Help Your Clients Save Thousands with a VA Loan Assumption

VA loan assumptions offer a fantastic opportunity for your clients to save thousands on their mortgage in a rising interest rate environment. As a real estate agent, understanding how VA loan assumptions work and how to guide your clients through the process can set you apart from the competition and help you better serve your clients’ needs.

What is a VA Loan Assumption?

When a buyer assumes a VA mortgage loan, they take over the seller’s existing loan balance and current interest rate. This can provide significant savings compared to taking out a new loan at prevailing market rates.

Example Savings

For example, let’s consider a $600,000 home with a 20% down payment:

• A new loan at 7% interest would have a monthly payment of about $3190
• Assuming a VA loan at 2.75% interest would have a monthly payment of only $1960 That’s over $1200 per month in savings – nearly $15,000 per year! In the current rising rate environment, it would be very costly, if not impossible, for a buyer to obtain a rate several points below market by buying down the rate on a new loan.

Additional Benefits

No Mortgage Insurance

Another significant benefit of assuming a VA loan is that there is no mortgage insurance required, even if the buyer puts less than 20% down. This can result in additional monthly savings compared to conventional or FHA loans with small down payments.

Lower Closing Costs

Closing costs are also reduced when assuming a VA loan compared to originating a new one. While the funding fee for a new VA loan ranges from 1.25% to 3.3% of the loan amount (depending on down payment and previous VA loan usage), the funding fee for an assumption is only 0.5%.

Some buyers may even be exempt from the funding fee altogether, such as veterans with a service-connected disability. Origination fees charged by lenders on new loans (which can exceed 1%) are also avoided when assuming a VA loan. The maximum a servicer can charge as an assumption processing fee is $300.

Easier to Sell

From a seller’s perspective, having an assumable VA loan can make their property much easier to market and sell. Imagine being able to offer a buyer a similar price as competing homes in the area, but with the added benefit of taking over a low interest rate. This could be the deciding factor for many buyers in a competitive market.

A Guaranteed Benefit

The Department of Veterans Affairs guarantees that all VA loans are assumable. This means the ability to assume a VA mortgage is a government entitlement, which cannot be superceded by the servicer’s willingness or ability to process assumption requests. There is a misnomer that the servicer can choose whether or not to approve a VA assumption. That is inaccurate. Federal law requires all lenders who service VA loans to process assumptions when requested – servicers have no ability to prevent an assumption so long as the buyer meets the financial underwriting guidelines.

Who Can Assume a VA Loan?

Here’s the best part – anyone can assume a VA loan, even if they are not a veteran! While there are military service requirements to originate a new VA loan, almost any buyer can take over an existing VA loan if they meet the lender’s financial qualifications, such as:

• Sufficient income
• Good debt-to-income ratio
• Decent credit score
•  Required down payment funds (which could be substantial if the seller has significant equity)

The only additional requirements are:

• 12 months of on-time mortgage payments for the seller
• Obtaining assumption approval from the VA (which is usually automated)

Investment Properties Allowed for Non-Veterans

If your buyer is not a veteran, they can even assume a VA loan on an investment property – a huge benefit for rental cash flow! This is not an option for veteran buyers using their own VA loan eligibility, as they would be required to occupy the home as a primary residence. Assuming a VA mortgage as an investment property will require the seller to leave their VA entitlement with the home (more on this below).

Educating Your Clients

For Sellers with VA Loans

If you have a listing with a VA loan, be sure to highlight the assumability as a key selling point (e.g. include interest rate and loan balance) in the property description as that can attract more buyers. Your sellers can offer their great rate to buyers and sell faster in a competitive market. A few important points to discuss:

Release of Liability is Critical

VA loan holders must apply for and obtain a release of liability from the VA. This protects the seller’s credit in case the assuming buyer defaults later on. Make sure your sellers understand this crucial step in the process and be sure to discuss this with the servicer processing the assumption..

Avoid Tying Up VA Entitlement

If a non-veteran buyer assumes your client’s VA loan, a portion of their entitlement stays with that property until the loan is paid off, refinanced, or the home is sold. This could impact their ability to purchase again using a VA loan.

Ideally, your seller would transfer their loan to a buyer who has their own VA eligibility. The assuming veteran buyer can substitute their VA entitlement for the seller’s, freeing up the seller completely. This is known as a VA loan assumption with substitution of entitlement.

For Buyers Considering an Assumption

Many buyers may not be aware of the option to assume a VA loan and its potential benefits. Take the time to educate your clients on how assumptions work, the savings they can provide, and any potential drawbacks. By being a knowledgeable resource, you can help them make informed decisions and demonstrate your value as a trusted advisor.

The VA Loan Assumption Process

Here’s a quick overview of the VA loan assumption process:

1. Determine Assumability: Check if the property has an assumable VA loan. The easiest way to look this up is to use a dedicated search platform such as AssumeList. Alternatively, you can ask the seller or their agent.

2. Get Loan Details: Obtain information on the seller’s current mortgage balance (to determine buyer’s down payment) and interest rate. This will help your buyer assess if the savings from assuming the loan are worth the longer processing time. AssumeList provides this information as well, even if it’s not included in the listing.

3. Write a Contingent Offer: Your buyer’s offer should be contingent on their ability to successfully assume the VA loan.

4. Submit Financial Documents: The assuming buyer must provide the lender with all required financial documentation for approval, similar to a regular loan application. This includes proof of income, bank statements, info on debts and liabilities, and more.

5. Await Approval: The process of assuming a VA loan typically takes longer than getting a new loan, as approval is needed from both the current lender and the VA. Wait times can vary but expect it to take between 45-60 days.

Tips for a Smooth Process

Communicate Timelines

Be transparent with your clients about the longer timeline for a VA loan assumption compared to a traditional mortgage. While the timeframe to obtain servicer approval has been significantly reduced in recent months, it generally still takes between 45-60 days. Set realistic expectations upfront to avoid frustration and ensure everyone is on the same page. Regularly communicate updates to keep your clients informed throughout the process.

Marketing Properties with Assumable VA Loans

To maximize the potential of a listing with an assumable VA loan, consider the following marketing strategies:

Highlight the Savings

When promoting the property, emphasize the significant savings that buyers can realize by assuming the VA loan. Provide specific examples of the monthly payment difference compared to current market rates. This can be a powerful motivator for buyers looking to save money.

Target Veteran Buyers

While any buyer can assume a VA loan, targeting veteran buyers can be particularly advantageous. They may be more familiar with the VA loan program and its benefits, and they can substitute their own VA entitlement to free up the seller’s eligibility. Reach out to veteran organizations and use targeted advertising to attract these buyers. You can also check to ensure your listing is posted on AssumeList which will maximize its visibility to potential buyers.

Expanding Your Expertise

As a real estate agent, staying informed about VA loan assumptions and other specialized financing options can help you stand out in a competitive market. Consider the following ways to expand your knowledge and better serve your clients:

Attend Training and Workshops

Look for opportunities to attend training sessions, workshops, or webinars focused on VA loans and assumptions. These events can provide valuable insights and keep you up-to-date on the latest guidelines and best practices.

Stay Current on VA Guidelines

Regularly visit the Department of Veterans Affairs website and subscribe to their updates to stay current on any changes to VA loan guidelines, including assumptions. This will ensure you have the most accurate information to share with your clients.

The Bottom Line

As interest rates continue to rise, VA loan assumptions are primed to become increasingly popular. By educating yourself and your clients about this powerful financing option, you can:

• Help buyers save thousands on their mortgage
• Help sellers attract more buyers and sell more quickly – less days on market
• Differentiate yourself as a knowledgeable and valuable resource
• Grow your business by better serving your clients’ needs

Embrace the power of VA loan assumptions and be the real estate agent your clients can count on in any market condition!

Are you a real estate agent looking to expand your business with VA loan assumptions? Check out AssumeList’s exclusive discount for Lab Coat Agents members and start finding homes with assumable VA loans in your area today!

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