Is My VA Loan Assumable? How the Process Works

A VA loan assumption allows a qualified buyer to take over an existing Department of Veterans Affairs (VA) home loan from the current homeowner. This process includes inheriting the loan’s current interest rate, remaining balance, and repayment terms. While the VA loan program is primarily for eligible servicemembers, veterans, and surviving spouses, certain conditions permit others to assume these loans. The ability to assume a VA loan can offer significant advantages, though specific requirements and a defined process must be followed for a successful transfer.

Understanding VA Loan Assumptions

A VA loan assumption involves a new buyer stepping into the shoes of the original borrower, taking over the existing VA mortgage. This mechanism is a distinct alternative to a traditional home sale, where a new mortgage would typically be originated. The purpose of this feature is to enhance homeownership accessibility, particularly for the military community.

This process differs from securing a new mortgage, as the existing loan’s favorable terms, such as its interest rate, are preserved. For buyers, this can translate into considerable financial appeal, especially when the existing loan’s interest rate is lower than prevailing market rates. The assumption process often incurs fewer closing costs compared to obtaining an entirely new loan, offering further financial benefits.

Eligibility Requirements for VA Loan Assumption

For a VA loan to be considered for assumption, the existing mortgage must be in good standing and not in default. The loan servicer verifies that all payments have been made on time, ensuring the loan is a financially sound obligation.

The prospective buyer must also meet specific criteria to qualify for assuming the loan. Lenders evaluate the buyer’s creditworthiness, often requiring a minimum credit score, which falls in the range of 620 to 660. Sufficient income and a manageable debt-to-income (DTI) ratio, below 41%, are also assessed to confirm the buyer’s ability to afford the monthly mortgage payments. The buyer must intend to occupy the property as their primary residence.

Even if the buyer is not a veteran, they can assume a VA loan, provided they satisfy the lender’s and VA’s financial requirements. The Department of Veterans Affairs and the loan servicer must both approve the new borrower, a mandatory step for most VA loans originated after March 1, 1988. To demonstrate eligibility, the prospective buyer will need to gather various documents, including:
Proof of income
Verification of employment
Recent bank statements
Consent for a credit report pull

The VA Loan Assumption Process

Initiating a VA loan assumption begins with the prospective buyer contacting the current loan servicer. This expresses the buyer’s intent to assume the loan. The servicer then provides application forms and outlines required documentation.

Once all required documents are assembled, the complete application package is submitted to the loan servicer. The lender then undertakes a thorough review, similar to underwriting a new mortgage, to assess the buyer’s financial qualifications and ensure they meet credit and income standards.

During this review period, the loan servicer and the VA conduct their assessments. An appraisal of the property may be required to ensure it meets the VA’s minimum property requirements. If the property’s sale price exceeds the remaining loan balance, the buyer will need to pay the seller the difference, representing the seller’s equity.

A VA funding fee of 0.5% of the loan balance is paid by the buyer at closing. This fee supports the VA loan program, though certain veterans, such as those with service-connected disabilities, may be exempt. Other associated costs can include processing fees, up to $300, and credit report expenses. The final step involves closing the assumption, where all necessary documents are signed, and ownership is transferred to the new borrower.

Impact on the Original VA Borrower

For the original VA borrower, obtaining a formal release of liability from both the VA and the loan servicer is a crucial step. This release legally absolves the original borrower from future responsibility for the mortgage debt. Without this official release, the original borrower could remain secondarily liable for the loan, potentially facing negative credit impacts or financial repercussions if the new borrower defaults.

The assumption also impacts the original borrower’s VA home loan entitlement. If a VA-eligible buyer assumes the loan and substitutes their own entitlement, the original borrower’s full entitlement can be restored for future use. This allows them to obtain another VA loan with full benefits, such as no down payment. The substitution of entitlement requires the new veteran borrower to complete VA Form 26-8106.

If a non-veteran assumes the VA loan, or if an eligible veteran assumes it but does not substitute their entitlement, the original borrower’s entitlement remains tied to the assumed loan. In such cases, the original borrower’s ability to use their full VA entitlement for a future home purchase may be limited until the assumed loan is fully paid off. This means they might not have enough entitlement remaining for another VA loan without a down payment.