You bought your very first home a few years ago using your VA home loan benefit. It was an attractive option offering a loan with no money down and great rates. There’s not another mortgage program like it. Some wonder however what happens when they sell their home financed with a VA mortgage. What can you expect and what are some of the mechanics involved?
Selling your home means retiring your existing mortgage and paying off the outstanding balance due. Once you sell your home, your home loan entitlement can be restored and used again to purchase yet another property. In other words, you can use your VA entitlement more than once.
When you sell your home and pay off the old mortgage, the VA doesn’t necessarily know about it. It’s up to you to let them know your home is sold and to reinstate your entitlement so you may use your VA loan once again should you so choose. Contact the VA and tell them your property has been sold and provide them with a copy of your settlement statement and payoff notice. From there, the VA has the necessary documentation needed to restore your entitlement.
But what if your loan was assumed by your buyer? VA loans do have an assumption clause which means anyone can assume your current note. A buyer can apply for an assumption with the VA and by paying an assumption fee and qualifying for the mortgage; the buyer simply takes over your loan. However, when an assumption occurs, you haven’t retired your old mortgage. This of course means your entitlement is still wrapped up in the existing mortgage.
VA assumptions aren’t as common as they used to be and buyers have to qualify before an assumption can take place. But when you sell, your entitlement can be restored or it cannot. It’s up to you.