Realtor.com writes, "Many would-be homebuyers today are sidelined due to one financial hurdle: high mortgage rates that are pushing ever closer to 7%. Yet instead of getting a 2024 rate, some Veterans can get a low rate from years ago.
For military families, Veterans Affairs loans (or VA loans) offer a unique edge: the option to assume an existing VA loan from a seller, keeping the original low rate intact.
For qualifying buyers, these assumable VA loans, known as assumable mortgages, can mean major savings—especially when today’s rates are considerably higher than what sellers locked in years ago.
“If both buyer and seller are VA loan-eligible, the seller can pass on their current mortgage, and current rate, to the buyer without forfeiting VA loan eligibility,” says Realtor.com® senior economic research analyst Hannah Jones. “Veteran buyers may find this option especially appealing as mortgage rates remain in the high 6% range.”
But navigating this process isn’t always easy, and finding an assumable VA loan can seem like a needle in a haystack.
That’s where Veterans United steps in to help simplify and unlock the powerful savings of assumable VA loans for more buyers.
What is an assumable VA loan?
A VA loan is already a significant benefit, offering military families lower interest rates, zero-down payment options, and no mortgage insurance.
However, an assumable VA loan adds another layer of appeal by allowing a homebuyer to take over a seller’s existing VA loan, including its interest rate and terms.
Here’s how it works: Instead of taking out a new loan, a buyer can “assume” the seller’s existing mortgage, keeping its original interest rate, balance, and terms. This can lead to huge savings.
As VA loans are government-backed, they’re one of the few loan types that can be assumed, but they still require lender approval to transfer the loan terms to the buyer.
“A lower rate is a win,” says Jones. “The typical payment on a $300,000 home at a 6.79% interest rate, assuming 10% down, is roughly $1,750 before taxes and insurance. At a 4% mortgage rate, the payment would be $600 lower per month, highlighting the benefit of assuming a lower-rate mortgage if possible.”
The pros—and a con—of assuming a loan
The biggest advantage of assuming a VA loan is the potential for a lower interest rate, which means lower monthly payments and significant savings over the life of the loan.
But there are a few factors to consider: Buyers need to qualify with the lender, which includes meeting credit and income requirements. However, VA loans are much more flexible in terms of credit scores compared with conventional loans, and active military can use the Basic Allowance for Housing (BAH) they receive toward total income.
A buyer might also need to pay the difference between the home’s sale price and the seller’s remaining loan balance as a down payment. In other words, although assuming a mortgage doesn’t require a down payment, buyers might still need to cover the seller’s equity.
For instance, if a seller’s $400,000 mortgage is down to $300,000, the buyer would need to bring $100,000 to the table to cover that difference.
“It is important to note that the buyer may have to take out a second mortgage, which would be at today’s going rate, to pay out the seller’s equity,” says Jones.
How Veterans United is making assumable VA loans accessible
While assuming a VA loan can be a game changer for military buyers, finding these opportunities in today’s market is no small feat.
Veterans United is here to help by simplifying the assumable loan process and connecting buyers specifically with homes carrying assumable VA loans. By offering guidance through the assumption requirements, Veterans United makes it easier for buyers to find VA loans with locked-in lower interest rates.
Buyers should also note that “the person assuming the loan does pay a funding fee of 0.5% of the loan balance,” according to Veterans United.
The good news is that money goes right back to Veterans Affairs to fund the loan program for future generations of military buyers. However, Veterans who receive compensation for service-connected disabilities are exempt from this assumption fee.
Finding an assumable mortgage
Ready to look for a home with an assumable mortgage? Here’s how to get started.
Search for eligible homes: Use platforms like Realtor.com® to find listings with assumable VA loans that meet your criteria.
Verify loan details: Confirm with the seller and lender that the loan can be assumed, and check the terms—and most importantly, check the existing interest rate!
Qualify with the lender: Lenders such as Veterans United will assess your financial standing to ensure you meet the loan requirements.
Cover any cost difference: If the sale price exceeds the remaining loan balance, be prepared to make up the difference, possibly through a down payment."
Source: Realtor.com
Written by: Margaret Heidenry
Published: November 11, 2024
Posted by Grossman & Jones Group on
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