What is a VA Loan Assumption?
In today’s real estate market, where VA loan interest rates hover around 6.5%, many homebuyers are trying to seek alternative financing options to keep monthly payments low. One often-overlooked but highly beneficial option is a VA loan assumption, allowing a buyer to take over an existing VA loan with its balance, interest rate, and repayment terms—sometimes as low as 2-3%. Unlike traditional mortgages influenced by market fluctuations, VA loan assumptions lock in favorable conditions, making them an excellent choice for military families and veterans looking to make informed homebuying decisions.
Who can Assume a VA Loan?
Both VA-eligible and non-VA buyers can assume a VA loan, but they must meet certain requirements. Typically, lenders want to see buyers have a 620+ credit score, a 41% or lower debt-to-income (DTI) ratio, and the loan has no major delinquencies. While any buyer can assume a VA loan, VA-eligible buyers have a distinct advantage—they can transfer VA entitlement, allowing the seller to restore their eligibility for future VA loans. If a non-VA buyer assumes the loan, the seller’s entitlement remains tied to the property until the loan is fully repaid, which may impact their ability to use VA benefits again.
The VA Loan Assumption Process
Assuming a VA loan involves several steps, starting with finding a property with a seller willing to assume their loan. Since many real estate agents are unfamiliar with VA loan assumptions, working with a military-focused real estate professional is crucial. Once a property is identified, buyers must negotiate terms, including the purchase price and how to cover any equity gap. An essential step is confirming the loan balance with the lender to ensure accurate financial planning.
Next, buyers must submit an assumption application with financial documentation for lender approval. The loan servicer and VA (if required) will review the application, a process that can take several weeks. Once approved, the loan transfers to the buyer, completing the assumption. If the buyer is VA-eligible, the seller’s entitlement may be restored, though this can take a few weeks after closing. If the buyer is not VA-eligible, the seller’s VA entitlement remains tied to the loan until it is fully repaid.
Top Benefits for Buyers
- Lower Interest Rates – Buyers can assume loans with rates far below current market rates, reducing overall borrowing costs.
- Lower Monthly Payments – A lower interest rate means reduced principal and interest payments, making homeownership more affordable and increasing the amount of house that you can afford.
- Lower Closing Costs – closing costs tend to be lower than those of traditional financing, as many loan origination fees, underwriting charges, and appraisal costs are either reduced or eliminated
- Lower VA Assumption Fee – The 0.5% assumption fee is lower than the standard VA funding fee 1.25-3.3% for a new VA loan, and it may be waived for veterans with a 10% or higher service-connected disability rating.
- Shorter Remaining Loan Term – Buyers step into a loan that has already been partially paid down, meaning more of their payment goes toward principal, helping them build equity faster and pay less in interest over the life of the loan.
Top Risks for Buyers
- Equity Gap Payment – If the home’s value exceeds the loan balance, the buyer must cover the difference upfront. This can be accomplished through cash payments at closing or by securing a second trust loan (a secondary mortgage). Many second trust loans often require a minimum of 10% down payment on the loan and are often difficult to find a lender willing to accept this because of the risk the financial institution takes on.
- Lender and VA Approval – The process can be lengthy often between 45-90 days, requiring financial verification and approval from both parties. Not all lenders may approve this.
- Limited Availability – Finding a seller with an assumable VA loan at a favorable rate can be challenging. This is due to the risks taken on by the seller when doing this type of transaction.
- Existing Loan Conditions – Buyers must accept all terms of the original loan, including any restrictions or conditions.
Top Benefits for Sellers
- Stronger Selling Point – A lower-rate assumable loan makes the home more attractive to buyers, potentially increasing demand.
- Potential for Better Offers – Buyers may be willing to pay a premium for the home if they can lock in a lower interest rate.
- Reduced Seller Concessions – Since buyers save on interest and closing costs, sellers may not need to offer as many financial incentives.
Top Risks for Sellers
- Entitlement Remains Tied – If the buyer is not VA-eligible, the seller’s VA entitlement stays with the property, limiting future VA loan use. If the buyer is VA-eligible, there is often a delay in reinstating the entitlement preventing the seller from buying a new home with another VA loan quickly.
- Liability Risk – If not properly processed, the seller may still be financially responsible for the loan.
- Limited Buyer Pool – Fewer buyers qualify for VA loan assumption due to credit or DTI, potentially making the home harder to sell.
- Potential Delays – The approval process can extend the home-selling timeline and include additional mortgage payments that were not anticipated.
- Equity Payout Negotiations – The buyer must cover the equity gap, which can complicate negotiations and securing a second trust can be difficult.
Example of a Buyer’s Financial Comparison
When comparing a VA loan assumption to a new VA loan, the financial differences are significant. The contrast in interest rates, loan terms, and total costs highlights why a VA loan assumption can be a powerful financial advantage in today’s high-rate market. IF YOU WANT TO BUILD REAL WEALTH, FOCUS ON THE COSTS OVER THE LIFE OF THE LOAN.
| Category | *Assumed VA Loan | **New VA Loan |
| Purchase Price | $450,000 | $450,000 |
| Interest Rate | 3% (locked-in) | 6.5% (market rate) |
| Loan Term | 20 years left | 30 years |
| Credit Flexibility | Moderate (>650) | VA lender discretion |
| Closing Speed | Slower (45-90 days) | Faster (21-45 days) |
| FINANCING | ||
| Loan Origination Costs | $2,000 (0.5% VA Assumption Fee) | $9,675 (2.15% VA Funding Fee) |
| Loan Amount | $402,000 | $459,675 |
| Monthly Payment | $2,229 | $2,905 |
| Cash Down Payment or Second Trust | $50,000 | $0 |
| Est Closing Costs | $14,000 | $14,000 |
| COSTS OVER THE LIFE OF THE LOAN | ||
| Total Interest Paid | $133,075 | $586,290 |
| Total Cost of the Loan | $535,075 | $1,045,965 |
| Equity | Built Faster – More of each payment goes toward principal | Built Slower – Early payments primarily goes toward interest |
* Assumed VA Loan: Assumes an existing VA loan at 3% interest with a $402,000 balance and 20 years remaining
** New VA Loan: Assumes taking out a new VA loan at 6.5% interest with a $459,675 loan amount and a 30-year term.
Final Thoughts: Is a VA Loan Assumption Right for You?
Buyers generally have the stronger advantage in a VA loan assumption, especially in a high-interest rate market. Securing a lower interest rate reduces borrowing costs, lowers monthly payments, and accelerates equity building. Buyers also benefit from lower closing costs and a shorter remaining loan term, making homeownership more affordable in the long run. However, they must be prepared to cover any equity gap, navigate the approval process, and accept the original loan terms.
Sellers can use a low-rate assumable loan as a selling tool, attracting buyers and potentially securing better offers. However, the limited buyer pool, entitlement risks, and potential approval delays create challenges. If entitlement remains tied to the loan, the seller may struggle to use a VA loan for their next home.
If you’re considering a VA loan assumption, work with a knowledgeable real estate professional and lender familiar with the process to ensure a smooth transaction. Weigh the benefits and risks carefully to determine if this unique financing option aligns with your financial goals.