Assuming a VA loan can be a convenient and cost-effective way for veterans to finance a new home. By assuming a loan, the buyer can take over an existing mortgage when buying a home. Loan assumption can have numerous advantages for the buyer and seller, and is considered an often overlooked VA benefit. Here are some major reasons to consider assuming a VA loan rather than applying for a new one:
You'll Avoid the Application Process
Applying for a mortgage, whether it's one from the VA or a conventional loan, can be a lengthy process. The various steps involved take months to complete, and there are numerous expenses attached. Down payments, appraisal fees and private mortgage insurance fees are all costs you can expect to come with applying for a new loan. When assuming a loan, you skip the multiple steps and expenses of the application process, saving you time, effort and money.
You Might Keep a Lower Interest Rate
Depending on when the original VA loan was approved, you might be able to get a much lower interest rate than you would with a new loan. Even a percentage difference in interest rates can mean thousands of dollars saved over the life of your mortgage. The opportunity to assume a VA loan with a lower rate is an excellent benefit to consider.
You Can Pay a Lower Funding Fee
Funding fees are mandatory when applying for VA loans. Most veteran borrowers pay an average of 2% of the home's purchase price for the funding fee, and a higher percentage if they've had a VA loan in the past. However, the funding fee for assuming an existing VA loan is much smaller--sometimes as low as 0.05%. The savings from a smaller funding fee is another great benefit of choosing a VA loan over a conventional mortgage.