How to Assume a VA Loan

Many people buy pre-owned items and it can be a good money-saving move. However, it doesn’t have to just pertain to secondhand clothing or previously-owned furniture items. You can also assume a mortgage and it can lead to serious savings. Right now, with interest rates at an all-time high, it could cut your rate down to a coveted 3%. Below is more in-depth information on assumable mortgages, interest rates, and how to assume a VA loan.

What is an Assumable Mortgage?

According to Bankrate, an assumable mortgage gives the buyer the ability to assume the interest rate, repayment period, current principal balance, and other terms of an existing mortgage loan. This can help the borrower save money in the long run, especially if the loan was taken out when interest rates were lower.

Current Mortgage Rates

As of September 25, 2023, the average mortgage rates are as follows:

8.087% for 30-year fixed-rate mortgage loans
7.21% for 15-year fixed loans
7.911% for 10/6 ARM loans

Considering that in 2020 a 30-year fixed mortgage loan rate was just under 3%, assuming a home loan from someone else may be the right move to help you save money.

Types of Assumable Mortgages

Not every home loan or mortgage is assumable. Only three types of mortgages can be assumed.

FHA Loans
USDA Loans
VA Loans

Generally, conventional mortgage loans cannot be assumed. There are some circumstances where this might be permitted, such as divorce or death. However, the best way to know if the mortgage is assumable or not is to look through the mortgage contract for an assumption clause. This will have the information you are looking for. If the assumption clause is not there, it is safe to infer that the mortgage is not assumable.

Pros and Cons of an Assumable Mortgage

If you are wondering how to assume a VA loan or any other type of mortgage, you will want to be aware of the pros and cons of doing so. For sellers, offering an assumable mortgage can make your home more desirable if the interest rate is lower than the current average. However, on the flip side, you may also still be held responsible for the debt if the buyer doesn’t make the necessary payments.

Buyers, on the other hand, would be able to reap the benefits of some serious savings. Typically, you don’t need an appraisal so you’ll save money on that. You also won’t have to spend time shopping for different mortgages and may be able to lock in a lower-than-average rate too. That being said, you are limited to the current lender and you could need a lot of cash on-hand if the seller has a lot of equity in the home already.

How Do Assumable Mortgages Work?

Assuming a mortgage involves the current borrower signing over the rest of the loan to the interested party. Then that person becomes responsible for all of the remaining payments on the mortgage. This also means they will typically have the same interest rate, terms, and monthly payments as the previous owner.

The person assuming the mortgage will also need to compensate the previous owner for the equity built up in the home. Even though this is part of the total purchase, it is expected that you pay this amount at the time of closing. This is essentially part of the down payment and can be funded with cash or through another separate loan.

How to Assume an FHA Loan

To go about assuming an FHA loan, you must meet the standard loan requirements for an FHA loan. These requirements include making a minimum down payment of 3.5% and a credit score of 580 or higher.

How to Assume a USDA Loan

There are a few more requirements if you want to assume a USDA loan. You need to have a credit score of 620 or higher. Your income and location also come into play when you want to assume this type of loan. It is also important to note that USDA loans are typically assumed at a new rate with different terms. Transfers between family and other special circumstances may allow for the mortgage to be assumed at the same rate without meeting eligibility requirements, however.

Contrary to popular belief, you don’t need to be a member of the military or a veteran to assume a VA loan. There isn’t a minimum credit score needed to assume this type of loan, but the lender will still need to approve you as a borrower. Typically, this means needing a credit score of 620+. A funding fee of 0.5% is also necessary to assume a VA loan.

Whether you are thinking about taking out a home loan or looking for more information on how to assume a VA loan, knowing what you’re getting yourself into is absolutely necessary before making any big decisions. Ensure that the home is inspected and the loan terms have been thoroughly looked over before you sign anything.

Amanda Blankenship

Amanda Blankenship is the Chief Editor for District Media. With a BA in journalism from Wingate University, she frequently writes for a handful of websites and loves to share her own personal finance story with others. When she isn’t typing away at her desk, she enjoys spending time with her daughter, son, husband, and dog. During her free time, you’re likely to find her with her nose in a book, hiking, or playing RPG video games.