If Someone Assumes My VA Loan, Can I Get Another One?

A VA loan provides an avenue for eligible service members, veterans, and surviving spouses to achieve homeownership. A notable feature of these loans is their assumability, meaning another party can take over the existing mortgage. This allows a new buyer to step into the seller’s current interest rate and remaining loan balance, which can be particularly advantageous in an environment of rising rates. Understanding the implications of a loan assumption on one’s eligibility for future VA loan benefits is important for those considering this option.

Understanding VA Loan Entitlement

VA loan entitlement is the amount the Department of Veterans Affairs guarantees to a lender if a borrower defaults on their loan. This guarantee allows lenders to offer favorable terms, such as no down payment, and it is not a direct dollar amount a veteran can borrow.

There are two types of entitlement: basic and bonus. Basic entitlement is $36,000. For loans exceeding $144,000, bonus entitlement becomes available. This bonus entitlement is calculated as 25% of the conforming loan limit for the county where the property is located. While the VA does not impose a maximum loan amount for borrowers with full entitlement, lenders will still assess a borrower’s ability to repay based on income, credit, and other financial factors.

Impact of Loan Assumption on Your Entitlement

When a VA loan is assumed by another party, the original veteran’s entitlement can be affected, influencing their ability to obtain another VA loan. If the person assuming the loan is also an eligible veteran and they formally substitute their own entitlement for the original veteran’s, the original veteran’s entitlement can be fully restored.

If a non-veteran assumes the loan, or if an eligible veteran assumes it but does not substitute their entitlement, the original veteran’s entitlement remains tied to the assumed loan. The original veteran may only have partial entitlement available, which could impact the maximum loan amount they can obtain without a down payment on a subsequent VA loan. To initiate entitlement restoration after an assumption, a veteran needs to apply to the VA through VA Form 26-1880 and provide documentation confirming the assumption and the status of the loan.

Steps to Obtain a New VA Loan

After understanding the status of your entitlement, the first step in applying for a new VA loan is to obtain a Certificate of Eligibility (COE). The COE confirms that you meet the VA’s service requirements and outlines your entitlement status. You can get your COE through a VA-approved lender, via the VA’s eBenefits portal, or by submitting VA Form 26-1880 by mail.

Once you have your COE, the next step involves finding a VA-approved lender. The loan application process involves pre-qualification or pre-approval, submitting necessary financial documents such as income and asset statements, and undergoing a credit check. After the property appraisal and underwriting are complete, the final step is the loan closing.

Factors Affecting Eligibility for a New VA Loan

Beyond entitlement, several factors influence eligibility for a new VA loan. Lenders consider a borrower’s creditworthiness, although the VA itself does not set a minimum credit score. Most lenders require a credit score of at least 620, though some may accept lower scores. A higher credit score leads to more favorable loan terms.

Lenders also assess a veteran’s income and debt-to-income (DTI) ratio to determine their ability to repay the loan. The VA prefers a DTI ratio of 41% or less. The property purchased with a VA loan must meet occupancy requirements. The borrower is expected to occupy the home within 60 days of closing, with some flexibility for specific situations.

A VA funding fee is required for VA loans. This one-time charge helps offset the program’s cost. The fee varies based on factors such as the loan type, down payment amount, and whether it is a first-time or subsequent use of the VA loan benefit. Veterans receiving VA compensation for service-connected disabilities, active-duty Purple Heart recipients, and certain surviving spouses are exempt from paying this fee. The funding fee can be paid at closing or financed into the loan amount.