PCS and VA Loan Assumption for Buyers and Sellers
PCSing this year? VA loan assumption could help if you’re planning to buy or sell a home. If you go the assumption route, there are some important things you should know.
If you’re like many active duty service members, you’ve got new PCS orders this spring. Housing may be weighing heavily on your mind. If you’re thinking about owning a home in your next base town, a VA loan could be your financing method of choice. But, did you know you can assume an existing VA loan?
It’s common in many military communities to have homes for sale that are already financed with a VA loan. And some of these sellers are willing to have their loans assumed by the buyer. If you are eligible for home loan benefits, you may be able to take advantage of a VA loan assumption and save potentially thousands of dollars in VA funding fees.
PCS or Permanent Change of Station usually means active duty military members move from one military base to another. Sometimes, selling a home is a must in order for a military member or family to afford housing in the next base town. Selling fast can provide financial relief for military homeowners carrying out their change-of-station orders.
Whether you’re a buyer or a seller, VA loan assumption may come in especially handy during PCS season. These tips for sellers and buyers can help the process go more smoothly.
TIPS FOR SELLERS
1. Consider Marketing Your Home as “VA Loan Assumable” to Appeal to Military Buyers
Marketing your home as a “VA Loan Assumable” property may increase your chances of finding a military buyer quickly. If you attempt to target other VA-eligible borrowers to assume your loan, here is what you should know:
- Seller’s VA loan payments must be current or brought current at closing
- Buyer may or may not be VA-eligible but must be creditworthy, as defined by the VA
- By assuming your loan, the Buyer agrees to take on all of the loan obligations, including the obligation to reimburse the VA if a claim is paid
- Buyer must certify intent to occupy the property as a primary residence (if you want to have your entitlement substituted)
As a seller, you’ll have to apply for approval with your lender or servicer prior for the assumption prior to completing the sale of your home.
2. Substitute Entitlement and Use Your Home Loan Benefits Again
Occasionally, the buyer substitutes his entitlement in place of yours for VA assumption. There are two good reasons to do this:
- When your entitlement is substituted by the buyer’s, you can restore your entitlement for another VA loan in your next military town.
- If the buyer defaults and the loan forecloses, the buyer’s entitlement is on the hook for VA losses, not yours.
SELLER ALERT: Sometimes a buyer doesn’t have enough entitlement available to assume your loan. If you allow the buyer to keep your entitlement with the loan, you could suffer losses because it’s your entitlement that’s on the line if the buyer defaults. The VA will handle the request for Substitution of Entitlement after the assumption. If there are problems with this application, your entitlement may not be able to be substituted.
Many active duty military members prefer owning a home off base rather than renting or living in military housing. If you’ve enjoyed homeownership in the past, then you may want to buy another home in your next base town. Often you don’t need full entitlement to do that, but having all of your entitlement restored may give you more options in today’s housing market. A VA loan specialist can help you determine your entitlement status. Click here if you’d like to connect to someone now.
TIPS FOR BUYERS
1. Treat VA Loan Assumption as if You Were Applying for a Loan
The big benefit of assuming a VA loan is that you pay a small fraction in VA funding fees compared to what you would pay if you were to take out a new loan. However, when you assume someone else’s loan, you still have to qualify as if it were your own. You’ll need to meet the lender or loan servicer’s credit and income requirements for the remaining principal and terms on the loan. Here’s the good news:
- Loan assumption has a reduced VA funding fee of just .5%
- Buyer gets to pick up where the seller leaves off in terms of years left on the loan
- The interest rate on the loan may be lower than what’s available in the current market
Often assuming someone else’s loan just makes more sense. Before you decide, though, weigh the pros and cons of getting your own loan against assuming someone else’s.
2. Get An Inspection!
Likely, an appraisal will be ordered to make sure the home meets VA minimum property requirements and the home is valued appropriately. But, an appraisal does not replace an inspection. A certified home inspector will look at any water damage, major appliances, heating and cooling, plumbing, wiring, structure, the roof and report any other issues that may need to be resolved before closing.
WHERE TO START
Good communication between the buyer and seller representatives and the current VA loan servicer (the company that collects the monthly mortgage payment) as well as with the Regional Loan Center associated with the loan is key to a smooth transaction.
NEXT STEP: For learn more about VA loan assumption, click here to connect to a VA loan specialist.