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VA Loan Assumption: A Guide for Buyers and Sellers

Updated: Dec 4, 2023

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If you're a Veteran considering the assumption of a VA home loan or a civilian looking to assume one, there are critical factors to consider. VA entitlement, loan assumption timelines, and financial implications can be complex and may affect your decision. In this informative blog, we'll break down these aspects to help you make informed choices.

Understanding VA Entitlement

VA entitlement is a crucial factor when it comes to loan assumptions. If your VA entitlement is tied up in an existing loan, you might want to swap it with another Veteran. However, if you're selling your home and a non-Veteran is assuming the loan, you'll likely lose your entitlement. It's a complicated process, and the consequences vary depending on the circumstances.

Loan Assumption Timelines

One significant pitfall with VA assumption loans is the time it takes to complete the process. In ideal situations with knowledgeable lenders, it can take as little as 30 days. However, it's not uncommon for it to stretch out to eight months or even a year. Why? Because many lenders are more accustomed to processing purchase loans than assumptions. There's a lot more legal and risk assessment involved in loan assumptions.

The Complex Assumption Process

Lenders need to be fully aware of the complexities of the assumption process. They must consider whether a new appraisal is needed to ensure the property's value. They also need to evaluate new credit reports and income of the assuming party. These additional steps slow down the process and often lead to delays.

Financial Considerations for Buyers

As a buyer, you need to be prepared for potential financial challenges when assuming a VA loan. If the loan amount is less than the purchase price, you'll be responsible for covering the difference. This difference can range from a few thousand dollars to hundreds of thousands. It's crucial to have a plan in place to secure this additional funding, such as a second lien, like a HELOC. However, finding a lender willing to take on such risks can be challenging.

Beware of Misleading Marketing

Many VA assumption loans are marketed as fantastic deals, but the reality is that they often don't make sense due to the complexities and risks involved. Be cautious and do your due diligence before diving into an assumption loan, whether you're a buyer or a seller.

In conclusion, VA home loan assumptions can be a viable option, but they come with complexities that demand careful consideration. If you're not well-versed in the process, it's easy to get overwhelmed. Always seek advice from experts and thoroughly research your options before proceeding with a VA loan assumption.

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