VA Loan Assumption: Taking Over a Seller's VA Loan
Who can assume a VA loan, what it costs and the entitlement rules both sides need to know.
One of the VA loan's unusual features is that it is assumable. According to the VA, anyone can assume, or take over the payments on, a VA home loan if they qualify. When interest rates have gone up since the seller bought, taking over their lower rate can save a buyer a lot of money every month.
How an assumption works
Instead of getting a new mortgage, the buyer takes over the seller's existing loan, with its current balance, interest rate and remaining term. The assumption needs approval from the loan servicer, and in some cases from the VA. The servicer will usually check the buyer's income and credit to make sure they can afford the payments.
How much a lower rate can save
Say a seller owes $280,000 at 3.0% with 25 years left. Their principal and interest payment is about $1,328 per month. A buyer taking out a new 30-year loan for the same $280,000 at 6.5% would pay about $1,770. Assuming the loan saves roughly $442 per month, before taxes and insurance. Try different rates in the VA loan payment calculator.
The equity gap
The assumed loan only covers the seller's remaining balance. If the home sells for $350,000 and the balance is $280,000, the buyer must cover the $70,000 difference, usually with cash or a separate second loan. The VA notes that sellers can negotiate with the buyer on cashing out some or all of their equity as part of the sale. This gap is the biggest practical hurdle in most assumptions.
What happens to the seller's entitlement
| Who assumes the loan | Seller's entitlement |
|---|---|
| An eligible veteran who substitutes their own entitlement | Can be restored to the seller, if the buyer has enough entitlement to cover the loan |
| Anyone else, including a non-veteran | Stays tied to the loan until it is paid off |
The VA warns sellers to be selective, because if an assumed loan defaults it counts against the original veteran's entitlement and may affect their chance of getting another VA loan. Sellers should also ask for a release of liability, using VA Form 26-6381, so they are no longer responsible for the debt.
Five-year comparison
| Assume the 3.0% loan | New loan at 6.5% | |
|---|---|---|
| Monthly principal and interest | $1,328 | $1,770 |
| Paid over 5 years | $79,668 | $106,187 |
| Loan balance after 5 years | $239,415 | $262,111 |
The assumed loan saves money every month and also pays down the balance faster, because more of each payment goes to principal at a low rate. The trade-off is the cash or second loan needed to cover the seller's equity.
Step by step
- Confirm with the seller that the loan is a VA loan and that they are open to an assumption.
- Contact the loan servicer for its assumption package and fees.
- Plan how you will cover the equity gap, and line up that financing.
- Submit your application to the servicer, which reviews your credit and income.
- If you are a veteran substituting entitlement, provide your COE.
- Close, and make sure the seller files for release of liability.
Assumptions often take longer than a new loan, so build extra time into the purchase contract.
Costs for the buyer
- Funding fee of 0.5% of the loan balance, unless the buyer is exempt. On a $280,000 balance that is $1,400.
- Processing and closing costs charged by the servicer and for the title work.
- The equity payment to the seller described above.
Frequently asked questions
Can a non-veteran assume a VA loan?
Yes. According to the VA, anyone can assume a VA loan if they qualify, but the seller's entitlement then stays with the loan.
What is the funding fee for a VA loan assumption?
The VA funding fee for an assumption is 0.5% of the loan balance, unless the buyer is exempt.
Does the seller get their entitlement back?
Only if the buyer is an eligible veteran who substitutes their own entitlement and has enough to cover the loan.
Who approves a VA loan assumption?
The loan servicer must approve it, and in some cases the VA also has to approve it. The servicer usually checks the buyer's income and credit.
What is a release of liability?
It is an approval that frees the original borrower from responsibility for the loan after an assumption. It is requested with VA Form 26-6381.
Sources
- VA Home Loan Guaranty Buyer's Guide (PDF)
- VA.gov: funding fee (assumptions 0.5%)
- VA.gov: restoring entitlement
- VA Form 26-6381
This page is educational and is not legal, tax or financial advice. Rules and rates can change, so confirm the details with the VA and your lender.