VA LOAN CAPTAIN BLOG & Learning Center

Assuming a VA Loan

By: Grant Moon 07/01/13 11:31 am

Assuming a VA Loan

There are several advantages that a VA mortgage has that other loans do not. The most striking example is that no down payment is required from the veteran in order to finance a purchase with a VA mortgage. Other benefits include reduced closing costs for the veteran, the ability to finance certain closing costs such as the funding fee and others. But one feature of a VA home loan is not talked about much yet is still an attractive facet of VA loans: assumability.

When a home with a conventional loan on the property, one that was originally approved using Fannie Mae or Freddie Mac guidelines, is sold, the existing loan must be paid off. However, with a VA loan the buyers of your home may choose to assume your existing VA loan instead of applying for another mortgage from a lender and the buyer doesn’t have to be a veteran to assume the VA loan. How can this benefit you and the buyer?

That primarily depends upon the interest rate on your current note compared to the rates available in the current lending environment. If your note has a much lower interest rate than what a borrower can readily obtain from another lender, there’s considerable value there. When someone assumes your loan, they assume all of it including the terms in your note.

For instance, if your loan has a 15 year fixed rate of say 2.75 percent and current rates are 5.50 percent, that’s an attractive feature to a buyer and you can expect to charge a premium for your home as well as helping a listing move along quicker.

There are two caveats here, one is that the buyers must be approved by the lender and the VA to assume your loan and when you transfer the loan to a buyer, your original entitlement isn’t restored. However, VA loans do have a competitive edge with assumability that other loans don’t have.

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