What You Need To Know About VA Loan Assumptions

Here’s what you need to know if you’ll assume a VA home loan.

What’s a VA loan assumption, and how does it work? Let’s start by defining what a loan assumption is. In its simplest term, a loan assumption is taking over the loan terms of a previous borrower. It’s especially beneficial right now because the interest rates in the last year or so have been lower compared to the interest rates of today. For example, if a person took over a previous loan that was issued at 3%, that would be a terrific deal because today's interest rate is at 7%.

When a loan assumption is applied to a VA home loan, here’s how it works: If you’re a nonveteran assuming the loan, the eligibility will be stripped away from the veteran, meaning that they cannot use that eligibility to purchase another house. For them to pay for another property, you either have to refinance or cash out that original term loan. On the other hand, if you are a veteran assuming a VA loan, you can use the eligibility that you have to allow the previous veteran to purchase another property. 

Another benefit of a VA loan assumption is the cost of closing. Traditionally, a VA closing cost ranges between $500 to $1,000. Also, you need to keep in mind that if you assume a loan, you must take the same responsibilities, debt ratios, and income requirements to assume that mortgage. The good news is that since the interest rate is possibly lower, there may be a lower income requirement than what we have today, meaning you may be able to qualify for more.

Furthermore, you have to understand that if you buy a house for $200,000, and the original purchaser has an outstanding loan of $150,000, you can assume that $150,000, but you still need to make up the difference for the remaining $50,000. There are a few ways to do it: take out a personal loan, bring cash to the table, or write a non-VA-backed secondary note through a private financier.

This is a lot of information to take in. If you need more help with this topic or have any questions about real estate, call or email me. I’m always happy to help.