What Happens If a Veteran Dies and a Spouse Is on the VA Loan?
Navigate VA loan options as a surviving spouse after a veteran's passing. Understand obligations and steps for continuing or managing your loan.
When a veteran with a VA home loan passes away, the surviving spouse faces financial and logistical considerations. Understanding how these loans are handled after the veteran’s death is important. This article clarifies the implications and options for a spouse already on the VA loan.
Understanding the Existing Loan and Spouse’s Obligation
If a spouse is already listed on a VA loan, they are typically considered a co-borrower, sharing legal responsibility for the debt. The veteran’s passing does not automatically alter the mortgage agreement. The loan’s interest rate, principal balance, and payment schedule remain as originally established.
The Department of Veterans Affairs (VA) does not pay off the remaining loan balance upon the veteran’s death; responsibility shifts to the beneficiary or estate. The surviving spouse must continue making regular mortgage payments to avoid repossession. Contact the loan servicer promptly to inform them of the veteran’s death and inquire about their procedures for managing the existing loan.
Qualifying to Continue with the VA Loan
For a surviving spouse to formally assume the VA loan, certain conditions and documentation are required. A primary condition for assumption is that the spouse must occupy the home as their primary residence. This is a fundamental aspect of VA loan eligibility.
Loan servicers will assess the spouse’s ability to repay the loan, evaluating income stability and credit history. While the VA does not set a minimum credit score, many lenders prefer a FICO credit score of at least 620 for loan assumptions. Lenders will also examine the spouse’s debt-to-income ratio to ensure financial capacity.
To demonstrate eligibility, the spouse will need to gather specific documents:
The veteran’s death certificate
Proof of the spouse’s income, such as pay stubs or tax returns
Bank statements
An occupancy statement confirming the home as the primary residence
A Certificate of Eligibility (COE), which confirms the spouse’s qualifying status and can be requested through VA Form 26-1817 or by the lender on the spouse’s behalf.
Steps to Assume the VA Loan
After understanding the eligibility requirements and preparing the necessary documentation, the surviving spouse can proceed with the formal assumption process. The initial step involves submitting a complete application package to the loan servicer. This package includes the assumption application form along with all required financial and personal documents.
Once submitted, the loan servicer will review the application for completeness and assess the spouse’s financial capacity. This underwriting process involves a thorough credit check and income verification. While processing times can vary, VA Circulars mandate that servicers must process and decide on assumption applications within 45 calendar days of receiving a complete application.
The assumption process may involve certain fees. A VA funding fee is required, which is 0.5% of the loan balance for assumptions. This funding fee is waived for surviving spouses who are receiving Dependency and Indemnity Compensation (DIC). Additionally, the servicer may charge a processing fee, which can range up to a few hundred dollars, often around $300, plus the cost of a credit report. Upon approval, the servicer will provide assumption documents for the spouse to sign, legally transferring the loan obligation. The existing interest rate and other loan terms remain the same when a VA loan is assumed.
Considering Other Options
If assuming the VA loan is not a suitable path, a surviving spouse has other alternatives to consider for the property. One option is to sell the property. Proceeds from the sale would be used to pay off the outstanding VA loan balance. This process is similar to any standard home sale, where the property is marketed and finalized to clear the mortgage.
Another alternative is to refinance the existing VA loan into a new mortgage. This could involve refinancing into a new VA loan if the spouse qualifies, potentially through an Interest Rate Reduction Refinance Loan (IRRRL), or into a conventional loan. Refinancing could offer different terms, such as a new interest rate or a modified payment schedule, but it would also involve new closing costs and the potential loss of specific VA loan benefits.