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VA Loan Assumptions


A loan assumption occurs when a buyer agrees to assume responsibility of a seller’s home mortgage when buying a property. FHA and VA home mortgages are generally assumable as long as the value of the mortgage does not exceed the current value of the property and the buyer is approved for a loan of equal or greater value.

Assuming a loan makes a lot of sense when mortgage rates are high compared to those made when the loan was first constructed. We haven’t seen this situation in many years. However, here is a good example of when an assumption would make sense: A seller bought a home and put 20% down. The home has not declined in value but the seller still needs to sell the home quickly to move to another state and is willing to take a hit on their equity in the home to sell it. The seller’s rate is an assumable fixed rate 30-year loan at 4.5%. The current rate is 6%. In this case, the buyer is getting a deal — a good interest rate on a good property for a long period of time that is better than the current rate. He or she is also getting the added bonus of a deal with reduced fees. The seller benefits from selling the house quickly and also from paying lower fees and is able to lower the price a bit to further expedite the sale.

VA Loans originally closed before March 1, 1988 are assumable without a whole string of lender qualifications for a new buyer. However, the seller will remain liable for the payments unless they secure a “Release of Liability” from the lender. This release must be an official document in writing. If you are the seller, be sure to keep a copy of that paperwork in a safe place to prove you are free and clear of the loan should it ever be questioned.

VA Loans closed after March 1, 1988 require the buyer to be approved by the lender and the VA. This makes it a lot like a new loan. In addition, the VA charges processing and funding fees for assumptions. All these things can still make VA assumable loans attractive to buyers and sellers in some cases. If you have a VA home loan on a house you want to sell, it doesn’t hurt to advertise that it is assumable.

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