VA Loans are Assumable
What is an Assumable Loan?
An assumable mortgage loan is one that allows a new home buyer to take over the obligation of the seller's loan with no change in loan terms. This is generally true of loans without Due-On-Sale Clauses.
Example: Archer sells a home with an assumable VA loan to Barbara. Barbara takes over the payments of the loan and accepts liability under the mortgage note.
Assumable loans can offer several advantages over new loans.
If loan rates have increased since the seller purchased their home, the assumable loan may carry an interest rate much lower than you could get if you took out a new mortgage, and you won't have to pay as much in fees.
In addition, more of the monthly payments on the loan you assume will go toward principal instead of interest because the loan term will be reduced by the time the seller was paying.
VA Assumable Basics
There are basically two ways to assume a VA loan. First, the new buyer is a qualified Veteran who "Substitutes" their eligibility for the eligibility of the seller. In addition, the new buyer qualifies through VA standards for the mortgage payment. This is the safest way for a seller to allow their loan to be assumed because the new buyer is responsible for the loan and the seller is completely off the hook. In addition, the seller can then use their full eligibility to purchase another home right away using their VA loan.
If the new buyer is not a veteran or qualified for a VA loan, they have no eligibility to give the seller. Should the seller grant permission for the new buyer to take over their loan, the seller does not get back their eligibility to use on another home, and the seller is still on the hook for the payments should the buyer default.
Be very careful about offering your home with an assumable loan.