What does it mean to assume a VA loan?

Did you know that it’s possible to assume a VA loan? “Assume” in this case means when someone takes over, or assumes, your home mortgage. The best-case scenario is when someone who has his or her own VA benefits assumes your existing VA loan. They take over the payments, balance, and the terms, everything about it. The typical problem with assumptions of a VA loan, which is why these don’t tend to be very common, is the ratio between the balance of most mortgages versus what they are selling the home for. Most VA buyers want to finance 100% of the loan. But when you assume a mortgage you have to make up the difference between the two. If I owe $100K and I’m at 2.25% on a VA loan, and someone assumes my 2.25% VA loan, but I am asking $600K, there’s a $100,000 difference, or “delta.”

There’s a trick, though. You can still have somebody assume your mortgage by getting a second mortgage up to 100% to cover the delta. This could be a beneficial option in times when, let’s say, rates go up and rates are sitting at 3.25% but the buyer wants your lower 2.25% interest rate. The combined payments come out to less, which makes this ideal.

I get asked a lot if anybody can assume a VA loan. The answer is yes, but then the veteran whose loan is being assumed—he or she loses that entitlement. So, you (the veteran) have to hand it all over. And why would anyone do this? Really, it’s only if the buyer can’t get financing. And then why give someone that entitlement if they can’t get financing? It could certainly go sideways: if the person who has been bestowed this low rate misses a payment, it’s the veteran in this scenario who gets dinged. On the upside, if you can call it that: What if you get caught in a housing bubble and your $500,000 house is only worth 475 now, and rates are steady at 4.5. If someone is willing to take over your 2.25 rate, taking over your higher mortgage—that might save the day for you by letting someone assume your VA loan that way.

So, it’s really not common at all to see a vet allowing their benefits (their loan rate, in this case) go to a non-veteran. But it’s an option, even though everyone still has to qualify for it and everything. My opinion is that it’s really only good to allow a veteran or someone with VA entitlements to assume your mortgage.

If you have any questions, schedule a call with me here, and we’ll talk more about assumability.