VA Buyers Have a Big Opportunity to Invest in Real Estate Right Now

[Benjamin Carver]

Hey BiggerPockets community!

I'm seeing a real opportunity for VA buyers in my market that I wanted to share with you all. Over the last few months I've noticed more and more assumable loans pop up, mainly VA and a couple FHA.

In my opinion, VA buyers have a huge advantage right now. While technically.. non-VA buyers can jump in on these, it's usually a bit tricky because the seller needs another VA buyer to effectively transfer the VA loan off their record - you can only have one VA loan at a time. FHA assumables are picked up way quicker than VA because there are way more people who are fit to assume them.

I'm seeing homes and townhomes with assumable VA loans boasting interest rates as low as 2.25%, going up to 4.9%. Beautiful. Now, if you don't have a great understanding of how loan assumption works, here's the breakdown. The lender agrees to allow a new buyer to assume the terms of the seller's current loan. This new buyer pays a small fee of 0.5% of the purchase price, which translates to around $2,000 on an average $400,000 home. It's VA, so you can do 0% down, leaving you with just the closing costs (roughly 2% of the purchase price, or $8,000) and any due diligence/earnest money you put in your offer.

The catch here is as the buyer you MUST pay the difference between the price you offer and the balance on the seller's loan. SO... this only works with a decent amount of cash OR.... Since it's a VA loan, and assuming the seller hasn't owned it for too long, that difference isn't astronomical.

Let's do some math: if they bought the property a year or two ago, likely with 0% down, they probably only paid off $6-12k of equity.

Now let's say they're asking for $10k more than what they bought it for a year ago. You'd only need to come up with around $16-22k. So, your total out-of-pocket cost would be approximately $30k including everything. And now you have a super low-interest rate that others can only dream of.

This is a fantastic option for VA buyers in today's market. If you're actively searching, make sure your realtor is well-versed in finding assumable deals and can guide you seamlessly to the closing table. It's usually a straightforward process, provided the lender has already approved the assumption – something a listing agent hopefully would get before mentioning it in a listing.

If you're serious about finding great deals, you do have to get a little creative. A good buyer agent and/or investor will go beyond simply searching for assumable loan listings with keywords on Zillow and start asking other listing agents if their sellers would consider it in exchange for price flexibility or other terms.

Best of luck out there, and I genuinely hope this insight helps you snag a fantastic deal! 

[Sean Hudgins]

Quote from @Joshua Amezcua:

Thanks for the info here. Though it was a bit confusing to me as a veteran and rookie. I was under the impression that anyone can use second tier entitlement to purchase a second home. As long as you've satisfied or intended to satisfy the occupancy requirement then you can go buy a second home using the VA product and make the first house a rental without breaking any rules.

But once you've reached two properties under a VA product, then yeah you'd have to get creative. Are you saying I can assume an infinite number of VA loans and that it is easier for both myself the buyer and the seller if we're both veterans? I'd like to get some more information on why that is. In past conversations I've had with agents they've made it seems like anyone can assume a VA loan but more importantly that it works out the same or is just as easy for non veterans.

Anyone can assume a VA Loan. However, if a civilian with no VA entitlement assumes a VA loan, the seller does not get their entitlement back. I will use some numbers to illustrate the problem.

The seller is in Virginia Beach, VA. According to https://lgy.va.gov/lgyhub/guaranty-calculator , the total eligibility is $726,200 (each location is different)

The seller purchased a home for $250k with a VA loan. They are now selling to a civilian for 275K on an assumption. They would no longer be financially responsible for the loan. Still, the 250k of that entitlement would be tied up in that loan until either the civilian refinance it or sells the home and pays off the loan, leaving them with $476,200 worth of VA entitlement. This is the same concept as if someone were to purchase a second or third home with a VA loan. Eventually, they will run out of entitlement.

The advantage you have as a veteran is that you can trade your eligibility to the VA and restore the seller's entitlement, putting them in a better position to go and buy another home. This makes it more attractive for you to assume a VA loan than a non-veteran.

In theory, you could assume more loans than you have eligibility for by not trading your entitlement; it's just a little harder to convince VA sellers to give up that entitlement for an undisclosed period of time.

You can absolutely purchase a second and possibly third home with VA entitlement once you either satisfy the occupancy requirement or get permission from the lender to move due to some life changes if you are buying another primary within that first six months to a year.