VA Home Loan Assumptions

As a seller that has an existing VA home loan on your property, you may wonder about the feasibility and possibility of having a buyer purchase the home and assume the current VA home loan.

Before you rush out and sign a contract, there are several considerations that you need to take into account.

You may sell the property to a veteran or a non-veteran at any time.  However, if the VA home loan was closed after March 1, 1988, and it will be assumed by the buyer, the qualifications of the assumer must be reviewed and approved by the lender or VA.  Prior to March 1, 1988, VA home loans could be assumed by anyone.  With newer VA loans, the buyer generally has to be a qualifying veteran in order to assume the mortgage.  You should contact your current lender for more information on the requirements on assuming your current VA home loan.

It is important to mention that just because someone assumes your VA home loan, you are not necessarily off of the hook.  If the loan was closed after March 1, 1988, the lender or VA must be notified and requested to approve the assumer and grant the veteran release from liability. If the loan was closed prior to March 1, 1988, the loan may be assumed without approval from VA or the lender. However, the veteran is strongly encouraged to request a release of liability from VA in order to avoid owing a debt to the Government if the loan assumer (or a subsequent assumer) fails to pay the loan.   

However, a release of liability does not necessarily restore your entitlement.  The assumer must not only qualify from a credit and income standpoint, but he or she must have sufficient entitlement AND agree to substitute it for that used by the original veteran in obtaining the loan and meet occupancy requirements,

It is not recommended to allow a non-qualifying buyer to "assume" your mortgage by making the payments for you.  In this type of transaction, the buyer pays the seller the difference between the sales price and the remaining mortgage (also known as the Cash-to-Mortgage) and pays the title/escrow company which in turn pays the lender for the seller.  Though many sellers are duped into believing that they are released from any potential liability, the reality is they are putting their credit history in the control of someone who does not qualify for a loan AND gives title of the property over to this person thus putting themselves into a position of maximum risk with no collateral should the buyer default on payments.  In the end, you could be the one that owes the government for a loss, have your credit history destroyed by someone else, possibly be sued for liability while the buyer only looses his or her initial down payment to you.