What is a mortgage assumption? And are VA loans assumable? An assumable mortgage simply means that it can be taken over by someone else. The person acquires that debt as though they had the loan all along, and the original borrower is released from all mortgage liability for that loan. But why would anyone want to assume someone else’s mortgage? Who can do it?
Below one of our senior VA loan experts Nate Burt talks more about VA assumptions in detail.
Reasons for a VA Loan Assumption
A huge reason why a person would want to do a VA assumption on someone else’s home loan is the interest rate. If current interest rates were very high, it would be wise in some cases to simply take over an existing loan with very low interest rates that reflect the market from several years ago rather than chance getting an unfavorable rate with an entirely new loan.
On the flip side, what does the original borrower get from a VA loan assumption? Would they have to get a different loan for their house? The buyer of the loan would likely pay the seller of the loan a significant portion of the net value of the interest rate difference, and the VA assumable mortgage would also likely give the original borrower’s home a value bounce.
It’s a win-win situation, right? Actually, the lender doesn’t always win in these situations since they are missing out on lending a new loan with higher interest rates.
VA Loan Assumption Requirements
So can a VA loan be assumed? Both VA loans and FHA loans can be assumed, but not by just anyone. First of all, both VA loans and FHA loans can be assumed if the loan closed before 1988 and 1989, respectively. (Most of the loans closed in these years would be near completion by now as it is.) Any loans that closed after this time must first get approval from the lender (and from the Department of Veterans Affairs for VA loans). With VA mortgages, there are a few additional conditions to be aware of:
- The original veteran borrower loses his or her remaining entitlement benefits in most cases because those benefits do not stay with the individual; they stay with the mortgage.
- The funding fee must still be covered, but it doesn’t matter whether the original borrower or new borrower pays it.
- The new borrower must meet VA standards and the lender’s credit standards.
Buying or Selling an Assumable Mortgage
As with most mortgage decisions, it’s important to ask your loan officer if buying or selling assumable VA loans would be a profitable decision for you. To get another impartial opinion, try asking a professional financial advisor or a knowledgeable friend for their advice. At Low VA Rates, we have our veteran clients’ best interests at heart. We work hard every day to make sure our clients are in a better financial situation than they were before. To learn more, visit our site or give us a call.