VA loan assumptions

VA-guaranteed loans can be assumed by a creditworthy buyer — veteran or not. Federal law and VA's 2023–2024 circulars set the rules for who qualifies, what happens to the seller's entitlement, which fees are allowed and how fast servicers must act.

Who can assume a VA loan?

Under 38 U.S.C. § 3714, the seller is released from liability to VA when the loan is current, the buyer qualifies from a credit standpoint “to the same extent as if the purchaser were a veteran” eligible for a VA loan, and the buyer assumes the obligations of the loan. The buyer does not have to be a veteran. VA's funding fee table even has a separate column for an “other obligor” — a person who is not a veteran (38 U.S.C. § 3729).

VA says the documentation to underwrite an assumption “is the same as for a VA purchase transaction” and the buyer is reviewed under the credit standards in Chapter 4 of the VA Lenders Handbook (VA Circular 26-23-10).

Entitlement: substitution vs. a non-veteran buyer

This is the part sellers most often miss. VA describes two kinds of assumption (VA Circular 26-23-10):

The 45-day rule and other deadlines

• Servicers with automatic authority must decide within 45 calendar days of receiving a complete application (VA Circular 26-23-10).
• Servicers without automatic authority must send the package to VA within 35 calendar days; VA says it will decide within 10 business days of a complete package, and the servicer should close within 30 calendar days of VA's decision (VA Circular 26-23-10).
• If the servicer denies the assumption, the seller or buyer may appeal to VA within 30 calendar days (VA Circular 26-23-10).

In December 2023 VA warned servicers about noncompliance — examples include refusing to accept a package, missing the 45-day or 35-day deadlines, denying because of the holder's own extra requirements (overlays), and refusing to close after VA approves on appeal. VA said it may respond with actions up to and including reducing the guaranty on the loan, audits, referral to the Inspector General and other sanctions (VA Circular 26-23-27).

Fees: what the buyer can be charged

VA limits what the assumer — “irrespective of the assumer's Veteran status” — can be charged (Circular 26-23-10 Change 1):

• Assumption processing fee: up to $300, meant to cover underwriting, processing and closing. If the assumption stays disapproved after 60 days, $50 of a collected fee must be refunded.
• Assumption locality variance (charged only if the assumption closes): $409 Northeast, $386 Midwest, $404 South (including Texas), $463 West (VA Circular 26-24-5; Circular 26-24-5 Exhibit A).
• VA funding fee (see below), unless the buyer is exempt or it's an unrestricted transfer such as one from a divorce.
• Credit report; recording fees and taxes; taxes, hazard and flood insurance and assessments; title examination, title insurance and endorsements; and fees VA approved in advance as local deviations.

VA says fees not expressly permitted “may not be charged to or paid by the assumer.” The seller may pay real estate commissions (Circular 26-23-10 Change 1).

The funding fee

The funding fee for an assumption is 0.5% of the unpaid principal balance on the date of transfer, for veterans, reservists and non-veterans alike (38 U.S.C. § 3729). It isn't charged to veterans receiving VA disability compensation, surviving spouses of veterans who died from a service-connected disability, or active-duty service members who show evidence of a Purple Heart before closing (38 U.S.C. § 3729, subsection (c)).

Special situations

• Unrestricted transfers (certain family and estate transfers) convey ownership but not liability, don't need holder or VA approval, carry no funding fee, and the servicer may charge up to $50 to update records. VA lists them in Lenders Handbook Chapter 5, Topic 6 (VA Circular 26-23-10).
• Divorce: a spouse whose entitlement isn't on the loan can be released without a full assumption if the decree awards the home to the veteran and a recorded deed transfers it (VA Circular 26-23-10).
• Behind on payments? The loan must be current or brought current at or before closing; cash at closing is allowed, but VA says a loan modification can't be used to do it unless the assumption results from a divorce or legal separation, or the buyer gets the property by law on the borrower's death (VA Circular 26-23-10).
• COVID-19 partial claim: if the seller received VA's COVID-19 partial claim assistance, it must be repaid in full when ownership transfers (VA Circular 26-23-10).
• A second loan for the equity: VA doesn't prohibit it, but the second must be junior to the VA loan, with no cash back to the buyer (VA Circular 26-24-17). See covering the equity gap.

Real-world VA timelines by servicer are on the leaderboard. If a file is stuck, see common holdups.