If you have a VA loan, you might heard your loan officer mention that the loan is assumable. This means that when you sell your property, a qualified Buyer can take over your loan at your current interest rate. This is a good thing if the current is interest rate is higher than the interest rate of your loan. But what’s the catch?
How VA Loan Assumption Works
- When the Buyer assumes your loan they are taking over the loan as is. The Buyer has to be eligible for the loan and qualify to borrow just like anyone else.
- The Buyer would pick up where the Seller left off.
Disadvantages of VA Loan Assumption
- The Buyer would have to bring cash for the difference — no second mortgage.
- If the Buyer (Assumer) is not a veteran, the Seller’s entitlement will be forever attached to that home until the loan is paid off. There is no impact on credit, but this reduce the amount you can borrow in the event to use another VA loan in the future.
Overall, assumption is not a good plan for the Seller unless the Buyer have a large down payment to cover the difference and the Seller doesn’t need the entitlement.