VA Loan Assumption – What Veterans Need to Know
If you purchased a home with a VA guaranteed mortgage loan, you may find yourself in a position someday where you need to sell. Active duty military members facing permanent change of station moves, or those who simply want to upgrade to a larger home in a different area must deal with the sale of a home before their VA loan is paid in full. In some cases, you can do a VA loan assumption, that is the buyer can take over the VA loan regardless of whether they are civilian or military.
VA Loan Assumable
At one time, all homes purchased with a VA loan were considered assumable, but since then the rules have changed. Lenders and/or the VA need to approve a loan assumption. Lenders and servicers are under no obligation to grant them.
VA home loans may be freely assumed if the loan closed before March 1, 1988. In these cases, the loan assumption is unrestricted–the buyer assumes the VA loan without requiring the approval of the bank or the VA. One caveat to this is that the veteran remains liable for any losses the VA may incur as a result of the loan assumption. It’s very important to get some VA advice on how to protect yourself before agreeing to this type of sale, as the purchaser may be allowed to sell the home once more and let a third party assume the loan, with the veteran still liable for losses to the VA.
In cases where VA loans were closed after March 1, 1988, VA loan assumption is not allowed unless you obtain prior approval from the lender. Generally, there are two processes for loan assumptions:
Loans serviced by lenders who have automatic authority may process a VA assumption without sending every loan to the appropriate VA Regional Loan Center
Loans serviced by lenders who don’t have automatic authority must send all assumption requests to the appropriate VA Regional Loan Center, which can take several weeks to process.
When loans are assumed, it’s the servicer’s responsibility to ensure that the borrower who is assuming the property meets VA and lender credit standards. In most cases, the person assuming the property must also have VA eligibility, although there are a few examples when a loan can be assumed by someone without VA home loan entitlement.
In some situations the veteran’s entitlement will not be restored once the loan has been assumed. There are some instances where you can do an entitlement swap, but that can be a more difficult process. It’s important for veterans to understand that if they choose to have their loan assumed, it’s possible they may not have their entitlement restored by the VA.
It is at the servicer’s discretion to allow loan assumptions ultimately. Lenders are not obligated to approve loan assumptions.