“A VA loan is a mortgage loan offered only to veterans, service members, and their eligible surviving spouses. However, VA loans are assumable which means that non-veteran borrowers can also assume existing (outstanding) VA loans as well. This article covers everything essential about VA loans assumption, requirements for assuming a VA loan, and how VA loans work.”
A VA loan in many situations can be a great option for home buyers as it comes with several benefits. And while these benefits do make VA loans a preferred choice among mortgage borrowers, they also have a limitation. VA loans are available to veterans, service members, and their eligible surviving spouses.
But this does not mean that non-veterans cannot benefit from VA loans completely. In simple words, there is an exception which turns out to be a great benefit for non-veterans as well. Simply speaking, VA loans are assumable by any eligible person whether a veteran or non-veteran. So, the simple answer to the questions – “Are VA loans assumable?” or “Can VA loans transfer?” is “Yes, VA mortgage loans are assumable”.
Being assumable is the perhaps the biggest attraction of a VA loan. But apart from this, VA loans also offer a few other benefits. Above all, an eligible person assuming a VA loan is also entitled to enjoy most of these benefits as well.
To learn more about VA loans, its benefits, VA loan assumption, and how does assuming a VA loan works, continue reading this article.
What is an assumable loan?
Before moving forward towards discussing further the topic ‘are VA loans assumable and how’, it is important to first understand what exactly assumable loans are.
An assumable loan, as the name suggests, simply means a loan or mortgage that is assumable or transferable. However, this brief statement alone does not present the whole idea or concept of an assumable loan. Hence, an assumable loan, in its entirety, means assuming a loan of another borrower or simply assuming another existing (outstanding) loan.
In any general scenario of loan borrowing, a prospective borrower would normally apply for a new loan. This would include applying to a lender, preferably a bank, for a fresh new loan.
However, this is not always necessary. What this means is that it is also possible for a prospective borrower to simply assume or adopt another existing borrower’s current loan. This lending process is basically known as loan assumption or assuming a loan and the loan itself an assumable loan.
By assuming the loan or mortgage of another borrower, the new borrower accepts all the terms and conditions of the existing outstanding loan. This includes accepting the applicable interest rates, outstanding liability or loan repayments, remaining repayment terms, repayment schedules, and other items that were originally agreed upon between the lender and the first borrower.
What is a VA loan?
A VA loan is a mortgage loan offered under a program backed by the United States Department of Veteran Affairs (VA), which was formerly known as the Veterans Administration.
What makes VA loans special is their exclusive availability to veterans, service members, and their eligible surviving spouses. This means that only veterans, service members, and their eligible surviving spouses can apply for and obtain a VA loan. These people can obtain a VA loan to facilitate themselves in purchasing or financing their homes.
As it is clear from the above, the VA loan is not exclusively available to non-veterans. However, its quality of being an assumable loan means that a non-veteran too can enjoy its benefits.
But apart from being an assumable loan, obtaining a VA loan has some other benefits as well. For instance, borrowing a VA loan, in most cases, requires no down payment at all. In addition, they do not require private mortgage insurance, and also offer competitive interest rates.
An important thing to mention here is the down payment in case of a VA loan. Although VA itself does not require a down payment, some borrowers may still face an exception. This means that lenders may ask certain borrowers, for instance those using the VA home loan guarantee, to make a down payment.
Are VA loans assumable? – Six benefits of a VA loan
Yes, VA loans are assumable and this quality alone of a VA loan counts as their biggest benefit. But besides being assumable, VA loans also come packed with certain other benefits. These benefits and features combined give VA loans an edge over other types of mortgage loans and federal loan initiatives.
Let us now briefly discuss the benefits of a VA loan and why VA loans benefit both buyers and sellers.
- No down payment is usually required. However, the lender may require certain borrowers to deposit a down payment.
Note: The VA itself does not require any down payments. However, certain lenders may require borrowers to make a down payment in some instances.
- Obtaining a VA mortgage loan does not require private mortgage insurance.
- Closing costs are quite limited or negligible. In some cases, the seller may pay closing costs.
- VA loans carry competitive interest rates.
- Depending on the state, some veterans may be as well granted other resources such as a reduction in property taxes.
- In the case of veteran borrowers of a VA loan, VA may also provide them with financial assistance and counseling during difficult financial situations to help avoid foreclosure or default.
How does assuming a VA loan work?
While many of the above-mentioned benefits and features are exclusively available to original borrowers of a VA loan, the fact that VA loans are assumable makes them a preferred choice of many prospective borrowers.
Being assumable means that a few of the benefits that the original VA loan borrower received will automatically transfer to the prospective borrower as well. For example, comparatively low or quite competitive interest rates, favorable loan repayment terms, and repayment schedules. Another great benefit to buyers assuming a VA loan is in the form of making huge savings on closing costs and appraisal fees. The amount of these savings could be thousands of dollars.
Can anyone assume a VA loan?
Who can assume a VA loan? Can you assume a VA loan if you are not a veteran? Are VA loans assumable by non-veterans?
When considering the above-mentioned benefits of a VA loan, it is mandatory to answer two of the most important questions here. First being ‘who can assume a VA loan’ and the second being ‘can you assume a VA loan if you are not a veteran?’. These questions happen to be frequently asked concerning the VA loans or when discussing ‘are VA loans assumable?’.
The common answer to both these questions is technically same. While VA loans are assumable, not every person interested in assuming a VA loan will qualify for this advantage. In other words, not every person seeking mortgage can take advantage of the benefits that come with a VA loan.
And above all, this condition includes every prospective borrower irrespective of his/her veteran or non-veteran status.
To understand this in a better way, consider the following set of two questions. These questions are not much different from the questions mentioned before at the start of this section. In fact, they are just an extended version of the ones narrated in the beginning.
1. Do all veterans qualify for a VA loan? Or are all veterans or military persons eligible for a VA loan?
While the basic VA loan qualifying criteria clearly mention only three categories of military-related persons, this isn’t the only requirement. This means that there are some additional requirements as well. Thus, a person only becomes eligible to obtain a VA loan when he/she meets the entire criteria.
These additional requirements include –
- Meeting specific military service requirements. This comprises a specified number of days served consecutively during active duty, wartime, and peacetime. In addition to this, it also requires a minimum number of years served in the National Guard or Reserve.
- Certificate of Eligibility (COE). A COE or certificate of eligibility is a document that verifies that you have served the minimum service period and hence qualify for applying for a VA loan. A COE can be easily obtained from the regional VA processing center through mail or applying online as well.
- Last but not least is about proving your financial eligibility to obtain a VA loan from a lender. This is because the VA itself does not provide financing or lend the mortgage. Instead, it only sets the qualifying status, eligibility standards, and mortgage terms, as well as guarantees the loan. Hence, it is the banks or mortgage companies that lend the VA loans to those meeting the eligibility requirements for both military service and creditworthiness.
2. Can all non-veterans assume a VA loan?
Although non-veterans can assume VA loans, not every non-veteran can do so. This simply means that non-veterans too must meet some form of eligibility criteria to assume a VA loan.
While non-veterans do not have to fulfill or meet the specific military service requirements as the original military borrower, they still must prove their creditworthiness to the original borrower’s lender.
Based on their financial qualification, a lender may or may not allow a non-veteran to take over or assume a VA loan of an original borrower.
Requirements for assuming a VA loan
What are the rules for assuming a VA loan?
As already discussed in the last section, not all non-veterans qualify or could assume a VA loan. And while the mortgage borrowing process may be different to some extent, as a prospective borrower interested in assuming a VA loan, a non-veteran borrower would still have to prove its financial stability and creditworthiness to the original borrower’s lender.
Remember that the VA does not set any standards to define what may or may not constitute a financially stable or risk-free borrower. Instead, it is the mortgage lender such as banks and mortgage companies that define such standards and criteria.
Hence, each bank and mortgage company can have a distinct set of criteria to adjudge the financial strength and creditworthiness of a prospective borrower.
What follows next highlights a few standard requirements set by mortgage lenders. These specifications determine the financial capability of a prospective borrower. A lender may require meeting either all or a few of the following –
- Meeting the minimum median credit score. For example, 580 or 620, etc.
- Making a down payment. While down payments are not normally required for obtaining a VA loan by a military borrower, a subsequent borrower assuming a VA loan may be required by the lending entity to make a down payment.
- Having enough income to support repayment of the outstanding loan installments as and when they become payable.
- Paying the necessary fees within a certain number of days after assuming the VA loan. These fees include a VA funding fee which amounts to 0.5% of the loan amount, processing fees, and a credit report fee.
Pros and cons of assuming a VA loan
Like any other type of mortgage, VA loan assumption also comes with some advantages and disadvantages as well. It is important for every prospective borrower to know the advantages and disadvantages of VA loan assumption before assuming it. Let us now discuss these briefly.
Pros, advantages, or benefits of assuming a VA loan
- The first advantage of assuming a VA loan, as mentioned numerous times within this article, is pretty obvious. Any eligible person, irrespective of being a military service member or not, can use the option of VA loan assumption. This means any non-veteran who meets the financial eligibility criteria of the original borrower’s lender can assume a VA loan.
- Funding fee in case of VA loan assumption is only 0.5% of the loan balance. This is comparatively much lower than the funding fee applicable when borrowing a new VA loan or subsequent VA loans. Funding fee for first-time borrowers of VA loan is 2.3 percent. On top of that, funding fee for subsequent borrowers is 3.6 percent.
- Buyers assuming a VA loan can save thousands of dollars on closing costs and appraisal fees.
- Assuming a VA loan also means that the buyer is entitled to the same low-interest rate as the original borrower.
Cons or disadvantages of VA loan assumption
- While the available VA loan may have generous and attractive terms, a prospective borrower may still not be able to assume it. This can be because they do not meet the financial or credit requirements of the original borrower’s lender.
- Similarly, lenders of the original borrower are not required to approve the application for a VA loan assumption.
- In some cases, the entire process of applying, qualifying, and getting approval for assuming the VA loan can be quite lengthy.
While the answer to the question ‘Are VA loans assumable?’ is a straight ‘Yes’, understanding how a VA loan works and what exactly it means to assume a VA loan is highly important as well.
If you are having any trouble understanding your position concerning VA loans and/or VA loan assumption, we can surely help you. Not only are we a veteran-owned mortgage company, but we also have decades of experience in the mortgage industry. Over the years, our experts have had the privilege to help numerous homeowners like you easily navigate their way through the complex situations of the VA home loan assumption process.
Call us now at (916) 471-2678 or click here to book a free consultation session and discuss your mortgage needs with one of our expert loan officers.