Assumable VA Loans: Selling and Buying

How an assumption works

When a buyer assumes a VA loan, they take over the seller's existing mortgage: the same interest rate, the same remaining balance and the same remaining term. If the seller has a 3% rate and today's rates are much higher, that can save the buyer a lot of money every month.

Loans closed after March 1, 1988 need approval from the loan servicer (or VA) before an assumption. The buyer must qualify on credit and income, much like a new loan.

Who can assume

Anyone who qualifies can assume a VA loan. The buyer does not have to be a Veteran. But whether the buyer is a Veteran matters a lot to the seller.

The seller's entitlement

Here is the key point for sellers. When a non-Veteran assumes your loan, your entitlement stays tied to that loan until it is paid off. You may still have some remaining entitlement for your next home, but you will not get your full benefit back.

If the buyer is an eligible Veteran who agrees to substitute their own entitlement for yours, VA can restore your entitlement. The buyer must have enough entitlement to cover the loan.

Release of liability

A release of liability frees the seller from being responsible for the loan if the buyer stops paying. Ask for it as part of the assumption. Without it, a buyer's default could still affect you. Release of liability and substitution of entitlement are separate things; a seller usually wants both if the buyer is a Veteran.

Paying the equity gap

The buyer takes over the loan balance, not the price. If the home sells for $400,000 and the loan balance is $300,000, the buyer must pay the seller the $100,000 difference another way: cash, a second mortgage, or a mix. This gap is often the biggest hurdle for buyers.

Costs

• VA funding fee: 0.5% of the loan balance, paid by the buyer unless the buyer is exempt.
• Processing fee: VA rules cap the holder's charge at the lesser of $300 or the cost of a credit report, or any lower state limit, plus some allowed costs like title and recording.
• Closing costs like title insurance and recording.

Step by step: selling with an assumption

1. Call your servicer and ask how it handles VA assumptions and how long they take.
2. Market the rate. Let your agent highlight the assumable loan in the listing.
3. Screen buyers for both credit and cash to cover the equity gap.
4. Prefer a Veteran buyer willing to substitute entitlement if you want your benefit back.
5. Submit the package to the servicer for approval.
6. Request release of liability and, if a Veteran buyer, substitution of entitlement.
7. Close and keep copies of every approval.

Step by step: buying with an assumption

1. Find assumable VA loans by asking agents or checking listings.
2. Confirm the rate, balance and term with the seller's servicer.
3. Plan for the equity gap in cash or a second loan.
4. Apply with the servicer and send income and credit documents.
5. Wait for approval. Assumptions can take longer than a new loan, sometimes weeks to months.
6. Close and pay the 0.5% funding fee unless exempt.

Tips

• Assumptions can be slow. Build extra time into the contract.
• Ask the servicer for a written timeline and a list of needed documents.
• Sellers: an assumption by a non-Veteran can limit your future VA buying power. Run the numbers before agreeing.

Bottom line

An assumable VA loan is a valuable asset when rates are high. Sellers should protect their entitlement, and buyers should plan for the cash needed to cover the seller's equity.