Can you sub-to a VA loan?

Question

I was presented an opportunity tonight with a chance to buy what I think might be a good deal.  The seller is not desperate but certainly anxious to sell this home because they have found a larger home they'd like to buy.

For the deal to work I would need to get the property sub-to which the seller is willing to do but neither of us are sure about the fact that the loan is a VA loan.  Will me taking the property sub-to preclude him from getting another VA loan?

If that does not work, can he Lease/opt it?  He says he thinks that all VA loans must remain owner occupied.  Is that true?

Any information regarding the peculiarities of VA loans is appreciated.

Thanks,
Bob

Bill Gulley · Answer

Hi VA loans are originated based on the entitlement amount of the borrower. They can be assumable and the new borrower does not need to be a veteran, but the original borrower is ultimately responsible for the laon and the amount of entitlement used stays with that loan. VA loans are made and assumed on qualification. Now, if you have used your entitlement to obtain a VA loan and it is a small amount, I believe you can obtain another loan if you have sufficient entitlements remianing and the original loan was assumed.

VA loans are the easiest loans to use with installment contracts since they were assumable, which means that with the interest rate being assumable, the lender lacks the basis of the interest rate risk under the due on sale clause.

It's easy to check with the lender, just ask if the loan is still assumable. You can draft an installment contract for the future assumption as well.

Andy J. · Answer

Yes, you can do a sub-to on a VA loan.  Lots of military in my area, very familiar with these.

Sorry Bryan but Bill is correct on this one, it is possible to have more than one VA loan on a single certificate.  However, there are some restrictions that apply, you'll want to look for details on "bonus entitlement."  A quick google search for "va loan bonus entitlement" should provide you with all the information you need.

Yes, anyone can assume a VA loan so long as they financially qualify.  Note, even if you assume a VA loan, it still remains under the seller's VA certificate until the loan is paid off.  So if you're concerned with tying up entitlement with sub-to, you're in the same boat with assumption.

Carlos Scarpero · Answer

Please do not do this. It will mess up the veteran's entitlement.

Bill Gulley · Answer

Hi, the lender will likely not know what his entitlement is at this time, if the loan has been in place, the entit. will be in the loan origination package which is now in the repository, the loan file will simply show the amount of guarantee.

You can figure it though if you know the beginning LTV of his loan, and VAs go up to 100%. The borowwer would have to tell you either thier period of service of thier beginning entitlement. Saying that it's 200+ is for those recently receiving entitlements, old Ex-Army guys like me, my entitle was established when I got out so it's about 75-90K I think. So it deoends on the departure date. So you can simply call the VA and ask what entitlements were and then figure it out......but why? Sorry he isn't selling.

In the past, it has always been customary for the Realtor or an investor buyer where a Realtor is not involved, to simply disclose that "your entitlements under VA will remain with that loan until it is paid to the extent of the balance" and the rest is up to the seller to figure out because they can be different for each service member.

As I said, been awhile, but I don't think any of this has changed. Good luck on you next deal!

Bryan Hancock · Answer

Well that stinks...Paul Harvey would be disappointed!

Did your research uncover anything?  If you have a Authorization to Release or a POA the lender may tell you if you call.

Bob Yon · Answer

Unfortunately the owner for some reason decided now was not the time to be moving so he never check to see what his certificate value is.

I wish I had a better "rest of the story" to tell

Bryan Hancock · Answer

Let us know what he finds.  I would love to know how much he has left and how it works out for future deals.

Bob Yon · Answer

Actually I do not either now that I know it is assumable.  I simply did not realize that was a possibility.

As far as his entitlement, i told him he needs to check to see how much "bandwidth" he has.  He is not sure where to check but is going to looking to it.  If it really is $200k+ then we might be OK since the balance on this one is less than $90K and the one he wants to buy he thinks he can get for about $100k.

I'll probably need to kick in a bit of cash on this one, but it's in a nice established mostly OO neighborhood so it should make for a nice buy and hold.  I haven't run all the numbers yet, but it might even cash flow nicely.  We'll see.

Bryan Hancock · Answer

Yeah...I guess it depends on their expectations for a future home purchase and their ratios.  I wouldn't be comfortable telling them they can qualify with this uncertainty.

I would tell them they need to speak with a broker to determine their eligibility for future loans.  This takes the ball out of your court and lets you focus simply on your part of the transaction.  A formal assumption of the loan may be the right strategy here depending on their level of motivation and all of the circumstances.

Bill Gulley · Answer

Bryan, with older VAs, the pricipal has been reduced so there can easily be enough bandwidth, newer VAs I beleive go up to something like 200+K, doesn't mean they use all of that to buy the first home under a VA, so there can be more to tap into, especially at today's prices.

The best way to disclose, IMO, is to say that you may not be eligible for another VA loan, I wouldn't tell them they can't unless I looked at their entitlements and loan balances.

I haven't done VAs for so,me years now, the amounts of the entitlements change with the median price of homes, I have never seen them come down, but I guess they could...later

Can you sub-to a VA loan?

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