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Updated about 10 years ago, 10/05/2014
Assuming VA Loans
Hey BiggerPockets,
I've got a question which -- after hours of research -- has left me just as confused as where I started. I was hoping someone here might have some guidance as to where I could further delve into the topic of assuming VA loans.
As a quick background, I'm a 22-year old helicopter pilot with the U.S. Army and am currently stationed in Alabama. I've always been allured by real estate investment because of the strategy and challenge in it; it's by far one of the best wealth-building investments if it's done right. I just recently bought my first investment property, and needless to say -- I think I caught the real estate bug.
I realize one of my biggest benefits as a veteran is the VA loan -- 0% down, low funding fee, no PMI, and the entitlement is good up to $417,000. I've been doing a lot of research into VA loans, and something I stumbled upon was the fact that VA loans are assumable. Once I discovered this, I've been doing a lot more research into the topic. I definitely see potential for a niche investment strategy given what I do and in the proximity to where I do it -- I just have no direction in how to go about this type of investing.
Many of the homes surrounding the places I could be stationed at are bought with VA or FHA loans -- both assumable -- and could be a great way to acquire a handful of properties with little to no cash out of pocket.
How could someone like myself source a seller with a VA loan?
I realize I could advertise, but I'm such a novice, I'm wondering if there's an easier way to go about it. Ideally I'd like to find the seller versus the seller finding me at this point.
How does one structure a deal involving a loan assumption?
I'm sure it could vary from just taking the mortgage off their hands (highly unlikely, I'd imagine) to offering a cash "downpayment"/incentive, but again -- I have no idea as to how the process works. I discovered that until the property cashes out, assuming a VA loan keeps the veteran from utilizing their full benefit again. I realize this is probably the biggest setback in acquiring their property, but I'm sure there's some people willing to walk away despite this.
How does a real estate agent fit into the equation, if at all?
Would working with a real estate agent be beneficial in sourcing and/or brokering a deal? Considering the deal isn't your typical "sale," does the agent still stand to acquire a commission? If not, I guess I could count them out.
If anyone has knowledge -- or can point me to a source that explains this thoroughly, I'd really appreciate. I'm pretty tech savvy, and I've yet to stumble upon the answers thus far.
-W
Originally posted by William V.:
How could someone like myself source a seller with a VA loan?
I realize I could advertise, but I'm such a novice, I'm wondering if there's an easier way to go about it. Ideally I'd like to find the seller versus the seller finding me at this point.
You have several questions. I can address one of them and perhaps others will chime in. Often you can get a lot of information from title companies. It would not be difficult to source VA loans this way and you can find out a lot more as well.
As an investor it is quite handy having a good title company contact.
William I know VA loans are assumable but are they assignable? I can't find anything on this !!
Chuck
Finding properties with assumable VA or FHA is not difficult anymore. There are a number of websites that have assumable listings, most notably Zumption, but the problem is with your intention of being an investor. Both FHA and VA program require you to be an owner/occupant, although I am not aware of any cases where either of these loans were called in when someone purchases the property with the intent to live in it but then subsequently decides to rent it out. A slight hiccup with VA loans is that if the assumptor is not a veteran or serviceman then the seller cannot take our a new VA loan until the old one is paid off. If the assumptor is another vet than the seller can get a new VA loan.
Very few loans are assumable. This is determined by the lender. It is possible to have the VA guarantee transferred from one veteran to another but not common. If you are purchasing as an investor you can't do this as VA loans are for owner occupied only and you would have to live there for two years.
I am an Army retiree myself. Here is an option for you to invest and leverage you VA loan benefit. Purchase a duplex, triplex, or fourplex. As long as you personally live in one unit for two years you are free to lease out the other vacant units. At an opportune time when you have had some appreciation refinance into a conventional investor loan and use the VA loan for the next multifamily or the home you truly want to live in.
Mitch, between FHA and VA there are 9 million assumable loans in America, or 1 out of every 6 mortgages. This number exploded over the last five years as the government propped up the mortgage market in the wake of the financial crisis. I would no longer say there are "very few" assumable loans. The assumability of these loans (FHA/VA) is NOT determined by the lender. As long as the buyer passes a creditworthiness review the lender must allow the loan to be assumed by a qualified buyer.
@Mitch Dowler, Great points! This is also the route we plan on taking. We've currently used the VA loan to buy our property here in Hawaii, but plan on selling it once we PCS again. (Bought it as a short sale, so it actually appreciated in the short 2 years we've owned it). Then we want to buy a multiple unit property using our VA loan entitlement again. Do you know the limits as far as repairs needed? (We don't want to buy at retail, but realize that the conditions of the property has to be good enough to qualify for VA).
To help Scott, I have inserted here the official information from va.gov.
http://www.benefits.va.gov/homeloans/documents/doc...
"6. When a veteran sells the property to someone who will assume the existing VA loan, is the veteran released automatically from personal liability for repayment of the loan?
No. If the loan was approved on or after March 1, 1988, the lender or VA must be notified and requested to approve the assumer and grant the veteran release from liability. If the loan was approved prior to March 1, 1988, the loan may be assumed without approval from VA or the lender. However, the veteran is strongly urged to request a release of liability from VA"
Even though this says the lender or VA may approve assumption by another Veteran. The lender holds the trump card and the Veteran must meet the lender's criteria. The Veteran's credit and income must still qualify. If the Veteran would not qualify for a VA loan from bank "A" then bank "A" will also not allow their VA loan to be assumed by the unqualified Veteran.