Remember those dreamy years when mortgage interest rates were happily dancing around at the 2% club?
Buying a house with the VA loan was like waltzing into a mansion with a bag of cash and a martini while waving goodbye to your old, fixer-upper from that last PCS. (Never mind that you had to battle your way to the front door through a frenzy of other homebuyers.)
Those were the days.
And now…we have these days. Where 5% is amazing and 4% is unheard of!
As a military home buyer, how do you approach this new, expensive real estate landscape?
There are a lot of options which we will cover in the next few months, but let’s first tackle one of the most interesting topics of the moment: How to Transfer a VA Loan.
Did you know, a VA Home Loan can be transferred to someone else?
As in, homeowner #1 locked in a low rate back in 2020 and now homeowner #2 would like to buy the house and also keep that same rate by assuming homeowner #1’s loan.
What!? Yes, it’s possible!
VA loans are transferable as long as your lender allows it. It is called a “loan assumption.”
What is a VA Loan Assumption?
A VA loan assumption is when a buyer assumes financial responsibility of the seller’s VA loan.
The lender will verify that the buyer of the home meets all VA loan requirements and could qualify for a VA loan on their own.
Fun fact: The person assuming the VA loan does not have to be a qualified Veteran or Servicemember, as long as they meet the lender’s financial VA loan requirements.
The buyer must meet all lender credit and income requirements, must assume all mortgage obligations, and pay the VA funding fee unless otherwise exempt.
The VA funding fee on a VA loan assumption is 0.5% of the remaining loan balance.
How do I find an assumable VA loan?
The best way to find an assumable VA loan is to work with a real estate agent. Our affiliate, WeVett Realty can help with that!
The MLS (Multiple Listing Service), which is used by REALTORs, can show homes with assumable loans.
Make sure you communicate with your agent that you are eligible for a VA home loan and would like to assume one, if possible.
You can sometimes also find other military who are open to transferring a va loan in the local facebook group or spouse group for your specific duty station.
What’s the Catch?
There’s a few liabilities when transferring a VA home loan.
VA homeowners must ask for a “release of liability” form from their lender, or their credit could take a significant hit if the assumer of the loan makes late payments or defaults.
Another catch is that if the person assuming the VA loan does not have enough VA entitlement, the seller’s entitlement will be tied up until the loan is paid in full.
What does that mean? If the buyer only has $300k in VA loan entitlement, but the house they are purchasing is $400k, they do not have enough loan entitlement to assume the loan on their own. The seller’s VA loan entitlement would stay tied up, meaning they likely could not purchase another home with a VA loan until the home is paid off.
The seller can ask the buyer to formally substitute their entitlement through a “Substitution of Entitlement” with the VA.
The ins and outs of how to transfer a VA Loan can be a bit tricky, but the end result can be totally worth it – ie. dollars saved, PCSs salvaged, and military homeownership lives on to fight another day. Thanks Assumable VA Loans!