FAQ
Q: Can non-veterans assume VA loans, and how does this affect the veteran's Certificate of Eligibility (COE) and entitlement?
A: Yes, VA loans can be assumed by non-veterans, provided they meet the lender's requirements and obtain the VA's approval. Non-veterans must apply through the lender, who coordinates with the VA to ensure they meet the necessary credit and income criteria. When a non-veteran assumes a VA loan, they take on the responsibility of repaying the mortgage under the original loan terms.
The Certificate of Eligibility (COE) is a document issued by the VA that confirms a veteran's eligibility for a VA loan based on their service history, and it is required to obtain a VA loan. The entitlement is the amount the VA guarantees for a loan, and when a veteran uses their entitlement to secure a VA loan, this amount is tied to that specific loan. If a non-veteran assumes the loan, the veteran's original entitlement remains attached to the loan until it is fully paid off or refinanced. The veteran may have a partial remaining entitlement available for another VA loan, depending on the maximum entitlement limits and the amount used in the assumed loan.
To fully restore their entitlement, the veteran must ensure the loan is repaid in full or refinanced by the assuming borrower into a non-VA loan. This action would free up the veteran's full entitlement, allowing them to use it again for a future VA loan. While non-veterans can assume VA loans, the veteran's entitlement used for the original loan remains tied to it unless these conditions are met, affecting their ability to utilize their VA loan benefits again without restrictions.
Q: How long does it typically take to complete the process of assuming a VA loan?
A: The process to assume a VA loan typically takes between 30 to 45 days, though it can vary depending on several factors. These factors include the lender’s processing times, the complexity of the assumption, and the speed at which required documentation is provided. The process involves applying through the lender, obtaining the necessary VA approval, and completing any required inspections or appraisals. Prompt submission of all required documents and clear communication with the lender can help expedite the process.
Q: What are the credit requirements for assuming a VA loan?
A: The credit requirements for assuming a VA loan vary by lender, as each lender sets its own standards for creditworthiness. Generally, the assuming borrower must have a credit score that meets or exceeds the lender's minimum threshold, which is often in the mid-600s or higher. Additionally, the borrower must demonstrate a stable income and the ability to repay the loan, which the lender will assess through a review of the borrower’s financial history and current financial situation.
Q: Is there a funding fee for assuming a VA loan?
A: Yes, there is typically a funding fee associated with assuming a VA loan. The VA charges a funding fee to help cover the costs of the loan program and reduce the burden on taxpayers. As of the most recent guidelines, the funding fee for a loan assumption is 0.5% of the remaining loan balance. This fee can be paid upfront or, in some cases, rolled into the loan amount. Veterans with service-related disabilities may be exempt from paying the funding fee.
Q: What documents are needed to assume a VA loan?
A: To assume a VA loan, the assuming borrower will typically need to provide several documents, including proof of income (such as pay stubs, tax returns, or bank statements), a credit report, and identification (such as a driver's license or passport). Additionally, the borrower may need to submit a completed loan assumption application provided by the lender, and any other documents the lender or VA requires to verify the borrower’s financial situation and eligibility.
Q: Can the interest rate change when a VA loan is assumed?
A: Generally, the interest rate on a VA loan remains the same when the loan is assumed. The terms of the original loan, including the interest rate, are typically transferred to the new borrower without modification. However, the lender must approve the assumption and may charge an assumption fee. If there are any changes to the loan terms, they must be agreed upon by both the lender and the assuming borrower.
Q: What happens if the assuming borrower defaults on the loan?
A: If the assuming borrower defaults on the loan, the consequences depend on whether the veteran’s entitlement was restored during the assumption process. If the veteran's entitlement was not restored and remains tied to the loan, the default could affect the veteran's credit and their ability to obtain another VA loan in the future. However, if the entitlement was restored (typically by having the assuming borrower refinance into a non-VA loan), the veteran would not be held responsible for the default. The assuming borrower would be subject to the same foreclosure process as with any other type of mortgage default.
