When rates are high, even homes within your price range can start to feel out of budget. But if a seller has a VA loan, there’s a lesser-known option.
You might be able to take over their loan instead of getting a new one. That’s called a loan assumption, and it could mean skipping today’s high rates entirely.
Key Takeaways
- VA loans are assumable, meaning a buyer can take over the seller’s existing loan, including its interest rate and repayment terms.
- Both veterans and non-veterans can assume a VA loan as long as they meet the lender’s credit and income requirements.
- Assuming a VA loan may impact the original borrower’s entitlement and require the buyer to cover the seller’s equity.
Are VA Loans Assumable?
Yes, VA loans are assumable. This is in contrast to most conventional mortgages, which can include due-on-sale clauses that prevent assumptions.
A VA loan assumption occurs when a buyer takes over the seller’s existing mortgage rather than securing a new one. By assuming the loan, the homebuyer retains the same interest rate, repayment schedule, and terms of the original VA loan.
Unlike most home sales, where the buyer obtains a new mortgage and the seller uses those funds to pay off their loan at closing, a loan assumption allows the buyer to step into the seller’s loan under its current conditions. This can be particularly beneficial in high-interest-rate environments, enabling buyers to secure lower rates from previous market conditions.
Does the Assumer Have to Be a Veteran?
No, the individual assuming the VA loan does not have to be a veteran or active duty servicemember.
This inclusivity allows veterans to transfer their favorable loan terms to non-military buyers, broadening the pool of potential purchasers. However, the assuming party has to meet the lender’s credit and income standards to qualify for the loan assumption.
However, sellers should be aware that allowing a non-veteran (or anyone who isn’t substituting their own VA entitlement) to assume the loan can tie up their VA entitlement. That means the seller’s entitlement remains attached to the loan until it’s paid off—potentially limiting their ability to use a VA loan again in the future.
Benefits of Assuming a VA Loan
Assuming a VA loan offers several advantages, primarily benefiting the buyer.
1. Lower Interest Rates
Many existing VA loans were originated during periods of historically low interest rates.
According to recent data by Ginnie Mae, more than 70% of VA homeowners have a mortgage rate below 4%. By assuming such a loan, buyers can secure these lower rates, potentially resulting in significant monthly savings.
For comparison sake, let’s say you took out a loan for $350,000 at a rate of 7%. Your monthly principal and interest payment would be $2,300. On the other hand, a 3% rate on a $350,000 loan amount would mean a monthly principal and interest payment of just $1,475. That’s a savings of over $800 per month.
| Product | Rate | APR |
|---|---|---|
| 15-year Fixed VA Purchase | 5.80% | 6.05% |
| 30-year Fixed VA Purchase | 6.32% | 6.47% |
How we source rates and rate trends
2. Reduced Closing Costs
VA loan assumptions often have lower closing costs. The VA funding fee for assumptions is typically 0.5% of the loan balance, which is less than the funding fee for new VA loans. That said, some buyers may be exempt from the VA funding fee altogether, such as those receiving VA disability compensation.
Another cost-saving perk: buyers may not need a new appraisal, which means they can avoid paying the appraisal fee entirely. This can further reduce upfront expenses, though it ultimately depends on the lender’s requirements for the assumption.
3. No Private Mortgage Insurance (PMI)
VA loans do not require PMI, even when the down payment is less than 20%. This can lead to additional monthly savings compared to conventional loans that often mandate PMI under similar circumstances.
Why Would a Veteran Allow Their Loan to be Assumed?
A VA loan assumption can also provide strategic benefits for the seller.
1. Enhanced Marketability
Offering an assumable VA loan can make a property more attractive, especially when current market interest rates are higher than the existing loan rate. This unique selling point can differentiate the property in a market where homes aren’t selling quickly.
2. Selling to Loved Ones
Veterans looking to sell their homes to family members or friends can use loan assumption as a means to provide favorable financing terms, aiding loved ones in securing homeownership.
3. Divorce Settlements
One spouse can assume the loan during a divorce to keep the home and simplify the division of assets.
Drawbacks of VA Loan Assumption
While there are notable benefits to a VA loan assumption, it’s important to consider the potential disadvantages associated with VA loan assumptions.
Impact on the Veteran’s Entitlement
When a VA loan is assumed by a non-veteran, the original borrower’s VA loan entitlement remains tied up in the property until the loan is paid off. This can severely limit how much the veteran can borrow using a VA loan in the future, even if they’re eligible for another one.
The original borrower’s entitlement can only be fully restored if another veteran assumes the loan and uses their own entitlement.
Coming Up with the Cash to Buy Out the Homeowner
Assuming a VA loan requires the buyer to cover the difference between the home’s purchase price and the remaining loan balance—essentially, the seller’s equity. This amount often needs to be paid upfront, which can be a significant financial hurdle.
For example, if a home is selling for $300,000 and the remaining loan balance is $250,000, the buyer must provide $50,000 to cover the seller’s equity. This requirement may necessitate liquid savings or securing secondary financing, which could affect the overall affordability of the purchase.
How VA Loan Assumption Works
Understanding the process of assuming a VA loan is essential for both buyers and sellers. Here’s a step-by-step overview:
1. Finding an Assumable VA Loan
Finding a home with an assumable VA loan takes some extra digging. These properties aren’t always clearly labeled, so buyers may need to work with a knowledgeable real estate agent or contact sellers directly to see if assumption is an option.
Consider enlisting the help of a real estate agent. Experienced agents can be a great asset in locating properties with assumable loans.
Networking is another great way to find assumable VA loans. Connect with military communities or forums that may reveal opportunities for loan assumptions.
2. Make Sure You Qualify
Both the buyer and the property must meet specific criteria.
- Creditworthiness: Lenders typically require a minimum credit score (often around 620) and a satisfactory debt-to-income ratio.
- Income Verification: Proof of stable and sufficient income to cover mortgage payments is necessary.
- Residual Income: Enough for your family size, according to VA income requirements. Residual income is the amount of money your family has left over each month after paying for housing and existing debts.
- Property Eligibility: While no appraisal is required for VA loan assumptions, the property must be intended for the buyer’s primary residence.
Related: VA Loan Credit Score Requirements in 2025
3. Down Payment/Cashing Out the Homeowner’s Equity
As mentioned, the buyer must pay the difference between the home’s sale price and the remaining loan balance—essentially the seller’s equity. This means that even though VA loans typically don’t require a down payment, assuming a VA loan might still require a significant upfront cost.
Some buyers may use savings, a second mortgage, or a personal loan to cover this amount, but securing financing for this part of the transaction can be a challenge.
4. Costs and Fees
While assuming a VA loan can be financially advantageous, there are still costs involved.
One of the main expenses is the VA funding fee, which is 0.5% of the loan balance for assumptions. For instance, if the remaining loan balance is $250,000, the funding fee would be $1,250.
However, some individuals—such as veterans with service-connected disabilities, Purple Heart recipients, and surviving spouses of veterans who died in service—are exempt from paying the VA funding fee.
Other closing costs may apply, though they are generally lower than those associated with traditional home purchases.
5. Approval and Finalization
Once the buyer meets all eligibility requirements, the lender must approve the assumption.
The process includes credit and income verification, just like a standard mortgage application. Once approved, the new borrower assumes responsibility for the loan, and the transaction is finalized.
How Long Does VA Loan Assumption Take?
The VA loan assumption process can take anywhere from 30 to 90 days, sometimes longer, depending on the lender’s processing time and how quickly both parties complete the necessary paperwork.
While the timeline is similar to a traditional mortgage, factors like credit approval, entitlement transfer, and covering the seller’s equity can affect how long it takes.
How Does VA Loan Assumption Compare to Other Loan Assumptions?
Not all loans are assumable. While VA, FHA, and USDA loans offer assumable options, conventional loans generally do not. Here’s a quick comparison.
| Loan Type | Assumable? | Requirements & Fees |
| VA Loan | Yes | 0.5% funding fee, credit score of 620 & income approval |
| FHA Loan | Yes | Credit score of 580, income approval & standard FHA MIP fees |
| USDA Loan | Yes | Credit score of 640, income approval, & standard USDA guarantee fees |
| Conventional Loan | Rarely | Requires lender approval, likely will not allow assumption |
Key Differences
- VA loans often have lower interest rates than FHA or USDA loans, making them a more attractive option for assumption.
- FHA loan assumptions require mortgage insurance premiums (MIP), whereas VA loans do not require mortgage insurance.
- USDA loans are assumable but have stricter income eligibility requirements, as they are designed for rural homebuyers.
Related:
VA Loans vs. Conventional Loans
Consult with a VA Loan Specialist
Assuming a VA loan can be a powerful tool in today’s market, offering a way to secure low-interest financing and navigate high mortgage rates.
However, it requires careful planning, particularly regarding covering the seller’s equity. As with any real estate decision, due diligence and professional guidance are key.
If you’re considering assuming a VA loan or allowing someone to assume your loan, it’s essential to consult with a VA loan expert. A knowledgeable lender can guide you through the process, explain entitlement impacts, and help determine if this is the right financial move for you.
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Brooke M. Lippert says
good info, however; still leaves a few questions:
I am a Vet, pre-approved for VA and VA rehab loans 300k-315K with a credit score around 690, and low debt to income ratio, and I live/looking to purchase in citrus county Florida.
Can you only assume the amt owed? or can it include equity built in the home? If not, can you take out a second to cover the equity? eg> owe 100k, asking 300k. Can u assume 300k at original loan terms, or only the 100k owed, then 2nd mortgage for additional 200k-at current rates?
Can you ask for $ back when ur assuming a loan- for closing costs and/or repairs? As long as original loan is pd in full? eg. owe 100k, asking 300k, but offer is 300k with 50k back at close?
Any info would be most appreciated!!
Ryan Guina says
Brooke, these are great questions.
Assuming a VA Loan is essentially having the loan transferred to your name. Let’s look at your example of a $300,000 home in which the owner still owes $100,000. The seller wants to sell the home for $300,000. So, the buyer may be able to assume the $100,000 outstanding mortgage. But they would need to come up with a $200,000 down payment, or they would need to work with the lender to see if they could get a second mortgage for the difference (this would be at current rates). However, not all lenders are willing to offer a second mortgage in these situations. Many require the buyer to put cash down for the outstanding balance.
I recommend working with a VA Loan provider. They can answer all of your questions and help you understand your options. Best wishes!