Can I Assume a VA Loan? What You Need to Know
Navigate the complexities of assuming a VA loan. Understand the eligibility, procedural steps, and post-assumption considerations for all involved.
A VA loan assumption allows a qualified homebuyer to take over an existing VA mortgage from a seller, retaining the original interest rate and remaining balance. This process is an appealing alternative to securing a new mortgage, especially when current interest rates are higher, offering potential cost savings for the buyer by avoiding new loan origination fees and potentially securing a lower monthly payment. For the seller, offering an assumable VA loan can expand the pool of potential buyers, making the property more attractive.
Who Can Assume a VA Loan
Anyone, including non-veterans, can assume a VA loan, provided they meet specific qualification criteria set by the lender and the Department of Veterans Affairs (VA). A primary factor is the assumptor’s creditworthiness, which lenders assess to ensure the ability to repay the loan. While the VA does not specify a minimum credit score, many lenders typically look for a score of at least 620, though some may accept lower scores.
Beyond credit scores, lenders will evaluate the assumptor’s income and employment stability to confirm sufficient and reliable earnings for mortgage payments. This evaluation includes assessing the debt-to-income (DTI) ratio, which compares monthly debt obligations to gross monthly income. It is often required to be less than 41% or 45%. The assumptor must intend to occupy the property as their primary residence within 60 days of closing.
A VA funding fee is generally required from the assumptor, calculated as 0.5% of the loan balance. However, certain individuals, such as veterans receiving VA compensation for a service-connected disability or surviving spouses, may be exempt from this fee. All assumptions require approval from the loan servicer or lender, who will assess the assumptor’s financial qualifications.
Navigating the VA Loan Assumption Process
Initiating a VA loan assumption involves gathering necessary information and documentation. The assumptor will need to compile detailed financial records, including recent pay stubs, W-2 forms for the past two years, and federal tax returns to verify income. Asset statements, such as bank account and investment account summaries, are also required to demonstrate financial reserves. Personal identification and a credit authorization form will complete the initial package.
The Uniform Residential Loan Application (Form 1003) is a standard document used by lenders to collect comprehensive financial and personal details from the applicant. The loan servicer may also require specific VA forms, such as VA Form 26-1880, which is often used for Certificate of Eligibility. These forms can be obtained from the loan servicer or downloaded from the VA’s official website. Careful completion of all fields is necessary for a smooth review.
Once the application package is complete, it is submitted to the loan servicer. This can be done through mail or secure online portals. The servicer then undertakes a comprehensive review and underwriting process, which includes a credit check and thorough income verification. Processing timelines can vary, ranging from a few weeks to several months. The servicer may request additional information during this time.
Upon approval, the closing process for the assumption takes place. This involves the formal transfer of the loan responsibility to the assumptor. Associated fees, such as an assumption processing fee, credit report fees, and recording fees, will be due at closing. Following the payment of these fees and the signing of all required documents, the transfer of title is finalized, and the assumptor becomes the new responsible party for the VA loan.
Considerations for the Original VA Borrower
For the original VA borrower, obtaining a Release of Liability is important after their loan has been assumed. This formal document, issued by the VA and the lender, absolves the original borrower from future responsibility for the mortgage debt. Without this release, the original borrower could remain liable for any default or missed payments by the assumptor, potentially affecting their credit score. The process for seeking this release involves submitting a formal request, requiring VA Form 26-6381, to the loan servicer or the VA directly.
Another important aspect is VA Entitlement Restoration. If an eligible veteran assumes the loan and substitutes their own entitlement for the original borrower’s, the original borrower’s full VA home loan entitlement can be restored. This allows them to use their VA benefit for a future home purchase without limitations. If a non-veteran assumes the loan, or if another veteran does not substitute their entitlement, the original borrower’s entitlement remains tied to the assumed loan until it is fully paid off.
The distinction between full and partial restoration hinges on whether the new borrower is an eligible veteran who formally substitutes their entitlement. Full restoration occurs with this substitution, immediately freeing up the original borrower’s entitlement. Without it, the entitlement remains encumbered, potentially limiting the original borrower’s ability to obtain another VA loan with their full benefit. Understanding these implications is important for the original borrower’s future homeownership plans.