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What is a VA loan assumption?
When a home buyer assumes a VA loan, they take over the seller's VA loan exactly as it is, with the same interest rate, principal, and remaining term. The seller is released from liability (ROL) after the assumption process is done, and the buyer becomes the official owner of the loan and the property.
Costs Associated With a VA Loan Assumption
- A loan assumption does not incur the costs typically found with applying for a new loan. A buyer can save a big chunk of money as much of the fees and footwork required to establish the original loan has already been done (thank you, homeowner) so the assumption is able to be done without as much cost involved.
- The buyer is required to pay a Funding Fee of 0.5% of the loan balance at the time of closing, unless the buyer is a Veteran and that veteran is exempt from the VA Funding Fee. The funding fee cannot be financed into the loan assumption. To find out if you are exempt from the VA funding fee, click here to visit the VA website page detailing this specifically.
- The lender may assess a processing fee up to $300 ($250 if servicer doesn't have has automatic authority to conduct the assumption)
- The buyer will likely have to pay for the credit report ordered by the loan servicer/holder to determine creditworthiness.
- Down Payment or Assumption Gap? A down payment is not required for a loan assumption, ALTHOUGH, the buyer will have to make up the difference between the Sales Price on the purchase agreement/contract and the amount remaining on the loan. That difference is called the "Assumption Gap" and can be a fairly large amount, well over $100,000 based on equity gained in today's market. There are a variety of strategies on how to make up this difference, which you will find in our eBook. You are not able to finance this amount into the existing loan you are looking to assume.
Reasons An Assumption May Be An Attractive Strategy
As a Seller
- Reduced costs, as the loan is already established, which reduces fees and removes additional necessity of costs for services such as inspections and appraisals
- Potentially reduced timeframe property is listed for sale
- Provides opportunity t sell more than just the real property, as you also market a more favorable interest rate and loan terms than may be currently available in the market
- Opportunity to give back to veteran community
As a Buyer
- Reduced costs, as the loan is already established, which reduces fees and removes additional necessity of costs for services such as inspections and appraisals
- Potential access to considerably more favorable interest rate and loan terms than may be available on the market
- No down payment required
Here is the Process flow:
Make the Connection
Welcome to the best place for selling or buying a home with an assumable VA Loan. You can post your home for sale, look for homes with assumable loans, and save money on your mortgage. You can also join our community to get expert advice, helpful resources, and a network of people who are interested in VA loan assumptions.
A realtor who is experienced in loan assumptions can make the process easier for you. They can help you draft a purchase agreement that covers the assumption and the contingency plans in case something goes wrong.
Sellers, advertising your assumable loan can attract more buyers and generate more offers. If your buyers have any questions or concerns, you can direct them here to get reliable information and guidance.
Buyers, finding a home with an assumable loan can give you more buying power and lower monthly payments. You can browse through our listings and find your dream home faster.
Agents, referring your clients here can save you time and hassle. You can get them educated and prepared for a loan assumption before they sign a contract. You can also avoid writing and revising multiple addendums by having all parties on the same page from the start.
Contact the Loan Holder or Servicer
Before agreeing to a loan assumption, sellers should contact the servicer and holder of their current mortgage. They should inquire about the possibility of approving the assumption directly, the additional requirements they may have, and the time frame for processing the assumption. The sellers should inform their loan servicer that they are requesting an assumption, and they will receive a package of instructions for themselves and the buyer to follow.
Our assumption consultant or the servicer or holder will ask for a Certificate of Eligibility (COE) from both the buyer and the seller and verify their entitlement status. Once the VA Loan assumption is approved, the seller will apply for a Substitution of Eligibility (SOE) from the VA. This way, they can avoid having their entitlement tied to the property and prevent them from using it again until the new owner sells or refinances the home. This may happen in some cases where assumptions are approved.
Complete the Package & Start the Clock
Both parties must complete the assumption instruction package that the seller receives. The package should include a Release of Liability (ROL) for the seller. This is important. The loan holder/servicer may take up to 30 days to process the package after they receive it.
Loan Assumption Insurance can help you avoid losing the loan. It can be very useful if the loan holder/servicer delays or rejects the assumption package, or if the VA denies the appeal or there is not enough time for the appeal process. The VA Loan Assumption Resource offers this service. Please contact us to explore your options.
Retain Release of Liability
Upon approval of the request by the loan holder or servicer, having processed the assumption application, the seller will receive a Release of Liability letter that fully releases them from liability for the loan. The buyer will now be responsible for repaying the remaining balance of the loan.
If the VA denies the assumption request, the seller can submit an appeal to the VA for reconsideration. This will likely prolong the process and create difficulties depending on what else is going on in the buyer and seller's lives and the timing needed to do the assumption. We offer VA Loan Assumption Insurance which can mitigate the risk of not being able to quickly move onto another option for financing a home . To learn more, click here.
Request Entitlement Substitution
After the loan assumption is completed, the seller may need to complete a Substitution of Entitlement (SOE) form using VA Form 26-8106. The servicer that processed the loan assumption should have asked the seller for this form during the assumption process, if a substitution of entitlement is occurring between the veteran seller and veteran buyer. The SOE form enables the VA to restore the seller's entitlement that was used in the original loan and apply the same amount of the buyer's entitlement for the assumed loan (if applicable, depending on the buyer's military status and available home loan entitlement before assumption).
The seller can verify if their entitlement has been restored by visiting the VA website and requesting their own COE (as shown here, visiting the VA website that explains this).
How to find Assumable VA Loans
Utilize Listing Websites
Many of us are familiar with searching for property listing information on Zillow. The video to the left shows a quick way of searching for listed properties that are being marketed with an assumable loan option. These listings are generated from the MLS. When searching for properties (granted, the brokerage whose website you are on services that area), be sure to add the word "assumable" into the search filter information to highlight listings that carry that designation. It is in the Seller's interest for the realtor to ensure that information is attached to the listing to generate additional buyer interest.
Utilize Broker Websites
Often, brokerages will offer a free feature on their website for you to search property listings in your region of interest. These listings are generated from the MLS. When searching for properties (granted, the brokerage whose website you are on services that area), be sure to add the word "assumable" into the search filter information to highlight listings that carry that designation. It is in the Seller's interest for the realtor to ensure that information is attached to the listing to generate additional buyer interest.
Network with Sellers
Frankly, assumable loans have not been a mainstream product or an option often marketed by realtors and sellers for various reasons. This means there may be more opportunity than meets the eye. We've created a space for buyers and sellers oriented toward VA loan assumptions to connect directly and efficiently. Utilize this link to access that group on Facebook.