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Unlocking the Power of Assumable Home Loans: Everything You Need to Know

Handing over house keys to the new owner

Last year, a friend of mine—Connor, also a Navy vet—sold his house in Virginia Beach after moving to Boston for grad school. Connor was telling me about how the VA had messed up some paperwork, so even though the buyer—a veteran—had assumed Connor's mortgage, the VA still listed Connor's name on the loan.

Wait. Go back. What did Connor just say?

What is an Assumable Loan?

Connor bought his house in 2020 for $300,000. He purchased it with a 2.75%, zero-down VA loan. Connor then sold his house two years later to another veteran. Rather than the buyer having to take out a new 30-year mortgage at prevailing interest rates (5.62% at the time of purchase), Connor transferred his existing, 2.75% VA loan from his name to the buyer's.

Here's a breakdown of the transaction:

  • Buyer and seller agree on purchase price of $350,000.

  • Buyer assume's seller's 30-year, fixed rate 2.75% mortgage with a remaining balance of $285,000.

  • Buyer writes seller a check for $65,000—the difference between the purchase price and the remaining loan balance.

  • Seller walks away free and clear of the mortgage and able to go out the next day and buy another home with a VA loan.

  • Buyer now owns the home and continues to make the same monthly mortgage payments until the loan is paid in full.

Advantages for Buyers

Had the buyer not assumed Connor's loan and instead gotten a new VA loan at the prevailing 5.62% rate, his monthly payment would have been $2,500 (assuming he put zero down). Because he assumed Connor's loan, his monthly payment was $1,626—NEARLY A THOUSAND DOLLARS AND 45% CHEAPER!

Here's a graphical illustration:

The power of assumable home loans

In addition to the lower interest rate, buyers also save on loan origination fees, because there is no new loan being originated. In fact, the VA stipulates that the maximum amount a loan servicer can charge to process a loan assumption is just $300, which is much less than the thousands of dollars in fees a lender can charge for issuing a new loan.

Also, while the VA requires an appraisal before insuring a new loan, one is not necessary during an assumption, which saves the buyer even more.

Advantages for Sellers

Sellers can and should think of their VA loan as a financial asset, distinct from the property itself. An assumable VA loan makes your home more marketable and gives you a competitive advantage by enabling your property listing to stand out from others.

Moreover, the loan's assumability makes the property affordable and attractive to a much larger pool of potential buyers than if the loan were not assumable. Take Connor as an example: if he had not financed with a VA loan, then his home would only be affordable to buyers who were willing and able to pay $2,500/mo. Because his VA loan was assumable, he still had access to those buyers, but he then also had access to the many more buyers who were willing and able to pay $1,626/mo.

This broader access to buyers means a faster sales process and less time on the market, and it could also lead to a higher selling price.

Some Considerations

Okay, so what's the catch? Is this too good to be true?

It's true, I promise you. By law, every VA loan and every FHA loan is assumable. Together, these two types of loans constitute 20% of U.S. mortgages.

The "catches" are that:

  1. In order to assume the loan, the buyer has to be creditworthy and meet the same standards (minimum credit score, income, and debt-to-income ratio) to which the seller was originally held when they took out the loan.

  2. The buyer generally needs to pay the seller in cash for the difference between the purchase price and the loan balance. There may be financing options available for this gap, depending on the particular loan.

  3. While a buyer does not need to be VA-eligible in order to assume a VA loan, the seller will not get all of their VA loan eligibility back until and unless the non-VA buyer pays off the VA loan in full. So, many VA sellers prefer buyers who themselves are vets or currently serving, because in this case, the seller gets back 100% of their VA loan eligibility as soon as the buyer assumes the mortgage.

How to Find Homes with Assumable Loans

After Connor told me how he had sold his home via VA loan assumption, I knew this would be the best and perhaps only way for me to buy a house for the forseeable future. The first thing I did, naturally, was to Google "homes for sale with assumable loans." The search results were virtually nonexistent at the time, and the options today still aren't great. That's why we started KeyUp!

While we build our inventory of properties with assumable mortgages, here are the best alternatives, for the time being:

  1. Roam: a startup that launched in September 2023 and lists assumable-loan-financed homes for sale in certain states

  2. Try filtering Zillow listings by typing "assumable" into the keyword field.

  3. Contact a real estate agent and let them know you're looking for a home with an assumable, low-interest VA loan.

  4. Look for Facebook groups that share listings of homes in your desired area financed with VA loans.

And of course, sign up to join our early access list and be notified of assumable property listings in your area!

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