As we have seen over the past few months, we are headed into a new rate environment.??Watching the rates slowly creep up has us all alarmed; however, there are certain programs that become more advantageous in a high interest rate environment. Once such tool is the VA Loan Assumption.??Did you know that your VA loan is assumable?
A VA Loan Assumption is a unique product Buyers and Sellers can take advantage of in a high interest rate environment.?
- Assuming a VA loan equates to taking over the mortgage of a homeowner without going through the long and expensive process of applying for a new mortgage. There is paperwork, but it’s specifically designed for a VA loan assumption.
- VA loan assumptions are not restricted to active-duty members and veterans either. Anyone who the lender/servicer deems qualified to take on the payment amount is eligible to take over the loan.
If you are considering a VA Loan Assumption, as a Buyer or Seller there are certain things that need to be considered. Assuming a VA loan may not always be the best option and consulting a Loan Officer with VA loan assumption experience is a must.
- Reduced Funding Fee for VA borrowers.??A first time VA loan user pays a 2.30% VA funding fee, a subsequent use of the VA loan changes the Funding Fee to 3.6%, but the VA only charges a 0.5% funding fee on the loan amount for the assumption.
- No Need For A Brand-New Loan. VA assumable loans negate the need to apply for a new loan. The Buyer can avoid paying closing costs and appraisal fees, this can save a Buyer thousands of dollars.
- Huge Savings. If the original VA loan was approved at a very low interest rate, there’s a good chance a new loan will have a higher interest rate. For example, if the loan was established with a fixed rate of 2.25% in 2020, and in 2022 the best VA loan interest rate comes in at 5.250%, this can save the Buyer thousands of dollars.
- VA Sellers Can Capitalize On The Market.??VA Loan assumptions give VA sellers an advantage when the above situation occurs, because the number of Buyers increase to include those who would consider assuming a VA loan. Sellers can market the beneficial interest rate as a selling feature.
- Less Risk For The Seller. VA loans assumed by veteran Buyers hold less of a risk for the Seller because their full VA loan benefits are normally returned after applying for a release of liability through the VA.??Applying for a release of liability through the VA is an extremely important step for the Seller.??
- The Buyer must acknowledge that the loan assumption is for a primary residence. The Buyer cannot purchase as a secondary or an investment property.
- If a civilian Buyer assumes the VA loan, the remaining portion of the Seller’s VA entitlement in use stays with the original loan. The veteran cannot obtain the remaining eligibility until the loan is paid off in full.??A short sale or foreclosure by the civilian can cause the veteran owner to lose that portion of their benefit.
- Lenders / Servicers are not required to issue a VA Loan assumption.
- Some lenders / servicers do not have automatic authority to assume VA loans. These requests are sent to the VA directly to be reviewed and approved.??This can increase the overall turn times to close on the transaction.
- Most importantly, a veteran who wants to assume a loan could be on the hook for an exceptionally large down payment. For example, if the veteran sells their home for more money than they owe on the loan, the person who assumes the VA loan would have to come up with the difference for a down payment.? For example,
- Sale Price: $600,000
- VA Mortgage Balance $425,000
- Down Payment Needed $175,000
Assuming that a VA Loan Assumption is beneficial.??Once it is completed, it’s important that the Seller obtain their Release of Liability from the VA. This document ensures the Seller is not liable for the original loan in the future.
VA loan assumptions can be extremely advantageous in a high interest rate environment, but it is important to conduct your due diligence. Please,?feel free to reach out to one of our trusted lending professionals, Mr. Philip Chavez
at Central Bank & Trust at [email protected] or +1 (719) 761-8410.
Furthermore, if you have any questions or if you want to learn more about, not only VA assumptions, but other loan products that might benefit you, don't hesitate as the market waits for no one!
Army Foreign Area Officer, strategic thinker, team builder.
2 年It's a great option unless the seller wants to immediately use the VA loan benefit again, as mentioned in the challenges section. However, if the desire is to get out of the property and pocket the equity, it's a good option.