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If you’re a military member on active duty or a veteran, you may know the advantages of VA loans. But did you know that assuming a VA mortgage can be good for your money?
This guide will provide a straightforward explanation of the process of assuming a VA mortgage to help you decide whether this route is best for you.
For money management tips, here’s a video of Munif Ali’s Millionaire Mindset.
In assuming a VA mortgage, “VA” stands for “Veterans Affairs.” Veterans, active-duty service members, and qualified surviving spouses can get a VA mortgage as a benefit from the U.S. Department of Veterans Affairs. This program gives home loan guarantees to accepted lenders, which lets them offer better terms to qualified borrowers, like no down payment and lower interest rates.
When someone is assuming a VA mortgage, the new user takes over the VA loan from the current homeowner. The person borrowing money for the first time, usually a veteran, can benefit from the VA loan’s lower interest rates and good terms. Likewise, the present homeowner can change their loan terms without going through the whole selling process.
Who Can Assume a VA Mortgage?
A great thing about assuming a VA mortgage is that you don’t have to be a veteran to get one. Although it is an excellent choice for veterans, active-duty service members, and their families, civilians are also eligible to obtain this loan.
However, a few requirements must be fulfilled, so we’ll review them individually later. If you want to check out alternatives, read “Understanding Your Options: Exploring Inclusive Mortgage Products for Every Homebuyer.”
For now, let’s discuss the benefits and considerations of assuming a VA mortgage.
Benefits of Assuming a VA Mortgage
Assuming a VA mortgage comes with several benefits:
1. Lower Interest Rates
Assuming a VA mortgage usually has lower interest rates than other types of loans. These advantageous rates can result in thousands of dollars in savings throughout the loan.
2. No-Down-Payment Feature
One of its big benefits is the no-down-payment feature. This means that assuming a VA mortgage does not require a large deposit, making homeownership more accessible.
3. Simplified the Process
It may be easier and faster assuming a VA mortgage than to get a new loan. Since you are already taking over a loan, there is less paperwork and red tape to deal with.
4. Potential to Avoid PMI
Standard loans with less than a 20% down payment usually need Private Mortgage Insurance (PMI). By assuming a VA mortgage, you don’t have to pay PMI, which can lower your monthly mortgage payment.
If you’re looking for alternatives with lower monthly payments, read “The Pros and Cons of 40-Year Mortgage Rates.”
Considerations Before Assuming a VA Mortgage
Even though there are many perks, it’s important to consider these factors before assuming a VA mortgage:
1. Loan Balance
Ensure that the remaining loan balance doesn’t exceed your budget. Calculate the monthly amounts and consider the other bills you must pay.
2. Condition of the Property
Get the property checked out before taking out the loan. Look for any severe issues that would cost much money to repair.
3. The VA’s Rights
If you are a veteran taking on another veteran’s loan, you should know that the original user’s VA benefits are tied to the loan. If they want their entitlement back, they must repay the loan or give it to another soldier who can take their place.
4. Assumption Fee
Consider the closing charges and the assumption fee. Make sure you are financially prepared to pay for them.
Step-by-Step Guide to Assuming a VA Mortgage
Now, if you’ve read about the benefits and considerations to take before assuming a VA mortgage and would like to take advantage of it, this is the promised step-by-step guide to making the deal successful.
Step 1: Determine Eligibility
The first step is knowing whether you qualify in assuming a VA mortgage. The person who wants to borrow money must meet the lender’s standards for income and credit. If you are a veteran, you must show your Certificate of Eligibility (COE). Meanwhile, civilians are required to show that they can pay back the cash.
Step 2: Get VA and Lender Approval
Assuming a VA mortgage isn’t guaranteed. The Department of Veterans Affairs (VA) and the debt lender must agree to your request. To do this, you must complete an application and prove that you meet the eligibility criteria. The lender will review your credit score, the amount of debt you have compared to your income, and other financial details to ensure you can repay the loan.
Step 3: Review the Loan Terms
Read the loan terms carefully before assuming a VA mortgage. This includes the monthly payments, interest rate, loan amount, and any fees for taking over the loan. These facts will help you decide if taking out the loan is the best thing for your finances.
Step 4: Submit the Necessary Documentation
You must provide several documents to move forward with the loan assumption. These typically include:
- Current loan balance and payment history
- Proof of income and employment
- Credit report
- COE (if you’re a veteran)
- VA Form 26-6381 (Request for Verification of Employment)
Make sure to gather all necessary paperwork to avoid delays in the process.
Step 5: Pay the Assumption Fee
There is usually a fee for assuming a VA mortgage. The fee differs every time, but it’s usually around 0.5% of the loan amount. This charge covers the administrative costs needed to handle the loan assumption. Keep this amount in mind as you make your choice.
Step 6: Close the loan.
You’ll go to closing once your application is accepted and your paperwork is in order. This is the official time when the loan changes hands to you. You’ll sign the papers and pay any needed fees, and then the lender will finalize the transfer. The mortgage payments will be your responsibility after the closing
Example Scenarios
The following are the expected scenarios in a VA loan assumption process between veterans and civilians:
Case 1: Veteran to Veteran
John, a veteran, is selling his house and has a low-interest VA loan. Sarah, another veteran, wants to buy John’s house. Sarah can save money on interest by taking over John’s VA mortgage. This way, she doesn’t have to go through the trouble of getting a new loan.
Sarah gives the lender her COE, meets their requirements, and pays the assumption fee. When the deal is done, Sarah takes over John’s VA loan.
Case 2: Veteran to Civilian
Veteran Mike is moving and wants to transfer his VA mortgage. Linda, a civilian, wants to see Mike’s house. Linda has enough money to meet the lender’s requirements and takes over Mike’s VA mortgage. Despite not being a veteran, Linda gains from the favorable loan terms. Linda sent her application, waited for the VA and loan approval, and then paid the assumption fee. Linda takes over the loan and pays the mortgage when the deal is done.
On That Note
Assuming a VA mortgage can be a great way for veterans and non-veterans to get good home loan terms. You can easily get a VA loan and enjoy its perks if you follow the steps in this guide. To ensure the deal goes smoothly, work closely with the seller, carefully read all the paperwork, and talk to a real estate professional.
Key Takeaways:
- Veterans and civilians can assume a VA mortgage if they meet the lender’s credit and income requirements and get the VA and lender’s approval.
- Assuming a VA mortgage has lower interest rates, doesn’t require a down payment, and doesn’t require Private Mortgage Insurance (PMI).
- Knowing the loan balance, the state of the property, how it might affect your VA benefits, and the assumption fee are all important things to consider.
- The steps are determining eligibility, getting approved, reviewing the loan terms, sending in paperwork, paying the assumption fee, and closing the loan.
References:
- Are VA Loans Assumable? Everything To Know About VA Loan Assumption. (n.d.). | Www.rocketmortgage.com.
- Smith, D. (2024, May 15). The Pros and Cons of Assuming a VA Loan. Military.com.
- The VA Home Loan Assumption Process: What You Need to Know. (n.d.). Military Home Spot Lending.
- VA Loan Assumption: Breaking Down How VA Assumptions Work. (n.d.). Veterans United Network.
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