How to assume a VA loan is the “house hack” we should all be talking about.
Assuming a VA Loan
What does it mean to assume a VA loan? In short, a borrower takes over the current terms of the sellers VA loan they have on the property that is being purchased, (even if they are not eligible to obtain a VA loan for themselves).
It’s clear why a home buyer would be motivated to assume a VA loan – monthly saving. If a seller has a VA loan with an interest rate that is significantly less than what the buyer could obtain today, the buyer could be saving hundreds if not thousands every month by assuming the sellers existing VA loan. The mortgage payment and loan at large would remain unchanged when the buyer assumes it from the seller.
A seller would be motivated to offer their VA loan to a new buyer by assumption, if the market has shifted and affordability (lower monthly payment) is more difficult to achieve because of interest rates and/or housing prices. If the home seller is wanting to purchase another home in the future, they may favor another Veteran assuming their VA loan. When a buyer who is approved for a VA home loan assumes the existing VA loan, the home sellers VA eligibility is released back to them. However if a buyer is not VA, the home sellers eligibility (or portion of it) is tied up, until the loan is either paid off, or refinanced.
What does assuming a VA loan look like for a Home Buyer?
Let’s look at the journey of my homebuyers, Emily and Zach. Emily and Zach purchased their first home by assuming the VA loan of the seller. The owner had an interest rate of 2.75% with an unpaid balance of about $395,000.
Emily is a Veteran herself and because of that, the VA eligibility of the previous owners was released back to the seller. Meaning they can use it again on another home purchase. Non-VA buyers can also assume a VA loan.
Emily and Zach put $35,000 down (the difference between the purchase price and the mortgage amount). They were able to save thousands on their total closing costs and are paying roughly $900 less per month than they would be had they had to obtain a new VA with loan with the current interest rate of 6.5%. The caveat here is that buyers have to have the funds to cover the difference in purchase price and the mortgage. Buyer’s cannot obtain a secondary mortgage to cover the difference.
This loan assumption process generally takes 45 days to complete. This is largely dependent on the service provider. Fortunately, in this scenario, it took only 30 days for Emily and Zach to get the keys to their first home and finalize the assumption process.
What does Assuming a VA loan look like for the home seller?
One commonly asked question from the seller is, “how can I sell my home with the VA loan interest rate to the buyer?” The Realtor that represents the seller will advertise that you have a VA loan that you are willing to have assumed. Your current service provider for your loan (who you pay your mortgage to) will be the primary contact to process the assumption. Any buyer who looks at the sellers home SHOULD already have a letter of approval from a lender. Although, in order for that buyer to assume your loan, they need to work with your mortgage service provider.
There are many details and intricacies when it comes to assuming a VA loan and it’s important to hire a real estate professional who is knowledgable in VA loans. Some Realtors (me!) are certified as a Military Relocation Professional (MRP). This can be an indicator if the Realtor you higher to represent you, is familiar with the VA loan benefits and can assist in providing resources and know-how to make the processes of purchasing easier for you.
Emily and Zach’s mortgage payment is just over $2,000 a month, where as if they obtained a new VA loan, they’d be paying closed to $3,000 per month.
What are your other financing options? CLICK HERE to read more about how to finance your home purchase.