VA Loan Assumptions FAQs

1. What is a VA loan assumption?

A VA loan assumption allows a buyer to take over the seller's existing VA mortgage instead of obtaining a new mortgage. The buyer becomes responsible for the remaining loan balance and its terms, subject to approval. At Merchants Home Lending, we can help buyers and sellers understand the qualification and financing considerations involved in a VA loan assumption.

2. Can anyone assume a VA loan?

Yes. A VA loan can generally be assumed by a qualified purchaser, including someone who is not a Veteran. The buyer must meet applicable credit and income requirements, and the existing VA loan must be current at the time of closing. 

3. Can a non Veteran assume a VA loan?

Yes. A non Veteran may assume an eligible VA backed mortgage if they qualify under the applicable credit and income requirements. However, because a non Veteran cannot substitute VA entitlement for the seller's entitlement, the seller's VA entitlement can remain tied to the loan until it is paid off. 

4. Can another Veteran assume my VA loan?

Yes. An eligible Veteran can assume an existing VA loan. If the new Veteran has sufficient available entitlement and meets VA occupancy and other requirements, the transaction may qualify for a Substitution of Entitlement. This can allow the original Veteran's entitlement tied to the loan to be restored. 

5. Does the buyer have to be a Veteran to assume a VA loan?

No. The buyer does not necessarily have to be a Veteran. A qualified non Veteran can assume the remaining VA loan balance if the assumption is approved. However, only an eligible Veteran with sufficient entitlement can potentially complete a Substitution of Entitlement for the seller. 

6. How does a VA loan assumption work?

The buyer applies to assume the existing mortgage and must satisfy the applicable credit and income requirements. The lender or servicer reviews the assumption, verifies the loan is current, and processes the transfer of ownership and liability. Once approved and closed, the buyer takes responsibility for the existing mortgage. 

7. How do I assume a VA loan?

Start by identifying the existing VA mortgage and contacting the loan holder or servicer to determine whether an assumption can be processed. The buyer will generally need to provide financial information for underwriting. Merchants Home Lending can help you understand the financing implications and determine whether additional financing may be needed to complete the purchase.

8. What credit score do you need to assume a VA loan?

There is not one universal VA minimum credit score for every assumption. The buyer must satisfy applicable credit and income underwriting requirements, and the lender or servicer may have its own requirements. Merchants Home Lending can evaluate the buyer's financial profile and explain the qualification requirements for the transaction. 

9. Does the seller have to be paid off when a VA loan is assumed?

No. The purpose of an assumption is for the buyer to take over the seller's existing mortgage obligation rather than paying off the existing VA loan with a new mortgage. However, if the home's purchase price is higher than the remaining mortgage balance, the buyer must address the difference through cash or eligible secondary financing.

10. What happens if the home is worth more than the VA loan balance?

The difference between the home's purchase price and the remaining mortgage balance is commonly called the equity gap. For example, if a home sells for $500,000 but the existing VA loan balance is $350,000, the buyer must account for the $150,000 difference. Merchants Home Lending can help evaluate potential financing options for an equity gap, subject to applicable requirements.

11. Can I get a second mortgage with a VA loan assumption?

Potentially. A buyer may be able to use secondary financing to help cover the difference between the home's purchase price and the balance of the assumed VA loan, subject to applicable requirements. The existing VA loan, secondary financing terms, buyer qualifications, and overall transaction must be evaluated together. VA has specific requirements governing secondary borrowing in assumption transactions. 

12. What happens to the seller's VA entitlement after a loan assumption?

This is one of the most important issues for a Veteran selling a home with a VA loan. If the buyer assumes the loan without a Substitution of Entitlement, the seller's VA entitlement tied to that loan generally remains unavailable until the loan is paid in full. If an eligible Veteran buyer completes a qualifying Substitution of Entitlement, the seller's entitlement tied to the loan can be restored. 

13. Does a VA loan assumption release the seller from liability?

An approved assumption can release the seller from liability when the purchaser assumes the mortgage obligation and the applicable release requirements are satisfied. Sellers should make sure the assumption is properly approved rather than simply transferring the property subject to the existing mortgage. Merchants Home Lending recommends confirming the release of liability before completing the transaction. 

14. What is a Substitution of Entitlement on a VA loan assumption?

A Substitution of Entitlement allows an eligible Veteran buyer with sufficient VA entitlement to replace the seller's entitlement that is currently tied to the assumed VA loan. When the requirements are met, the seller's entitlement can be restored without waiting for the loan to be completely paid off. 

15. Is the interest rate the same when you assume a VA loan?

Generally, the buyer takes over the existing mortgage and its existing interest rate rather than receiving a new market rate. This can make an assumable VA loan particularly relevant when the seller's existing rate is significantly lower than current mortgage rates. The buyer still has to qualify for the assumption, and Merchants Home Lending can help evaluate the overall financing costs.

16. Does a VA loan assumption have a funding fee?

Yes. VA's current funding fee for loan assumptions is 0.5%. Eligible borrowers who qualify for a VA funding fee exemption may not have to pay it. Merchants Home Lending can help determine the applicable assumption costs based on the buyer's circumstances. 

17. Are VA loan assumptions cheaper than getting a new mortgage?

They can be, but it depends on the transaction. An assumption may allow the buyer to keep the seller's existing interest rate and avoid replacing the entire mortgage with a new loan. However, the buyer may need substantial cash or secondary financing to cover the difference between the purchase price and the remaining loan balance. Merchants Home Lending can help compare the total costs rather than looking only at the interest rate.

18. How long does a VA loan assumption take?

The timeline depends on the servicer, documentation, underwriting, and whether VA prior approval is required. VA guidance requires the servicer to process complete assumption applications and follow specific approval procedures. Buyers should begin the process early because an assumption can require more coordination than a standard purchase transaction. 

19. Can I assume a VA loan if the seller is behind on payments?

Generally, the existing VA loan needs to be current for an assumption to proceed under the standard requirements. A buyer should not assume that taking over a delinquent mortgage automatically makes the loan assumable. The servicer must review the loan's status and the assumption request. 

20. Is assuming a VA loan worth it?

A VA loan assumption can make sense when the existing mortgage has a significantly lower interest rate than current rates and the buyer can comfortably handle the difference between the purchase price and the remaining loan balance. It may also be attractive because the buyer takes over the existing loan rather than replacing it. Merchants Home Lending can help evaluate the assumed mortgage, equity gap, secondary financing, closing costs, and overall monthly payment before you decide whether an assumption fits your situation.

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