Empowering Your Financial Journey" width="499" height="173" />
Going through a separation or divorce can be an incredibly difficult and stressful time. To make matters worse untangling your finances and dealing with properties jointly owned with your former spouse adds another layer of complexity. This process becomes even trickier when a VA home loan is involved.
If you and your spouse are both on the mortgage for a home financed through the VA, you may be wondering what happens to the loan and property after you split. Can one spouse keep the home? Does the loan need to be refinanced? This is where VA loan assumptions come into play.
In this article, we’ll break down everything you need to know about VA loan assumptions, including:
Arm yourself with information before sitting down to discuss next steps regarding your VA home loan. This will help you make informed decisions and successfully assume the mortgage in your name if desired.
A VA loan assumption allows an eligible borrower to take over the mortgage payments on an existing VA home loan. Rather than refinancing the loan, the buyer assumes all rights and responsibilities for the loan, including making the monthly payments.
VA loans are assumable under certain conditions thanks to VA guidelines. This sets them apart from conventional loans which typically cannot be assumed by another borrower.
During a separation or divorce when a home was purchased with a VA loan, VA loan assumptions provide a pathway for one spouse to keep the home without refinancing.
For example, let’s say Joe and Sally are divorcing. They purchased their home together 5 years ago using a VA mortgage from Mr. Cooper. As part of the divorce, Sally wants to keep the home.
Rather than Sally having to refinance or qualify for a new loan in her name only, she may be able to assume the existing VA loan. This allows her to take over the loan by meeting the VA’s conditions.
Now, Sally would become solely responsible for making the monthly mortgage payments and adhering to the loan terms. Meanwhile, Joe is released from the loan obligation.
VA loan assumptions provide a convenient way for one spouse to retain a home with an existing VA loan after a divorce. The process is often simpler and less expensive than refinancing.
In order for an eligible borrower to assume a VA mortgage, the following conditions must be met according to VA guidelines:
Additionally, VA loans can only be assumed under certain circumstances, such as:
As long as VA guidelines are satisfied, loan assumptions provide an alternative solution in these types of situations.
Not just anyone can assume an existing VA home loan. Strict criteria must be met to qualify per VA requirements:
Credit – The assuming borrower must have good credit. They will undergo a full credit evaluation by the VA during the assumption process. Minimum credit scores vary by lender but often fall in the range of 620-640.
Income/Employment – Sufficient income to support the mortgage payments will need to be verified. Steady employment history is important to illustrate the financial means to take over the loan.
Residency – For a VA loan assumption, the borrower must intend to use the home as their primary residence. Investment properties don’t qualify.
VA Entitlement – The borrower must have sufficient VA home loan entitlement to assume the loan and take over ownership of the property.
Loan Status – The existing VA loan being assumed cannot be delinquent or in default. It must be current and in good standing to be eligible.
Previous Loan Use – If the borrower previously had a VA loan but sold the home or paid off the mortgage, they must satisfy the VA’s prior loan use requirements before assuming another VA loan.
Funding Fee – Unless exempt, the borrower will be responsible for paying the VA funding fee when the loan is assumed. This is a percentage of the loan amount charged to help offset program costs.
Meeting the VA’s qualifying criteria is crucial for successfully assuming an existing VA home loan from an ex-spouse or other current borrower.
Mr. Cooper has extensive experience with VA loan assumptions. If you need to assume a VA mortgage held by Mr. Cooper during separation or divorce, here is an overview of what you can expect:
1. Notify Mr. Cooper – The first step is informing Mr. Cooper that you need to assume the existing VA loan on a home. Provide details on your situation and intent to take over the mortgage.
2. Confirm eligibility – Mr. Cooper will verify you meet the credit, income, residency, and other eligibility standards set by the VA for an assumption. Additional documentation and details may be requested from you during this process.
3. Review terms – The specific loan terms will be reviewed to ensure the loan can be assumed based on the current status and VA requirements. You’ll also review the loan balance, monthly payments, and key dates.
4. Obtain approval – Mr. Cooper will submit the assumption request to the VA for approval. Once granted, the process moves forward. If denied, alternative options would be explored.
5. Sign assumption agreement – You’ll sign a VA Assumption Agreement formally assuming all responsibilities and obligations for the VA loan. This is a written, legally binding contract.
6. Transfer home ownership – A new deed showing you as the sole homeowner will be recorded. At this time, ownership transfers from your spouse also previously on the loan.
7. Make first payment – The first mortgage payment will need to be made by you for the portion of the month following the home ownership transfer. A billing statement will be provided.
8. Release previous borrower – Finally, your ex-spouse or other previous borrower is released from the loan obligation with the VA and Mr. Cooper.
While the process takes some coordination, Mr. Cooper’s knowledgeable loan assumption team will guide you smoothly through each step. Their goal is ensuring a seamless transition and positive outcome.
It’s possible for a VA loan assumption request to be denied if certain criteria is not satisfied. Common reasons for denial include:
If you are denied a VA loan assumption, don’t panic. Here are some alternative options to consider:
Appeal – If you believe the denial was based on incorrect information or there were mitigating circumstances, you may appeal the decision with further documentation.
Add co-borrower – Adding a co-borrower like a new spouse to the loan can sometimes overcome shortcomings of a single applicant.
Rent home – Rather than sell, you can rent the home to a tenant and use the rent money to pay the mortgage.
Sell to buyer with new VA loan – The home can be sold to a buyer who obtains a new VA mortgage, providing a clean break.
Refinance – If retaining the home is a priority, you may be able to refinance into a conventional loan or other non-VA mortgage option.
Talk through these alternatives with your Mr. Cooper loan officer if a VA assumption doesn’t pan out. There are always solutions to be found.
Assuming a VA home loan with an ex-spouse on
Pursuant to federal law, if a borrower is represented by counsel in a bankruptcy proceeding, we are not permitted to discuss loss mitigation options with the borrower directly without written authorization from the attorney. However, the attorney can provide us with written authorization to discuss loss mitigation options with the borrower. The form can be downloaded, completed and returned to us via one of the following methods: Via fax at 972-459-1611 or email at [email protected]. If you are a borrower in West Virginia, we have a form specific to your state. Please download the form and follow the instructions above.
If your loan is current and you would like to sell your propertys mineral rights, please submit an Oil and Gas request to us. Please submit all of the following with your request:
If your loan is current, has not had a 30-day late payment in the past 12 months, and meets certain other conditions, you may request a Partial Release. An approved Partial Release enables you to sell a portion of your property (such as undeveloped land) before you have paid off your mortgage. If you would like us to consider a Partial Release for your property, please submit a request along with the following items:
What is an assumption in a VA loan?
(c) Assumption Types: An assumption involves the transfer of ownership and release of liability of a VA-guaranteed loan. An assumption may be processed with or without a substitution of entitlement. (d) Assumption without a Substitution of Entitlement: The original Veteran’s entitlement
Can a VA loan be assumed if you’re a veteran?
Yes, VA loans can be assumed regardless of whether you’re a Veteran. But there’s risk involved for VA homeowners who allow for assumptions to civilians. Now let’s take a look at some of the challenges of a VA loan assumption.
Should you assume a VA loan with a low interest rate?
For prospective buyers, the ability to assume a VA loan with a low interest rate is a significant benefit when rates are on the rise. But assumptions can also present some risks for the Veteran allowing their loan to be assumed. For prospective buyers, the two biggest benefits of a loan assumption are rooted in cost savings.
Do I need to approve a loan assumption?
The lender and/or the VA needs to approve a loan assumption. Loans serviced by a lender with automatic authority may process assumptions without sending them to a VA Regional Loan Center. For lenders without automatic authority, the loan must be sent to the appropriate VA Regional Loan Center for approval.