Selling the Va-financed home
When you purchased your home with a Va-backed loan you used what is undeniably one of the best loan products on the market. With no money down and a government guarantee, few loans can match it.
Another benefit of the VA loan is that it’s assumable, an attractive feature if you are trying to sell your home in a buyer’s market.
The assumable mortgage
Assumable mortgage loans allow the buyer to take over the loan at the same rate and same term of the existing mortgage. The benefit of assuming a VA mortgage for the buyer is apparent if interest rates have risen since you took out the loan and the loan’s terms may be more attractive than terms the buyer would be offered if he applied for a new loan.
The drawback to this situation occurs if the buyer isn’t a veteran, or otherwise isn’t eligible for a VA loan. In these cases, your entitlement remains attached to the loan so you won’t be able to obtain another Va-backed mortgage.
Advantages of the assumable mortgage
An assumption sale has benefits for both the VA seller and the buyer. These include:
• Closing costs are lower than those in a conventional sale • No appraisal • The process is quicker • The VA has no requirements for repairs • Disadvantages of the Assumption Sale
We touched on the biggest disadvantage of this type of sale earlier and that is what happens with your VA entitlement. It is attached to the home until the buyer pays off the loan. Now, there is an exception to this. If your buyer is a veteran and meets VA loan requirements, you may be able to retain your entitlement and be able to get a new VA loan. The buyer must be willing to substitute her eligibility to free up yours.
Although only a slight disadvantage, it bears mentioning that if you find a buyer that wants to assume your loan his or her qualifications will have to be reviewed by either the VA or the lender.
TIP: Once the loan is successfully assumed, you’ll need to call the VA and ask for a release of liability. Otherwise, you risk being on the hook for the loan if your buyer defaults.
The whole issue of your VA entitlement can be confusing, so speak with a VA loan specialist or visit the U.S. Department of Veterans Affairs website, www.benefits.va.gov/ homeloans.
Rob Proctor is the Broker/owner of At Home Real Estate Company in Loveland. Born and raised in Loveland, Rob calls Northern Colorado (Loveland, Fort Collins, Greeley and Windsor) his home with his wife and three daughters. To contact Rob, call 970.481.2133, e-mail rob@athomerealestateco.com or visit athomerealestateco.com.