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Assuming VA Loans – Important Considerations Regarding VA Loans
This article discusses the important considerations for a VA seller when considering entering into an assumption agreement with a buyer.
If you own a home that has a VA home loan, it is possible to have to find a buyer to assume your VA home loan. However, there are some important things to consider if you are thinking about assumption VA loans. Your property can be sold to both non-veterans and veterans at any time during the length of your mortgage. But, if you signed for your loan after March 1, 1988 and if the buyer will be assuming your loan, the buyer’s credentials will need to be evaluated and accepted by the lending institution. If you signed your loan before March 1, 1998, anyone can assume your loan without any qualifications or approvals. The recent VA loans require the buyer to have a veteran status to qualify for the assumption of the mortgage.
It is critical to note that even if you have entered into one of the assumption VA loans, you may still be responsible for the mortgage. If the mortgage was signed after March 1, 1988, the lending institution and the VA need to be informed and have to issue the selling veteran a release from liability. If the mortgage was signed before March 1, 1988, the mortgage can be assumed without the consent of the lending institution or the VA. Even though approval is not needed in these instances, it is highly recommended that the veteran still ask the VA to be released from liability. The reason for doing this is so the seller will not owe the Government any money if the buyer (assumer) does not pay the loan.
It is strongly advised not to agree to enter into assumption VA loans with a buyer that does not qualify to take over the loan by paying the mortgage on your behalf. In these kinds of interactions, the buyer (assumer) will typically pay the seller a set amount of money that is on the existing mortgage less the selling price of the property. Another name for this type of transaction is the Cash-to-Mortgage transaction. In these transactions, the buyer (assumer) will also be responsible for paying the title company who pays the lending institution on behalf of the seller.
Many sellers misunderstand assumption VA loans and believe they have been released from liabilities regarding the loan. However, the truth is that they are turning their important credit history over to an unqualified buyer (assumer) and it also puts them at a huge risk without any assets if the buyer (assumer) does not make the required payments. When it’s all said and done, the seller could be the one paying the Government and will see their personal credit history ruined by the buyer (assumer) and the buyer walks away only losing a down payment.
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