VA Loan Assumptions: Can Your Buyer Take Over Your Loan?

VA loans are assumable, meaning a buyer can potentially take over your existing loan. In a rising rate environment, this can be a significant selling advantage.

What Is a Loan Assumption?

When a buyer assumes your loan, they:

• Take over your existing mortgage
• Keep your interest rate and terms
• Pay you the difference between sale price and loan balance
• Become responsible for the debt

Why Assumptions Are Attractive

For the Buyer

If your rate is lower than current market rates:

Example:

• Your VA loan rate: 3.5%
• Current market rates: 7%
• Buyer assumes your loan and saves significantly on interest

This can mean hundreds of dollars per month in savings.

For You (the Seller)

• Potential selling advantage if rates are higher
• May attract more buyers
• Could justify a higher sale price
• Differentiates your listing

The Assumption Process

Step 1: Buyer Qualification

The buyer must qualify to assume the loan:

• Credit check
• Income verification
• Debt-to-income ratios
• Doesn't have to be a veteran

Yes, non-veterans can assume VA loans.

Step 2: VA and Lender Approval

Both must approve:

• The lender processes the assumption
• The VA must approve the assumption
• There's a fee (currently 0.5% of the loan balance)

Step 3: Close the Transaction

• Buyer pays seller's equity
• Loan transfers to buyer
• Title transfers to buyer

The Catch: Your VA Entitlement

This is critical to understand:

If a non-veteran assumes your loan: Your VA entitlement remains tied up until the loan is paid off. You can't use that portion for a new VA loan.

If a veteran assumes your loan and substitutes their entitlement: Your entitlement can be restored immediately.

Entitlement Example

You have $100,000 in VA entitlement. A $300,000 loan uses roughly $75,000 of it.

Non-veteran assumes: That $75,000 stays tied up—possibly for decades.

Veteran assumes with substitution: Your $75,000 is restored for future use.

When Assumptions Make Sense

Good Scenarios

• Rates have risen significantly since you got your loan
• You have equity the buyer can cover
• You won't need that VA entitlement (or buyer is a veteran)
• Market conditions make your rate a selling point

Not Ideal

• Rates are similar or lower now
• Large loan balance with little buyer equity
• You need your entitlement for your next purchase
• Complex situations

The Numbers

For an assumption to work, the buyer needs to cover your equity:

Your home value: $350,000 Your loan balance: $280,000 Your equity: $70,000

The buyer needs $70,000 to assume your loan. They could:

• Pay cash
• Get a second loan
• Combine cash and second loan

High-equity situations make assumptions harder for buyers to manage.

Liability Considerations

After assumption:

• Get a release of liability from the VA
• Without it, you could remain liable if the buyer defaults
• The lender must agree to release you
• This is standard practice but confirm it's complete

Marketing an Assumable Loan

If your rate is attractive:

• Highlight it in your listing
• Calculate potential buyer savings
• Work with agents who understand assumptions
• Be prepared for a longer process (assumptions take more time)

The Bottom Line

VA loan assumptions can be powerful in high-rate markets, but the entitlement implications require careful consideration. If you're selling with a low-rate VA loan, understand both the marketing advantage and the long-term impact on your benefits.

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Questions about VA loan assumptions? Contact Greg Franklin or call (559) 816-7780—I'm happy to discuss your options.