Over the past year several
clients have had to sell their homes and buy new ones - but at a significant
cost.
Mortgage rates have more than tripled, so people in the market for a replacement home may benefit by targeting a VA assumable mortgage:
- VA loan assumption is not restricted to active-duty members and veterans. Anyone who the lender deems qualified to take on the payment amount is eligible to take over the loan.
- 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.
- Searching Zillow with the keywords "VA Assumable" yielded nearly 400 results across the United States.
- Since the loan is being assumed, there is no need to apply for a new loan. The buyer can avoid paying closing costs and appraisal fees.
- A first time VA loan user pays an average of a 2.15% VA funding fee, a second-time VA loan user pays even more, but the VA only charges a 0.5% funding fee on the loan amount for the assumption, which is far less than the other fees.
Qualified buyers can minimize their interest rate and afford a larger mortgage. Below is an example calculated using Mortgagecalculator.org:
- $700,000 loan at 2.5% interest for 25 years has an estimated monthly payment of $3,229.18 with total interest of $268,752.80.
- $700,000 loan at 7.25% interest for 25 years has an estimated monthly payment of $5,059.65 with total interest of $817,894.44.
There are some negative aspects for the seller of home with an assumable VA loan:
- If a civilian buyer assumes the VA loan, the remaining portion of the seller's VA entitlement stays with the original loan. The veteran cannot retrieve the remaining eligibility until the loan is paid off. A short sale or foreclosure by the civilian owner could be especially detrimental because the veteran owner loses that portion of their benefit.
- Lenders are not required to issue a VA Loan assumption.
- This can be a long process because all requests must be reviewed by the VA loan office.
After the
process of assumption is completed, it's important that the original VA seller
obtain their Release of Liability form. This document ensures the seller is not
liable for the original loan in the future and the original terms of the loan
pass to the buyer.
There are plenty of realtors that specialize in VA loans, so if you are using an agent, it might be a good idea to have them keep an eye out for an assumable loan.
Reference:
https://www.military.com/money/va-loans/pros-and-cons-assuming-va-loan.html
