What is an Assumable Loan?
A mortgage loan that is assumable allows a new home buyer to inherit the seller’s loan upon the purchase of the home without the terms of the loan obligation being altered.
An example of this would be:
Mr. X sells their home (with assumable loan) to Mrs. Y. After the completion of purchaser, Mrs. Y takes control of the loan payments and consents to the liability of the loan under the mortgage deed.
Assumable loans offer buyers two distinct advantages:
- In the event that the loan rate has risen since the seller originally purchased the home, the assumable loan will potentially convey a substantially lower interest rate than a brand new mortgage, this also negates many fees.
- With the loan term lowered at the time of sale, a greater amount of monthly payments assumed will be directed at the principal instead of the total interest.
Can you assume a VA loan?
Are homes purchased using a VA home loan eligible to be sold to a buyer who will then assume the VA loan?
Yes. However, there are restrictions.
VA-backed loans are assumable, as long as the person assuming the loan qualifies. This means that the assuming borrower must have: stable income, acceptable assets or reserves, sufficient residual income or DTI of better than 41%, certificate of eligibility and any other standard set forth by the underwriter.
Although previously true, non-VA eligible borrowers cannot assume the VA loan anymore. To be eligible for a VA loan an applicant must have military service time totaling 90 continuous war-time days or 181 peacetime days. Additionally, an honorable discharge is required for veteran applicants.
For more information regarding your eligibility, or if interested in applying for a VA home loan, contact VA Home Loan Centers.
