You can sell your home and have the buyer assume the VA loan attached to the property. But the date of your VA loan approval matters because it will determine the VA loan assumption process. There is also the matter of VA entitlement, which is used every time you buy or refinance a home with a VA loan.
VA Loan Assumption: An Introduction
A mortgage assumption is when someone assumes your mortgage or takes over the repayment of your loan. It is an option to some buyers looking to buy a home with a lower mortgage rate.
Imagine a prevailing mortgage rate of 4.2% versus 3.35% some three years ago. The discrepancy may not be huge but it does make for lower mortgage payments.
In the case of VA loan assumptions, anyone can assume the loan even if they are not veterans. There are cases when VA loans are freely assumable. But most likely you need prior approval of the lender or VA before any loan assumption takes place.
VA Loan Assumption Rules for Mortgages Approved Before or After March 1, 1988
For VA loans approved before March 1, 1988, they can be assumed by buyers without prior approval from the lender or VA. The loan assumption, however, does not automatically release the owner, in this case you, from any liability from the mortgage.
Supposing the new owner run into default and VA suffers a loss as it will guarantee the mortgage. Then you will be held liable for the loss unless you obtain a release of liability from the VA loan. This form is available upon request from the VA Regional Loan Center near you.
For VA loans approved on or after March 1, 1988, the buyer must be evaluated by your lender based on his/her credit, income and other qualifying standards. If the transaction is approved, you will be granted release from the mortgage liability. In the event you still need to obtain a liability release, forms may be requested from your lender.
The new owner of the mortgage will pay the VA funding fee, which is required in any VA loan transactions, at the date of the transfer of the mortgage.
What Happens to Your VA Entitlement?
It is possible to lose your entitlement when you do a VA loan assumption. An entitlement is a guaranty the VA provides to the loan.
If the one who assumed your loan is not a veteran, you could lose your remaining VA entitlement. This is because the VA entitlement attaches to the VA loan and the buyer is effectively using the entitlement for as long as the loan remains unpaid.
You may be able to do a swap entitlement if your loan was assumed by a qualified veteran under VA standards. The process involves the substitution of the veteran buyer’s entitlement with yours for the same amount originally used by you.
To restore your VA entitlement so you can buy another home with a VA loan, your previous home with the VA loan must be sold and the loan paid in full. If the home was not sold but the loan fully paid, your entitlement could be restored for one time only.