VA Loan and Loan Assumption Process: Step-by-Step Guide

For many U.S. military service members, veterans, and eligible surviving spouses, a VA loan is one of the most valuable benefits available. With no down payment requirements, competitive interest rates, and flexible credit guidelines, VA loans make homeownership more accessible. But what happens when a homeowner with a VA loan wants to sell their property, and the buyer is interested in taking over the existing loan? That’s where the VA loan assumption process comes into play.

In today’s volatile housing market, where interest rates have surged, assuming a VA loan with a lower rate can be a game-changer for buyers. This guide will walk you through the VA loan assumption process step by step, while also addressing current economic challenges like inflation, rising mortgage rates, and housing shortages.

What Is a VA Loan Assumption?

A VA loan assumption occurs when a new buyer takes over an existing VA mortgage from the original borrower. Instead of applying for a new loan, the buyer assumes responsibility for the remaining payments, terms, and conditions of the original VA loan.

Why Consider a VA Loan Assumption in Today’s Market?

With mortgage rates hovering near 7% (as of 2024), many buyers are searching for alternatives to traditional financing. A VA loan assumption can be attractive because:

• Lower Interest Rates – If the original loan was secured at 3% or 4%, assuming it could save the buyer thousands over the life of the loan.
• No Down Payment Required – VA loans typically don’t require a down payment, making homeownership more accessible.
• Faster Closing Process – Since the loan already exists, the underwriting process may be quicker than a new mortgage.

However, not all VA loans are assumable, and lenders must approve the new borrower.

Step-by-Step VA Loan Assumption Process

Step 1: Determine If the Loan Is Assumable

Not all VA loans can be assumed. Key factors include:

• Loan Origination Date – Loans originated before March 1, 1988, are generally freely assumable. Newer loans require lender and VA approval.
• Type of VA Loan – Only fixed-rate VA loans are typically assumable; adjustable-rate mortgages (ARMs) usually are not.

Step 2: The Seller Must Obtain a Release of Liability

The original borrower (seller) should request a Release of Liability from the VA. This document removes their obligation for the loan if the new borrower defaults. Without it, the seller remains financially responsible.

Step 3: The Buyer Applies for Assumption

The buyer must submit:

• Credit and Income Documentation – Lenders will review credit score, debt-to-income ratio (DTI), and employment history.
• VA Funding Fee (If Applicable) – A 0.5% funding fee applies unless the buyer is exempt (e.g., disabled veterans).
• Assumption Fee – Typically 1% of the loan balance or a flat fee (varies by lender).

Step 4: Lender Approval

The lender evaluates the buyer’s financial stability. If approved, the assumption moves forward. If denied, the buyer may need alternative financing.

Step 5: Closing the Assumption

Once approved, the parties sign closing documents, and the buyer officially assumes the loan. The seller receives their release of liability, and the deed is transferred.

Challenges in Today’s VA Loan Assumption Market

1. Rising Interest Rates & Assumption Demand

With current rates much higher than pre-2022 levels, more buyers are seeking assumable VA loans. However, sellers may hesitate if they have a low-rate loan they’d lose.

2. Lender Restrictions & Delays

Some lenders impose strict requirements or slow processing times, making assumptions difficult. Buyers should confirm the lender’s policies early.

3. Shortage of Affordable Homes

The U.S. faces a housing shortage, and VA loan assumptions don’t solve inventory issues. Buyers may struggle to find sellers willing to transfer their loans.

Key Takeaways for Buyers & Sellers

For Buyers:

• Research assumable VA listings (some real estate sites now highlight them).
• Ensure you meet credit and income requirements before applying.
• Be prepared for lender fees and potential delays.

For Sellers:

• Understand that releasing liability is crucial to avoid future debt.
• Consider if losing your low-rate loan is worth the sale.
• Work with a real estate agent experienced in VA assumptions.

The VA loan assumption process can be a win-win in today’s high-rate environment—if both parties navigate it carefully. By following these steps, military families and veterans can leverage this unique benefit to achieve their homeownership goals.