How to Assume a VA Loan: The Process Explained

A VA loan assumption allows a qualified homebuyer to take over an existing VA loan from a seller, including its remaining balance and interest rate. This can be attractive in periods of rising interest rates, offering a lower mortgage payment than a new loan at current market rates. Beyond a more favorable interest rate, assuming a VA loan also leads to reduced upfront costs by bypassing many new loan origination fees.

Buyer and Loan Eligibility for Assumption

Prospective buyers interested in a VA loan assumption must meet specific financial qualifications, even though they are not required to be a veteran or service member themselves. Lenders will assess the buyer’s creditworthiness, typically looking for an acceptable credit score, which commonly falls around 620, though some lenders may accept lower scores. The buyer’s debt-to-income (DTI) ratio is also reviewed to ensure they have sufficient income to manage the mortgage payments and other monthly obligations, with a common threshold being 41% or lower, though exceptions can occur with strong residual income. Stable employment history and adequate assets are also important considerations in the qualification process.

The property being assumed must also meet certain criteria, primarily that the buyer intends to occupy it as their primary residence. This occupancy requirement generally means the buyer must move into the home within 60 days of closing, though some flexibility may be granted for specific circumstances like military deployment or necessary repairs. The VA loan itself must be current on payments at the time of the assumption. For a VA loan assumption to proceed, it requires approval from both the current lender and the Department of Veterans Affairs, especially for loans originated after March 1, 1988.

Required Documentation for Assumption

To initiate a VA loan assumption, the buyer must gather documents to demonstrate financial capability. This includes proof of identity, such as a government-issued ID. For income verification, buyers will need recent pay stubs covering 30 to 60 days, W-2 forms from the past two years, and potentially tax returns for the previous two years if they are self-employed or have complex income structures.

Documentation of assets is also necessary, requiring bank statements for the past two to three months to show sufficient funds for closing costs and any equity payment to the seller. Buyers will also need to provide authorization for the lender to pull their credit history. The lender will provide specific application forms, such as VA Form 26-6393, the Loan Assumption Application, which requires detailed personal, financial, and property information. The existing loan’s details, including the loan number, current balance, and interest rate, will also be required.

Steps in the VA Loan Assumption Process

The process begins with contacting the current loan servicer. The seller typically initiates this by requesting an assumption packet containing the necessary forms and instructions. This step allows the servicer to provide details about the existing loan and outline their specific requirements.

Once the assumption packet is received, the buyer completes the required application forms and submits all documentation to the servicer. This application package includes financial records, employment history, and authorization for credit checks. Submitting a complete and accurate package helps prevent delays.

The loan servicer then undertakes a thorough review and underwriting process, similar to a new mortgage. This involves verifying the buyer’s income, employment, and credit history to confirm their financial capacity to take on the loan. While an appraisal is not always required for an assumption, the lender may request one depending on the circumstances or if there’s a significant difference between the sale price and the loan balance. This lender approval stage can take several weeks, typically ranging from 30 to 60 days.

Following lender approval, the Department of Veterans Affairs also reviews the assumption for final approval, especially to facilitate a release of liability for the original borrower. This dual approval ensures all VA guidelines are met. The final step is closing the assumption, where new loan documents are signed, and the property title is transferred to the buyer. Associated fees, such as a VA funding fee of 0.5% of the loan balance, along with other typical closing costs like title insurance, recording fees, and escrow amounts for property taxes and insurance, are paid at this time. The total closing costs for an assumption are generally lower than those for a new loan origination, potentially saving the buyer thousands of dollars.

Entitlement Considerations for the Original Borrower

For the original borrower, a VA loan assumption involves the release of liability. This document formally absolves the seller from financial responsibility for the loan. Obtaining a release of liability is important for the seller’s financial protection, preventing potential negative credit impacts if the new borrower defaults on payments. The VA will grant this release under specific conditions, primarily that the assuming buyer is creditworthy and the assumption receives VA approval.

Beyond the release of liability, the original borrower’s VA home loan entitlement is a consideration. If the buyer is not a veteran with their own VA loan eligibility, the seller’s entitlement may remain tied to the assumed loan until it is fully repaid. This means the seller would not have their full entitlement available for another VA-backed home purchase.

Entitlement restoration is possible, allowing the seller to use their VA loan benefit again for a future home. This occurs after a successful assumption and the granting of a formal release of liability. A “substitution of entitlement” is another scenario. This happens when an eligible veteran buyer assumes the loan and agrees to use their own VA entitlement in place of the seller’s. In such cases, the seller’s full entitlement is restored almost immediately, providing access to their VA home loan benefits. Without a release of liability or substitution of entitlement, the original borrower remains secondarily liable for the loan, and their entitlement remains encumbered, limiting their ability to secure another VA loan.