(This article originally appeared in the October 2024 issue of Military Officer, a magazine available to all MOAA Premium and Life members. Learn more about the magazine here; learn more about joining MOAA here.)

If you’re trying to sell a home with a VA home loan, you have an extra tool in your toolkit. You can offer to let your buyer assume your low-interest-rate loan product.

Many current sellers have interest rates well below the rates available today. Being able to transfer that low rate to the buyer can make your property significantly more competitive.

[RELATED: What Is a VA Loan Assumption?]

When thinking about loan assumptions, it’s important to remember that a VA home loan is a mortgage loan guaranteed by the VA. The VA isn’t the lender; they’re simply guaranteeing a portion of the loan, allowing the lender to offer more favorable terms. These loans are provided by private lenders, such as banks.

In a loan assumption, the buyer takes over the existing mortgage of a seller. This benefits the buyer because they retain the seller’s lower interest rate. VA assumptions often do not require a new appraisal, and there can be lower closing costs and a simplified qualification process.

[MORE FROM VA: VA Home Loan Program]

However, that doesn’t mean that the borrower doesn’t have financial obligations. First, there is a 0.5% funding fee for a VA loan assumption. There will be some closing costs. But most importantly, the borrower needs to pay the difference between the sales price and the amount of the mortgage that they’re assuming. If the value of the home has appreciated significantly or the sellers had made a large down payment, that can be a hefty sum.

Let’s say the sellers paid $400,000 for their home and made a 10% down payment. They’ve paid their original loan balance of $360,000 down to $300,000. The sales price of the property is now $500,000. The buyers must bring $200,000 to the table to purchase the property, plus the funding fee and closing costs.

[RELATED: Financial Calculators From MOAA]

While the qualifications for an assumption can be less stringent than a regular mortgage origination, the buyer does need to qualify for the loan, which includes an evaluation of their creditworthiness and underlying financial details. And even though the lender is holding the loan, the VA must approve the assumption.

This process is part of the reason that VA assumptions can sometimes take longer than traditional loan applications.

Selling to Non-Military

Importantly, the buyer does not need to be a veteran or active duty servicemember to assume a VA loan. However, there are some risks to allowing your loan to be assumed by someone who doesn’t have their own VA eligibility.

If the buyer is not VA-loan eligible, the seller’s VA entitlement remains tied to the loan until it is paid off. This can affect the seller’s ability to take out other loans in the future.

VA home loan assumptions offer an alternative to traditional home financing. However, they come with certain requirements and potential drawbacks. Homeowners considering this option should work with an agent with assumption experience to thoroughly understand the process, eligibility criteria, and implications for their VA entitlement.