Should You Assume an Existing VA Loan or Get a New One for Yourself?
The VA loan program has some restrictions that include having to release a property that you bought with a VA loan from your name in order to get another VA loan to purchase a different property. For people who want to get another loan before their old one is paid in full — for example, someone moving across the country — the process of loan assumption can be exactly what they need.
Assumption is when the buyer of a home takes over the loan payments and has the loan transferred into their name. Most of the time, buyers would get a mortgage for the cost of the home, and the seller would use the proceeds to pay off their loan. Assumption can be faster and neater for the seller. As the buyer, though, you should take a close look at VA loan assumption to ensure it's the best deal for you.
How Big of a Second Mortgage Would You Have to Get to Assume the Loan?
If the value of the property is more than the loan amount you'd have to assume, then you'd have to pay the rest of the value of the property when you bought it. For example, you assume a VA loan of $100,000 on a house whose original loan was worth $200,000 (meaning the original loan holder has already paid $100,000 into the house). Maybe the house has appreciated in value so that it's now got a purchase price of $250,000. If you assumed the loan of $100,000, you'd also have to get a second mortgage of $150,000 if you couldn't put down that much cash.
Be aware that you'd have to qualify for that second mortgage, so the interest rate on the second mortgage could play into your decision. Let's say you're looking for a home and have a choice between one with an existing fixed-rate VA loan that you'd assume and one where you'd need a completely new mortgage to cover the whole cost. You qualify for both the assumption and the second and new mortgages, but your credit isn't optimal, and the second and new mortgages would have a high-interest rate. If the fixed rate of the assumed loan is lower, then assuming the loan and having a second mortgage could save you money, compared to having an entirely new mortgage that's all at the higher rate.
Are You Willing to Give Up Your Eligibility for Another VA Loan?
Don't worry — assuming a VA loan doesn't mean you lose all future eligibility for VA loans. However, if you assume a VA loan because the original loan holder needed to dispose of the property (in other words, sell so the property is no longer in that person's name) in order to get another VA loan for a new property purchase, you would have to give up your current eligibility to get a VA loan of your own. If you don't feel comfortable doing that, you don't have to; it just means the original owner won't be able to get a VA loan until you've paid off the assumed VA loan.
Assuming a VA loan is a relatively simple process. You can get a great deal where assumption helps you save on interest and help out a fellow vet at the same time. A lender who handles VA loans, such as Dominion Capital Mortgage, can walk you through the process with more specific numbers.