Assume A VA Loan
The VA mortgage is the best home loan program on the market for veterans, service members and military families. It can also be the best mortgage available for you even if you’re not VA-eligible. That’s because you don’t have to be a veteran to assume a VA loan.Click to see your VA loan eligibility (Jan 18th, 2019)
Assuming Someone Else’s Mortgage
When most folks think about buying a home, they follow the standard procedures of saving up for a down payment, getting prequalified for a mortgage, and shopping for their home.
If you want to save some money while still being able to purchase your dream home, there may be another option you haven’t considered – assuming someone else’s mortgage.
When you assume a mortgage loan, you take over the current homeowner’s monthly payment.
Buying a home via an assumable mortgage loan is even more appealing when interest rates are on the rise.
As an example, say a seller-financed $200,000 for their home in 2013 at an interest rate of 3.25 percent on a 30-year fixed loan.
Using this scenario, their principal and interest payment would be $898 per month.
Let’s assume current 30-year fixed rates averaged 4.10 percent.
If you financed $200,000 at 4.10 percent for a 30-year term, your monthly principal and interest payment would be $966.
Additionally, because the seller has already paid four years into the loan, they’ve already paid nearly $25,000 in interest on the loan.
By assuming the loan, you would save $34,560 over the 30-year loan due to the difference in interest rates. You would also save roughly $25,000 thanks to the interest already paid by the sellers.
That comes out to a total savings of almost $60,000!
The Basics Of Assuming A VA Mortgage Loan
At one time, all VA loans were freely assumable. This means that veterans and non-veterans could assume a VA home loan.
Nowadays, there are two ways to assume a VA loan.
1. The new buyer is a qualified veteran who “substitutes” his or her VA eligibility for the eligibility of the seller.
2. The new homebuyer qualifies through VA standards for the mortgage payment. This is the safest method for the seller as it allows their loan to be assumed knowing that the new buyer is responsible for the loan, and the seller is no longer responsible for the loan.
The lender and/or the VA needs to approve a loan assumption.
Loans serviced by a lender with automatic authority may process assumptions without sending them to a VA Regional Loan Center.
For lenders without automatic authority, the loan must be sent to the appropriate VA Regional Loan Center for approval. This process will typically take several weeks.
When VA loans are assumed, it’s the servicer’s responsibility to make sure the homeowner assuming the property meets both VA and lender requirements.Click to see your VA loan eligibility (Jan 18th, 2019)
Additional Requirements To Assume A VA Loan
For a VA mortgage assumption to take place, the following conditions must be met:
- The existing loan must be current. If not, any past due amounts must be paid at or before closing.
- The buyer must qualify based on VA credit and income standards.
- The buyer must assume all mortgage obligations, including repayment to the VA if the loan goes into default.
- The original owner or new owner must pay a funding fee of 0.5 percent of the existing principal loan balance.
- A processing fee must be paid in advance, including a reasonable estimate for the cost of the credit report.
How To Find Assumable VA Loans
There are several ways for home buyers to find an assumable VA loan.
Believe it or not, print media is still alive and well. Some home sellers advertise their assumable home for sale in the newspaper, or in a local real estate publication.
There are a number of online resources for finding assumable mortgage loans.
Websites like TakeList.com and Zumption.com give homeowners a way to showcase their properties to home buyers looking to assume a loan.
With the help of the Multiple Listing Service (MLS), real estate agents remain a great resource for home buyers. This applies to home buyers specifically searching for assumable VA loans as well.
What Are Today’s Mortgage Rates for Assumable VA Loans?
Assumable VA loans can offer several advantages over new home loans.
With current mortgage rates on the rise, assumable VA mortgage loans are a great option for home buyers.Click to see your VA loan eligibility (Jan 18th, 2019)