As interest rates have risen over the past year, it has become progressively more difficult for home buyers to qualify to purchase homes in the same price range that they could afford at lower interest rates.
Fortunately for veterans, VA loans offer a great way to help offset this rise in rates by allowing them to assume the loan of another veteran at that loan's existing rate.
What is Loan Assumption?
Loan assumption is a process where a new borrower takes over an existing loan, including all the terms and obligations associated with it. In the case of a VA loan, loan assumption can be a great option for individuals who want to buy a home but may not qualify for their own VA loan at current rates, or for someone who would just like the lower costs associated with a lower rate. By assuming an existing VA loan, you can benefit from the same terms and conditions as the original borrower.
How to Assume a VA Loan?
Assuming a VA loan requires the approval of both the lender and the VA. There are specific requirements that must be met. The first step is to contact the lender that holds the loan and inquire about the loan assumption process. The lender will provide the necessary paperwork and guide you through the process. Once the lender approves the assumption, the VA will review the application and issue a formal approval.
What are the Requirements for Assuming a VA Loan?
To assume a VA loan, you must be an eligible veteran or service member, or the spouse of an eligible veteran or service member. You must also meet the creditworthiness and income requirements of the lender, and be able to demonstrate your ability to make the mortgage payments. The lender may charge an assumption fee, which is typically 1% of the loan amount, to cover the administrative costs of processing the loan assumption. The VA may also charge a funding fee for the loan assumption, which varies depending on your military status and the size of your down payment.
What are the advantages of assuming a low-interest-rate VA Loan?
One of the benefits of assuming a VA loan is that you may be able to enjoy a lower interest rate. A lower interest rate can result in lower monthly mortgage payments, lower total interest costs over the life of the loan, more home buying power, improved cash flow, and reduced risk of default. This can make homeownership more affordable and accessible for eligible borrowers.
What to keep in mind when assuming a VA loan?
When using a VA loan that is not assumed, you have the wonderful option of being able to finance 100% of your purchase with the new loan. When assuming a VA loan, you will be able to assume the existing balance of the VA loan already in place but will have to come up with the remaining balance of the purchase price of a down payment or find secondary financing which is not always available. Unlike a traditional VA loan, assuming a VA loan is not for a veteran who is looking to purchase with no money down.
How to find a home with a VA loan that you can assume?
I have gone through the process of finding all of the homes currently listed for sale in MLS in the areas I cover that are currently financed by a VA, FHA, or other loans that are assumable, and have posted those properties at Homes for Sale with Assumable Loans.
I also have a list of homes financed by VA loans that are not currently listed for sale and will reach out to those homeowners for my home buyer clients as part of my motivated home buyer program. To join that program we would just need to meet in person or virtually to go over what you are looking for, set up a road map for success, and then put together a customized plan to get you there. You can contact me Here to set up an appointment for a strategy session.
Posted by Patrick Hake on