A mortgage assumption is not very familiar to everyone. It simply is defined as a purchase where the buyer assumes or takes over the remaining liabilities of the existing mortgage from the seller. Many veterans may ask if their VA home loans are assumable. That can be a yes, under special circumstances.
Is this different from a typical purchase transaction?
There is a big difference between a mortgage assumption from a purchase transaction. In a typical purchase, the existing mortgage is paid in full by the buyer and is released of all liability in the event of a sale. The seller will then be able to take on a new mortgage.
In a mortgage assumption, whatever liability there is on the mortgage will be taken over by the buyer. Instead of paying off the existing mortgage completely and taking a new mortgage, the buyer assumes the mortgage and continues to pay the remaining mortgage balance and other fees.
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Can VA homes be assumed by a buyer?
Before March 1, 1988, all
VA home loans were considered assumable. Meaning, the VA home mortgage assumption was unrestricted. There was no need for any approval from the lender or the VA. The catch? The veteran would remain liable for the loan even if it has its new owner. Homes purchased through the VA loan before this specified date can be assumed freely by a seller.
VA loans taken beyond
March 1, 1988, do not have the same fate. Over time, the rules have changed, a loan assumption needs approval from the lender and/or the VA. They are also not obliged to grant an approval. If the assumption is approved, it is the responsibility of the servicer to make sure that whoever assumes the loan meets the standards and eligibility set the Veteran Affairs and the lender.
What happens to my VA Entitlement?
In some cases, the veteran’s total
VA entitlement will not be restored in a loan assumption. The seller can only use what is remaining in the entitlement. However, there can be a workaround to free up the seller’s entitlement. The buyer (the one assuming the VA loan) can use his/her VA entitlement to substitute that of the seller’s. This can only work if the buyer also has a VA entitlement.
A loan assumption can be most helpful to veterans who are planning to sell their home even before they have paid off the mortgage. Just like in any new plans you want to take, carefully examine your situation. There always risks involved. This is why talking to your lender and a VA representative will help you make better decisions.
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