Can You Transfer a VA Loan to Another Person?

The Department of Veterans Affairs (VA) home loan program offers a significant benefit to eligible service members, veterans, and surviving spouses, enabling them to achieve homeownership. These loans offer advantageous terms, including no down payment and competitive interest rates. VA loans are assumable, meaning a qualified buyer can take over the existing mortgage from the original borrower.

Understanding VA Loan Assumption

A VA loan assumption allows a new borrower to assume the original borrower’s existing VA mortgage, including its remaining balance, interest rate, and repayment schedule. This differs from a traditional home sale where the buyer secures a new mortgage, and the proceeds pay off the seller’s loan. For VA loans originated after March 1, 1988, lender approval is required for an assumption to proceed.

This process offers advantages for both parties involved in a home sale. Buyers benefit from taking on a mortgage with a lower interest rate than current market rates, leading to significant savings over the life of the loan. Additionally, assumption transactions often involve lower fees and fewer closing costs compared to obtaining a new mortgage. For sellers, offering an assumable VA loan can expand the pool of potential buyers, making their property more attractive, especially in a market with rising interest rates.

Buyer Qualification for Assumption

For a buyer to assume a VA loan, they must meet specific criteria established by both the VA and the loan servicer. A primary requirement is that the assuming buyer intends to occupy the property as their primary residence. The VA generally allows the buyer to move in within 60 days of closing, with potential extensions up to one year under certain circumstances.

Lenders assess the buyer’s creditworthiness, requiring a minimum credit score, often around 620, though some lenders may accept scores as low as 580. The buyer’s debt-to-income (DTI) ratio is another factor, which compares monthly debt obligations to gross monthly income. While the VA does not set a strict maximum DTI, lenders prefer a ratio of 41% or lower. However, a higher DTI may be accepted if the buyer has compensating factors, such as residual income or cash reserves.

Income and employment stability are also verified to ensure the buyer can meet the mortgage payments. Buyers need to provide documentation such as recent pay stubs, tax returns, and bank statements. Consent for a credit report is also necessary to evaluate their financial standing. The buyer must agree to assume all obligations of the existing loan, becoming solely responsible for future payments.

The Assumption Application Process

The assumption process begins once a potential buyer has gathered the necessary qualification information. The original borrower, or seller, contacts their loan servicer to initiate the assumption. The servicer then provides the required application package to the prospective buyer.

The buyer must complete this application, submitting documentation verifying financial qualifications, such as income, employment, and credit history. The loan servicer then undertakes a review process, similar to underwriting a new mortgage application, to ensure the buyer meets VA and lender-specific requirements.

Upon successful review by the lender, the assumption proceeds to final approval and closing. A VA funding fee of 0.5% of the loan balance is paid by the buyer at this stage. Additional processing fees, up to $300 plus the cost of a credit report, may also apply. The seller must obtain a release of liability from the lender, which officially removes them from responsibility for the loan once the assumption is complete. The entire process, from application submission to final approval, can take several weeks to complete.

Seller’s VA Entitlement After Assumption

A consideration for the original borrower, or seller, when a VA loan is assumed, is the impact on their VA loan entitlement. Entitlement is the amount the VA guarantees on a loan, enabling eligible individuals to purchase homes with favorable terms. When a VA loan is assumed, the seller’s entitlement used for that specific loan remains tied to the property until the assumed loan is fully repaid.

If the assuming buyer is a non-veteran, or a veteran who does not substitute their own entitlement, the original seller’s ability to obtain another VA loan with full benefits may be limited. The seller’s entitlement remains encumbered, which may affect their capacity to secure a new VA loan with no down payment. However, if another eligible veteran assumes the loan and substitutes their own entitlement for the seller’s, the original seller’s entitlement can be fully restored. This substitution process requires the new veteran borrower to complete VA forms.

Full restoration allows the original veteran to immediately reuse their VA loan benefit for another home purchase without limitations. Without this substitution, the seller’s entitlement remains committed to the assumed loan, which may impact their future VA financing. Understanding these implications is important for sellers considering a loan assumption, as it directly affects their long-term VA loan benefits.