The Hidden Risks of VA Loan Assumptions

Robinson & Henry’s knowledgeable attorneys provide professional insight in our “From Our Perspective” series.

For many veterans, a VA home loan is a valuable benefit that makes homeownership more accessible. With no down payment, competitive interest rates, and flexible financing options, it’s a powerful tool for those who have served our country. 

In this episode, Civil Litigation Partner Bruce Rands explains the risk that could cause veterans to lose their VA loan eligibility and put their future homebuying plans in jeopardy.

Unlike conventional mortgages, VA home loans are designed specifically for veterans and offer benefits that make homeownership more affordable. VA home loans provide no down payment, lower interest rates, and flexible financing options unavailable to regular consumers. However, veterans need to be aware of certain risks with selling a home with a VA mortgage.

When selling a home with a VA mortgage, some real estate agents may suggest allowing the buyer to assume the existing loan. While this can be a quick way to close a sale, it carries significant risks. 

In some cases, non-veteran buyers can assume a VA loan, essentially taking over the loan and its benefits.

If the buyer is not VA-qualified, the veteran may lose their VA home eligibility until the loan is fully paid off, creating problems when they try to purchase another home using their VA benefits.

Real estate professionals play an important role in protecting veterans from losing their eligibility. Agents should make sure that if a buyer assumes the loan, they are also a qualified veteran who can take over the benefits. If a non-VA buyer assumes the loan, the veteran may find themselves without access to their VA loan when they need it the most.

Finding a knowledgeable real estate agent is key for veterans looking to sell their homes. They should work with someone who understands the VA loan process and prioritizes their interests over making a quick sale. A good agent will understand the complexities of VA loan assumptions and educate the seller on how to retain their benefits.

The problem of veterans losing their VA loan eligibility is particularly common in areas with a high concentration of military personnel. This issue is frequently seen in El Paso County, Colorado, where many veterans retire or continue their service. With so many military members buying and selling homes, it’s important to be aware of the risks associated with loan assumptions.

To avoid losing VA loan eligibility, veterans should take proactive steps:

• Review all loan assumption details carefully before agreeing to any sale.

• Ensure the buyer is a qualified veteran who can take over the loan benefits.

• Work with a knowledgeable real estate agent who understands the importance of retaining VA benefits.

• Consult with a legal or financial professional before finalizing the sale.

Veterans who want to retain their VA loan benefits for future home purchases must thoroughly determine who assumes their loan. Selling a home with a VA mortgage doesn’t have to mean losing your benefits. With the proper knowledge and guidance, veterans can ensure they retain their eligibility for future home purchases. 

Before deciding, seek legal advice and consult a trusted real estate professional. Your VA loan benefits are too valuable to lose.

Read this video’s full transcript:

Question: Bruce, thank you for joining me today. Tell me, what is the difference between a VA home loan and a conventional mortgage?

Bruce: VA home loans offer advantages to those who have served. They offer no downpayment on the loan. They offer really competitive interest rates, and they can offer some financing options unavailable to regular consumers. 

Question: What are some of the caveats when a veterans wants to sell their house and they have a VA home loan?

Bruce: When a veteran is going to sell their house and they have a VA home loan, sometimes the realtor will propose an assumption by the buyer and then the buyer assumes that loan. That can be a good option to get a quick sale, but it can also come with some dangers.

Question: What are some of those dangers? What should real estate brokers do to ensure that a vet with a VA mortgage retains their eligibility? 

Bruce: Interestingly, non-VA qualified individuals can assume VA loans and basically take over the benefits of the veteran that lasts for the duration of the loan. The veteran can actually lose their VA benefits to the buyer and not be able to take advantage of those benefits until the loan is paid off. They have to be sure that the buyer is a VA qualified veteran and able to take over and assume that loan.

Question: What should veterans look for in an agent, really to protect their interests in these situations? 

Bruce: They need to look for someone who is familiar with both the VA loan process and also really listens to what they want and protects their interests rather than trying to just get a quick sale.

Question: How often do you see cases involving this issue?

Bruce: We actually see a lot of veterans loans, especially in El Paso County, where there are so many veterans who make this their place to live after retirement or are currently serving. We see this frequently in both sides, where people want to assume VA loans and people want their loans assumed.

Question: What advice do you have for veterans with VA mortgages to protect themselves from losing their VA home loan eligibility in a future?

Bruce: They need to thoroughly vet their real estate professional. Be sure that they've adequately read and prepared and that they are sending their VA loan to someone who can then step in and replace the sellers VA benefits with the buyers VA benefits. And make sure that the professional understands that they want to keep their VA benefits so they can use those to purchase their next home.