Interest rates can’t stay low forever – they go up and down. When interest rates are down, people get mortgages that are locked in for the term of the loan at a very low rate. What happens when rates go up and people want to sell their house? The buyer may ask about whether or not their loan is assumable. Two of the most popular loan programs over the last few years are the FHA loan and VA loan programs.
Are VA Mortgages Assumable?
In order to find out if VA loans are assumable, the VA manual on loans is the source of the answer. Look in Chapter 5, section 7. From the source:
General Information about Assuming a VA Mortgage
Under certain circumstances, properties that are security for VA-guaranteed loans may be sold even though the loans are not paid in full. Borrowers who sell their properties under these conditions remain liable to VA for any loss that may occur as a result of a future default and subsequent claim payment, unless the property is sold to a creditworthy purchaser who agrees to assume the payment obligation.
Who Can Process VA Assumptions
While procedures for processing requests for assumption approvals previously depended on the date of loan (commitment made on or after March 1, 1988), the new VA Loan Electronic Reporting Interface (VALERI) regulations authorize loan holders or servicers with automatic authority to determine creditworthiness on all assumption approval requests processed by their servicers.
VA Mortgage Assumption Review Procedures
Transfers of ownership on properties securing loans for which commitments were made on or after March 1, 1988, must have the prior approval of the loan holder or its authorized servicing agent if either of them have automatic authority. If neither the holder nor the servicer has automatic authority, the servicer must submit a credit package to VA for underwriting. The following subparagraphs describe processing details. A seller must apply for approval of the transfer prior to completing the sale. Servicers and holders with automatic authority must examine the application to assess compliance with the provisions of 38 U.S.C. 3714. VA will make the determination in a case where neither the servicer nor the holder has automatic authority, following receipt of a complete application package from the servicer.
To approve the transfer of ownership:
- The loan must be current or will be brought current at the closing of the sales transaction,
- The prospective purchaser of the property is creditworthy, as determined in accordance with 38 CFR 36.4840 and VA Pamphlet 26-7, Lenders Handbook, and
- The prospective purchaser has agreed to assume all of the loan obligations, including the obligation to indemnify VA if a claim is paid.
- A processing fee may be collected in advance, including a reasonable estimate for the cost of the credit report. The maximum fee for processing a request for assumption approval and changing the loan records is the lesser
- Automatic authority – $300 plus the actual cost of a credit report;
- No automatic authority – $250 plus the actual cost of a credit report; or any maximum prescribed by applicable state law.
Note: VA does not specifically regulate when the processing fee may be assessed. However, when the processing fee is collected prior to signing the sales contract, the portion of the fee attributable to changing the servicer’s records (usually $50) must be returned to the seller if the application is denied or the process is not completed. Therefore, VA recommends that the processing charge accompany the complete package.
VA Assumable Loan Processing Time Guidelines: How Long Does It Take?
Automatic Authority: Servicers or holders with automatic authority must complete the examination and notify the seller of the decision within 30 days after receiving a complete ownership transfer approval application package. Without Automatic Authority: Servicers without automatic authority (where the holder also does not have automatic authority) must submit documents to VA within 21 days after receiving a complete application package.
VA Review: VA has 14 days to complete its underwriting review and notify the servicer of its decision. Servicers have 7 days to notify all parties of VA’s decision.
Note: These time periods may be extended by the time lost if delays are beyond the servicer’s control, such as employers or financial institutions not responding to requests for verification or follow-up requests.
Approvals: If the application for ownership transfer is approved, the servicer must notify the seller and include instructions for the assumption of liability by the purchaser, the amount of funding fee that must be paid, and documentation needed to complete the process.
Disapprovals: If the application is disapproved, the seller and purchaser must be notified. The disapproval notice must include:
- The reason for the decision and a notice that the decision may be appealed to VA within 30 days
- The VA address to which the appeal should be sent, which will be the RLC that has jurisdiction over the state where the property is located, and
- If the application was disapproved for credit reasons, the purchaser must be informed of the basis on which the adverse decision was made in accordance with the Fair Credit Reporting Act.
- If the application remains disapproved after 45 days (to allow time for appeal and review by VA), the $50 fee for changing the account records, if previously collected, must be refunded.
Yes, VA Mortgages Can Be Assumable
The short answer is yes, VA mortgages may be assumable if approved by the lender. If you are interested in assuming a VA loan be sure to get a quote on a new VA mortgage from multiple lenders so that you have all of the information needed to make the best financial decision possible. Get a free quote on a VA mortgage today.