FHA Loan Articles
News, updates, and explanations to keep you informed.
VA Loan Assumption
Active duty military members facing permanent change of station moves, or veterans who want to sell the old home and buy a new one are often faced selling their home before the VA loan is paid in full. In some cases, the seller can offer the home to a buyer by allowing them to assume the VA loan.
Assumable VA loans aren't restricted to veterans--any buyer willing to assume the loan is eligible. All homes purchased with a VA loan before March 1, 1988 are freely assumable, but new rules change the requirements for all VA loans closed after that date:
- If the veteran home owner is getting a divorce, the VA allows an unrestricted transfer. This is intended when the military spouse and non-military partner are co-borrowers. Both parties should sign a release of liability to insure the departing co-borrower is not held liable for the loan. For unrestricted transfer VA loan assumptions, the VA must approve the transaction.
- VA home loans may be freely assumed if the loan closed before March 1, 1988. For these VA mortgage assumptions, the buyer assumes the VA loan with no approval needed from the bank or the VA. The veteran remains liable for any losses the VA may incur as a result of the loan assumption.
- For VA loans closed after March 1, 1988, VA loan assumption is only permitted if you get the bank's approval. Once the approval is confirmed, the VA loan assumption can proceed and the veteran is released from liability to the VA.
The VA warns VA mortgage holders not to proceed with a VA loan assumption in these cases without prior bank approval. Those who do could get a notice from the VA that the VA loan is "due on sale", even if all payments are on time and current.
In all cases where VA loans are assumed, it's important to check with the Veterans Administration to learn how you can get your VA loan eligibility back and how long it might take before you are allowed to take out a new VA mortgage to purchase a home. Your eligibility may not be automatically restored--depending on the nature of your loan assumption deal you may have to wait until the original VA loan is paid in full--or you may have to show proof that you have been released from liability for the original loan.
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