One of the attractive things about VA home loans is that they are assumable–a veteran can “sell” the home by allowing a third party to assume the VA loan payments and responsibility for the mortgage. According to the Department of Veterans Affairs, “Most homes purchased or refinanced with a VA guaranteed home loan are eventually sold with the mortgage paid off at closing. Under certain circumstances, it is possible for a veteran to sell the property subject to the assumption of the VA guaranteed loan payments by the purchaser.”
The person assuming the VA loan payments does not have to be a fellow veteran. VA loans closed before March 1, 1988 are “freely assumable” which means the Department of Veterans Affairs will “allow the loan to be assumed without the approval of VA or the loan holder. Please note that the veteran still remains liable for any loss associated with the VA loan should the assumer fail to meet the mortgage obligations,” according to the VA rules.
All VA loans assumed after March 1, 1988 must have the assumption “approved by the loan holder. If an assumption is approved by VA or the loan holder, the veteran is released of liability in the event the assumer defaults on the loan resulting in a loss to VA” according to VA Regional Loan Center Release No. 05-04.
Now, when a borrower commits to a VA mortgage, the law requires a prominent statement in “the instruments evidencing the loan” stating that the VA loan is not assumable without prior approval from the VA or it’s “authorized agent”.
There is a required clause regarding the VA funding fee. When you commit to a VA loan, part of the language in the contract will include a statement on the VA funding fee. Assumed loans require “a fee equal to one-half of 1 percent of the balance of this loan” which is payable on the date of transfer.
Additionally, “…if the assumer fails to pay this fee at the time of transfer, the fee shall constitute an additional debt to that already secured by this instrument, shall bear interest at the rate herein provided, and at the option of the payee of the indebtedness hereby secured or any transferee thereof, shall be immediately due and payable.”
To summarize, VA loans are assumable, with approval, by vets and non-vets alike. A VA loan funding fee applies to the loan assumption, which is payable at the time of transfer. For more information contact the VA at 1-800-827-1000.
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