is, how it works, who qualifies, and the substantial benefits that come with it.
What is a VA Loan Assumption?
A VA loan assumption allows a homebuyer to take over (or “assume”) the current VA loan and its terms from the seller. This means the buyer adopts the original interest rate, loan balance, and remaining repayment schedule of the loan. In an environment where interest rates are rising, assuming a VA loan can lock in significantly lower rates.
Who Can Assume a VA Loan?
There are two primary scenarios where a VA loan assumption is allowed:
1. Veteran to Veteran Assumption
- The new buyer is an eligible VA borrower (typically a veteran, active-duty service member, or qualifying surviving spouse).
- The original veteran seller may be able to have their VA entitlement restored after the loan is assumed.
2. Civilian Buyer Assumes a VA Loan
- Civilians (non-VA eligible buyers) can assume a VA loan, but the original VA borrower’s entitlement remains tied to the loan until it’s paid off.
- This may affect the seller’s ability to use VA benefits again.
VA Approval Requirement
- All VA loan assumptions must be approved by either the Department of Veterans Affairs (VA) or the loan servicer to ensure the new buyer qualifies financially.
Step-by-Step: The VA Loan Assumption Process
- Check Loan Terms
Confirm with the loan servicer that the loan is assumable. - Apply for Assumption
Submit a formal request with financial documents.
Expect a credit check, income verification, and a debt-to-income review. - Get VA or Servicer Approval
Once the buyer is approved, the assumption paperwork is finalized. - Close the Transaction
A formal closing is conducted, just like any home loan.
The buyer signs legal documents assuming the loan. - Entitlement Consideration
If applicable, request the VA to restore the seller’s entitlement after assumption (veteran-to-veteran cases only).
Top Benefits of VA Loan Assumption
1. Low Interest Rates
One of the most attractive features is the potential to inherit a significantly lower interest rate compared to current market conditions.
2. Reduced Closing Costs
VA loan assumptions typically incur lower closing costs than taking out a brand-new mortgage.
3. No VA Funding Fee (In Some Cases)
VA loan assumptions may be exempt from the VA funding fee, especially if the buyer is a qualified veteran with a disability.
4. Faster and Simpler Closing
Assumptions avoid some of the traditional underwriting steps, making them faster and smoother than standard home loan processes.
FAQ: VA Loan Assumptions
Can anyone assume a VA loan?
Not all VA loans are assumable, and not all buyers will qualify. Buyers must meet financial criteria and obtain approval from the loan servicer or VA.
Does the seller get their VA entitlement back?
Only if the buyer is also VA-eligible and agrees to substitute their entitlement. Otherwise, the seller’s entitlement remains tied to the loan.
Is there a cost to assume a VA loan?
Yes, there may be a processing fee (usually around $300) and legal recording fees. However, these are typically lower than new loan closing costs
Can a VA loan assumption be denied?
Yes, if the buyer does not meet financial qualifications or if the loan terms prohibit assumption.
Read Next
Looking to dive deeper into VA home loan topics? Here are more helpful guides:
By understanding and leveraging the VA loan assumption process, both buyers and sellers can gain significant financial advantages in the home buying journey. Whether you’re looking to save on interest or preserve your VA entitlement, it pays to explore this underutilized benefit.
Get Expert Financing
- Matched with investor-friendly lenders
- Fast pre-approvals-no W2s required
- Financing options fro rentals, BRRRR, STRs
- Scale your portfolio with confidence
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
