Can a VA Home Loan Transfer to Another Person?

VA loans offer tremendous benefits for eligible military members, veterans, and their spouses. With low interest rates, no down payment or private mortgage insurance requirements, and streamlined refinancing options, the path to homeownership is easier than ever.

Whether you’re a VA loan borrower or someone interested in taking over another person’s VA loan, you may wonder if the mortgage can transfer from one person to another. The answer is yes—qualified buyers can assume responsibility for a VA home loan through a process called VA loan assumption. The assuming borrower doesn’t need to be a veteran, but they must meet other eligibility requirements.

What is a VA Loan Assumption?

This program allows VA loan borrowers to sell or transfer their property, even if the loan is not paid off in full. The assuming borrower becomes responsible for paying the loan’s remaining balance, including interest, through monthly mortgage payments.

What are the Requirements to Transfer a VA Loan?

First, the original borrower must be current on their loan payments to transfer the mortgage. Then, the assuming borrower must meet certain requirements set by the lender. These may include:

• Have a minimum credit score of 580 to 620.
• Have a steady income and a debt-to-income ratio of about 40 percent or less.
• Be able to assume all mortgage obligations.
• Pay the VA funding fee equivalent to 0.5 percent of the loan balance. (Veterans on VA disability and qualified surviving spouses are exempt from this.)
• Pay other associated costs, such as processing fees and the cost to run a credit report, which may total $300 or more.

How Do VA Loan Assumptions Work?

VA loans closed after March 1988 can only transfer to a new borrower with the lender’s approval. This requires the current homeowner to obtain a Release from Personal Liability to the Government on a Home Loan. Without this form, the original borrower remains liable if the assuming borrower fails to make payments or defaults on the loan.

It’s important to note that VA loans cannot transfer to another property. Mortgages are approved, in part, based on factors that apply to a specific property. Another house may not meet the stringent guidelines set by the VA, so property-to-property mortgage transfers are not allowed.

Benefits of VA Loan Assumptions

Transferring a VA loan may prove quite advantageous, whether you’re the buyer or the seller. For instance:

• The assuming borrower need not have served in the military to take on a VA home loan.
• The terms and interest rate remain the same when the new borrower assumes the loan. This is particularly beneficial if the original borrower locked in a low rate.
• The assuming borrower will pay fewer fees and closing costs compared to applying for a new mortgage.
• The original borrower can get out of the VA loan if their life goals, plans, or needs have changed.

Drawbacks of VA Loan Assumptions

Just like other types of mortgages, transferring a VA home loan has its drawbacks. Here’s what to consider before pursuing a VA loan assumption:

• If the assuming borrower is a civilian, the original borrower won’t get their VA loan entitlement back until the loan is paid off. Those who wish to obtain another VA mortgage without delay must transfer the existing loan to a veteran or active-duty service member. Then, they must get a Substitution of Entitlement (SOE) that allows the assuming borrower to use their own VA loan benefits, freeing up the seller’s VA loan entitlement for their own purposes.
• The assuming borrower must meet credit and income requirements set by the VA.
• The assuming borrower may need to pay a large down payment if the home purchase price is greater than the remaining VA loan balance.
• If the original borrower fails to secure a release of liability from the lender, their credit score could take a hit if the new borrower fails to meet the loan terms.
• Lenders are not obligated to approve VA loan transfers. In fact, some outline their policies against this practice in the original contract. Others simply don’t have the authority to approve the transfer and must pass on the decision to the VA.
• The loan assumption process can be long and tedious if VA approval becomes necessary.

What About Assuming a VA Loan after Divorce or Death?

Veterans and spouses who get divorced can transfer their VA loan. If the veteran wants the spouse to assume the mortgage, they can seek a release of liability as long as the ex-spouse was a joint borrower before the divorce. If the ex-spouse wants the property to go to the veteran, that’s also an option.

If the original borrower dies before paying off the VA home loan, the surviving spouse automatically assumes the debt. The VA does not require approval for a loan assumption in this situation. If the borrower doesn’t have a spouse or other co-borrower, the estate assumes the debt.

If the surviving spouse or other co-borrower wants to get out of the VA home loan, they may find an eligible buyer to assume the debt. Another option is to simply sell the house like normal and use the proceeds to pay off the VA loan.

Apply for a VA Home Loan Today

Whether you’re hoping to secure a VA home loan for the first time or transfer an existing mortgage to a new borrower, Financial Concepts Mortgage can help the process go smoothly. We offer purchase loans, cash-out refinance loans, Interest Rate Reduction Refinance Loans (IRRRL), and more to qualified borrowers in Oklahoma. To get started, fill out your application online or call us at (405) 722-5626 to speak with an experienced loan officer.