Many people assume that VA loans—mortgages backed by the U.S. Department of Veterans Affairs—are restricted to active-duty service members, veterans, or eligible spouses.
While these loans primarily cater to servicemembers, there are circumstances in which non-veterans can assume a VA loan.
Understanding VA Loans
A VA loan is a specialized mortgage product designed to help U.S. military veterans, active-duty personnel, and eligible spouses finance a home with favorable terms. Because the VA partially guarantees these loans, lenders often provide:
- No down payment (in many cases)
- Competitive interest rates
- No private mortgage insurance (PMI) requirement
This reduced risk to lenders translates to more flexible qualification standards. But what happens if the original borrower sells or transfers the mortgage? Enter the concept of assumable mortgages.
What Does “Assumable Mortgage” Mean?
An assumable mortgage allows a homebuyer to take over the seller’s current mortgage under its existing interest rate, loan balance, and repayment schedule. Instead of applying for a brand-new loan, you effectively “step into the shoes” of the original borrower. Key benefits include:
- Lower Interest Rate: If the original loan has a favorable interest rate, you inherit it.
- Reduced Closing Costs: Assumption can sometimes cut down on closing costs.
- Faster Process: In certain cases, assumption can simplify or speed up the underwriting process.
Not all loans are assumable. Conventional loans often have “due on sale” clauses preventing assumption. Government-backed loans—like FHA, USDA, and VA loans—are generally assumable with lender approval.
Can VA Loans Be Assumed by Non-Veterans? (Short Answer)
Yes. A non-veteran can assume a VA loan as long as the lender and the Department of Veterans Affairs grant approval. You must meet certain credit and income requirements. Once the assumption is complete, you take over the existing VA mortgage, including the loan’s balance, interest rate, and other terms.
Important: If the person assuming the loan is not an eligible veteran, it can affect the original veteran’s entitlement. We’ll cover this in detail below.
The Impact on the Veteran’s Entitlement
One of the most critical aspects of VA loan assumptions is how it affects the original veteran’s entitlement. Entitlement refers to the amount the VA promises to guarantee for a veteran’s mortgage. When a non-veteran assumes a VA loan, the veteran’s entitlement remains “in use” unless it’s substituted or restored.
What Does “Restoring Entitlement” Mean?
“Restoring entitlement” means that a veteran can regain the portion of their VA home loan benefit used for a specific property. Typically, full entitlement restoration happens when the home is sold and the VA loan is paid off, or when the assuming borrower is an eligible veteran who can “swap” their entitlement for the original borrower’s (Substitution of Entitlement).
How Veterans Can Regain Their Full Entitlement
- Pay Off the Existing VA Loan: If the property is sold or the mortgage refinanced into a non-VA loan, the VA loan is considered paid in full, restoring the veteran’s entitlement.
- Substitution of Entitlement: If the person assuming the loan is another eligible veteran, the VA may allow them to use their entitlement, freeing the original veteran’s entitlement.
- Request for Release of Liability: Veterans can request a Release of Liability, but this alone does not restore entitlement unless the assumer is also an eligible veteran.
Substitution of Entitlement: Detailed Explanation
Substitution of Entitlement is a process where an eligible veteran who assumes the loan “substitutes” their VA entitlement for that of the original borrower. When successful:
- The original veteran’s entitlement is restored, allowing them to purchase another property using a VA loan.
- The new veteran uses part of their own entitlement to secure the assumed loan.
This requires cooperation between the lender, the Department of Veterans Affairs, and both veterans.
Real-Life Example
Veteran A purchased a home with a VA loan and later sells it. Veteran B assumes the loan, using Substitution of Entitlement. Now Veteran A regains their full entitlement, allowing them to buy another property with a VA loan. If a non-veteran had assumed it, Veteran A’s entitlement would remain tied up until the mortgage was paid off.
Why Lender and VA Approval Matters
Both the lender and the VA will assess your creditworthiness, employment history, income stability, and sometimes the property’s condition. Once they confirm you can handle the monthly mortgage payments, you’ll be set to finalize the assumption.
Tip: Requirements for credit score or debt-to-income (DTI) ratio vary by lender. While many look for 620+, some may set higher thresholds. Always shop around to find the lender that best fits your financial profile.
Benefits and Drawbacks of Assuming a VA Loan
Benefits
- Potentially Lower Interest Rate If the existing VA loan was locked during a period of low rates, you could save significantly on monthly payments.
- Reduced Fees Though there are VA loan assumption fees, they’re often lower than costs for a brand-new mortgage.
- No Appraisal in Some Cases Certain lenders may waive a new appraisal, but this depends on their policies.
Drawbacks
- Entitlement Release Issues If you’re not an eligible veteran, the original veteran’s entitlement remains tied to the loan until it’s paid off.
- Approval Complexity You’ll still go through underwriting, credit checks, and possibly an appraisal or inspection.
- Potential Down Payment If the home’s equity exceeds the loan balance, you might need a down payment to cover the difference.
Eligibility and Requirements for VA Loan Assumption
To assume a VA loan, a non-veteran typically must meet these criteria:
- Credit Score: Generally 620+, though it varies.
- Debt-to-Income (DTI) Ratio: Under 41% is often preferred, with some flexibility.
- Stable Employment and Income: Usually two years of continuous employment and sufficient income.
- Fee for Assumption: The VA charges a funding fee (~0.5% of the remaining loan balance).
- Property Condition:
Step-by-Step Guide to Assuming a VA Loan
- Find a Seller with a VA Loan Look for listings stating “VA Loan Assumable” or ask real estate agents.
- Discuss Terms with the Seller Agree on purchase price, remaining loan balance, and any equity acting as a down payment.
- Contact the Lender Both you and the seller inform the current lender of your intent to assume the VA loan.
- Complete Application & Documentation Provide credit score, pay stubs, tax returns, and employment verification.
- Underwriting & Approval The lender reviews your profile and may require an appraisal or inspection.
- Pay the Assumption Fee Typically ~0.5% of the remaining loan balance plus any closing costs.
- Finalize Paperwork Sign documents transferring legal responsibility for the mortgage to you.
- Record New Deed Your county records office updates the deed, making you the official mortgage holder.
Variations in Lender Requirements
Different lenders may have unique underwriting guidelines:
- Credit Score Minimums: Some may set 640 or 660 as the minimum for higher loan amounts.
- Debt-to-Income (DTI) Guidelines: While 41% is the VA benchmark, some lenders allow up to 50% with compensating factors like strong savings.
- Closing Costs: Lender origination fees, title fees, and other closing costs can vary considerably.
Why Shop Around? By comparing multiple lenders, you could find one that best aligns with your financial profile, potentially saving you thousands over the life of the loan.
Cost Comparisons: VA Loan Assumption vs. New Mortgage
| Cost Element | VA Loan Assumption | New Conventional Loan |
|---|---|---|
| Interest Rate | Inherits existing (could be lower) | Based on current market |
| Funding Fee / PMI | ~0.5% (VA assumption fee) | PMI if <20% down |
| Appraisal | Sometimes skipped | Often required |
| Closing Costs | Generally reduced | Potentially higher |
| Underwriting | Lender & VA approval | Lender approval |
Note: Conventional loans may require Private Mortgage Insurance (PMI) if you put less than 20% down. VA loans do not require PMI, but do have VA funding fees, including assumption fees.
Example Scenario
Let’s say you’re weighing whether to assume a VA loan at 3.0% interest or take out a new mortgage at 5.0%:
| Scenario | Assuming VA Loan | New Loan at Current Rate |
|---|---|---|
| Interest Rate | 3.00% (existing) | 5.00% |
| Remaining Principal | $250,000 | $250,000 |
| Monthly P&I (Est.) | $1,054 | $1,342 |
| Equity / Down Payment | Varies (seller equity) | Possibly larger if <20% down |
In this scenario, assuming a VA loan could save nearly $300 monthly in principal and interest. However, if there’s significant equity, you may need a larger upfront payment. Always consult a mortgage professional to evaluate whether the savings justify the upfront fees and any equity payments.
The Bottom Line
Frequently Asked Questions
- What is the minimum credit score to assume a VA loan?
- Lenders typically prefer a credit score of 620 or higher, but exact requirements vary. If you’re slightly below, strong compensating factors such as a low DTI or substantial cash reserves may help.
- What happens to the veteran’s entitlement when a VA loan is assumed by a non-veteran?
- The original veteran’s entitlement often remains tied to the mortgage until it’s paid off or refinanced. This can limit their ability to use another VA loan unless there’s a Substitution of Entitlement with an eligible veteran.
- How to assume a VA loan from a family member?
- The process is similar: you need lender and VA approval, must meet credit and income requirements, and pay the assumption fee. The veteran’s entitlement could remain tied to the loan if you’re not VA-eligible.
- Is there a limit to how many times a VA loan can be assumed?
- No strict limit exists, but each assumption requires VA and lender approval. The loan must be in good standing.
- Do I pay a funding fee when assuming a VA loan?
- Typically, yes. The fee is around 0.5% of the remaining balance. Veterans with service-connected disabilities may have this fee waived; non-veterans generally do not.
- Is an appraisal required for a VA loan assumption?
- Not always. Some lenders skip the appraisal if the property value is sufficient. However, getting a home inspection is strongly advised.
- Can a surviving spouse of a veteran assume a VA loan?
- Yes, if the spouse is VA-eligible. If not, lender approval is needed and the veteran’s entitlement may remain impacted.
- How long does it take to assume a VA loan?
- Typically 30 to 60 days, depending on how quickly you provide documentation and whether an appraisal is needed.
- Can I refinance after assuming a VA loan?
- Yes. Once you assume the mortgage, you can refinance into a conventional loan or pursue a VA IRRRL if you qualify.
Legal Aspects and Why You Should Consult an Attorney
Mortgage assumption involves legal documentation transferring liability from the seller to the buyer.
In many states, it’s wise to consult with a real estate attorney who can review documents, clarify state-specific laws, and ensure no unexpected liens or encumbrances exist. This added step provides peace of mind in a significant financial transaction.
