Can a VA Loan Be Transferred to a Child?

A VA loan represents a significant benefit for eligible service members, veterans, and surviving spouses, designed to facilitate homeownership with advantageous terms. These loans, guaranteed by the Department of Veterans Affairs, often feature competitive interest rates and no requirement for a down payment. This article clarifies the rules surrounding VA loan transferability, exploring alternatives like loan assumption and outlining the process.

VA Loan Eligibility and Non-Transferability

VA loans are a personal entitlement earned through military service, not a property feature that can be simply handed over with a home. The Department of Veterans Affairs guarantees these loans based on a veteran’s specific eligibility, known as their entitlement. This entitlement is unique to the service member and is utilized to back the mortgage, making it a personal obligation rather than an asset tied solely to the physical property.

A direct, automatic transfer of an existing VA loan from a veteran borrower to their child is generally not possible. This holds true unless the child is also an eligible veteran and seeks to use their own VA loan entitlement to purchase the property through a new loan. The core reason for this non-transferability lies in the VA’s role: it guarantees the loan based on the original veteran’s creditworthiness and service-related eligibility, not just the real estate itself.

Understanding VA Loan Assumption

While a direct transfer is not feasible, a VA loan can be assumed by another party, which includes a child, under specific conditions. Loan assumption means a new borrower takes over the existing VA loan, including its remaining balance, interest rate, and terms, from the original veteran borrower. This process is distinct from a transfer of the veteran’s entitlement; instead, it involves transferring the obligation to repay the loan.

Any individual assuming a VA loan, whether a child or a non-veteran, must meet specific eligibility criteria set by the VA and the loan servicer. These requirements typically include demonstrating sufficient creditworthiness, such as a minimum credit score often around 620, and an acceptable debt-to-income ratio, which lenders commonly prefer to be below 41%. The new borrower must also intend to occupy the property as their primary residence. Additionally, the assumptor will need to pay any equity the original veteran has built in the home, which often requires a cash payment or secondary financing.

For the original veteran, allowing a loan assumption can offer several advantages, including a release of liability from the mortgage, which frees them from future responsibility for the loan payments. This release helps ensure their credit is not negatively impacted by the new borrower’s actions and can allow for the restoration of their VA loan entitlement for future use.

Steps for VA Loan Assumption

Initiating a VA loan assumption typically begins with the prospective assumptor, such as a child, contacting the current loan servicer directly. The loan servicer, not a new lender, is responsible for processing the assumption. The servicer will then provide an application package, which requires submission of detailed financial documentation. This documentation includes credit reports, proof of stable income, employment history, and a formal statement confirming the intent to occupy the property as a primary residence.

Following the submission of the application, the loan servicer and the VA will conduct a thorough credit and income review of the potential assumptor. This evaluation assesses the applicant’s financial capacity to manage the loan obligations. If required by the lender or VA, a property appraisal may also be conducted to ensure the home’s value supports the loan amount. Upon successful review, formal approval is granted by both the loan servicer and the VA.

Once approved, the final steps involve executing the assumption agreement and formally transferring the property title. The assumptor is responsible for certain fees, including a VA funding fee, typically 0.5% of the loan balance, and a processing fee, which can range from $250 to $300, possibly with locality variances. The original veteran must ensure they obtain a “release of liability” from the VA, officially removing their financial obligation and potentially restoring their entitlement. The entire process, from application to closing, can take an estimated 30 to 90 days.

Special Considerations for Children

In specific situations, a child’s involvement with a VA loan extends beyond a standard assumption. If the child is themselves an eligible veteran with their own VA loan entitlement, they could potentially purchase the property from their parent using a new VA loan. This scenario involves the child applying for a separate VA loan in their name, effectively refinancing the property, rather than taking over the existing loan. This approach allows the original veteran’s entitlement to be fully restored without requiring the new veteran to substitute their own entitlement for the original loan.

Upon the death of a veteran borrower, the VA loan does not automatically transfer to a child or other heir. The loan remains a lien on the property, and the Department of Veterans Affairs does not pay off the loan balance. The child, as an heir, may have several options: they can attempt to assume the existing VA loan if they meet all qualification criteria, including credit and income requirements. Alternatively, they might choose to refinance the loan in their own name with a conventional mortgage, or sell the property to satisfy the outstanding debt. If a co-borrower was on the original loan, they typically inherit the responsibility for payments.