Can I assume a VA loan after my grandfather passed away?

Question

Hello everyone,

My grandfather passed away about 3 years ago and my parents took over his triplex that has a VA loan on it. My parents names are also on the title from when he bought it, but the mortgage only has my grandfather's name on it. They never did anything with the mortgage other than to continue paying it for fear the lender would call the loan. Now my parents are moving out of state and are willing to turn the property over to me. They're willing to put the title in my name but we're not sure if that could cause problems with the mortgage. I'm worried I wouldn't qualify for a new mortgage, but I would like the property in my name since it's in need of some expensive repairs and I would be the one responsible for paying for all the bills. Does anyone know the best way to get the property in my name without causing the loan to be called?

Would putting it in my name trigger the due on sale clause?

Is there a way to transfer the mortgage into my name or does it have to stay in my grandfather's name?

More information: Property is located in Arizona, and is worth around $265,000. The mortgage is has less than $160,000 left on it

Thank you in advance for any help

Account Closed · Answer

There are a couple of strategies to accomplish what you want to do.

The mortgage has to stay in his name.

1. Do a Lease Option from your parents. You pay them and they pay the mortgage as normal. Title hasn't changed hands so no Due on Sale.The secondary advantage is that you inherit the property tax free instead of your parents paying having to pay capital gains when they sell to you.

2. You can leave the mortgage as it is, transfer (put you on title) and continue making payments.

Strategy 1 is superior to strategy 2 for several reasons.

Diana Muresan · Answer

@Gannon Nikolich I am VA certified, please ignore some advices above to keep the loan hoping the lender will not notice, this is not a lender issue, you are messing with the Office of the VA Affairs and you do NOT want that. Only the spouse of a deceased VA can assume the loan. Your case is easy, you can refinance rate & term, you cannot refi cash-out when you transfer a title, only current debt can be paid, if you need cash out then you will need to do a purchase transaction, though closing costs will be much lower on a refinance than a purchase. How long have been working as a W2 employee? You can have less than 1 year as W2 if your income is not commission, W2 income is more stable than self employment, if it was the other way around where you switched from W2 to self employment, then you would need to show 2 years, but not in your case.

Chris Mason · Answer

Smells like reddit in here. :P

Doug McVinua · Answer

@Gannon Nikolich Long term it might be a good idea to start planning for the day you get a new loan and put the property in your name.

A few suggestions as you begin to plan for having it all in your name:

• Improve the property condition to a level that will finance
• Raise rents as much as possible (helps you qualify)
• Maximize your credit score to provide better terms and rate on the new loan
• Work on your income and debt ratios etc (Good Lenders are a huge help)

Are you planning to live in one of the units or is it strictly an investment, non-owner occupied?

Theresa Harris · Answer

If you pull the money out of another property and pay off the VA loan and then take out another loan, how much will that cost you in fees and what interest rate would you get on the new loan?

Account Closed · Answer

Your Comment: "Property is located in Arizona, and is worth around $265,000. The mortgage is has less than $160,000 left on it"

In purely speculative numbers let's say the house is worth $265,000 - the capital gains tax could be $15,000 or more depending on how the numbers work out. Are your folks ready to write a check to the IRS when title transfers to you? They should talk to their CPA first. This actually requires some tax planning.

You may not benefit from refinancing unless the goal is to pull cash out.

As stated earlier, your parents pay no tax if you just take over the loan and inherit the property in the future. If the Due on Sale ever comes up the bank gives you time to a. refinance b. transfer it back to your folk's name c. give you paperwork to assume the loan d. you can sell the property e. you can get a hard money loan to cure the infraction

Marc Winter · Answer

@Gannon Nikolich , have you thought of having your parents putting the title into an intervivos revocable trust (aka Land Trust)?  There would be no sale, so no 'due-on-sale' as per Garn-St.Germain laws.  You can work out trustee/beneficiaries with your parents.  See your trust-savvy attorney to set it up.

Ryan Swan · Answer

@Gannon Nikolich if your parents and  yourself have been making timely payments, then generally the lender may not notice or care that you transfer the title...I mean, they never noticed that your parents did it 3 years ago, right?

Due to the nature of the situation, I highly recommend you speak to a RE attorney and tax professional about all options available to you and the estate. You definitely don't want to transfer the title before running it by them.

Gannon Nikolich · Answer

@Theresa Harris

I'm not sure what the interest rate would be, but it might be lower if I'm willing to move into one of the units.  I'm not sure it would be worth doing that just to save a fraction of a percent.  But I'd definitely be willing to do it if it was the deciding factor in getting approved for a new loan.

I think the fees will be around the standard for an investment property but I'd gain the tax advantages in doing so.

I can always line up the cash to payoff the loan and then call the bank to see if they will transfer the existing loan into my name.  If they don't, at least I'd be ready.  My first choice would be to keep the existing loan to save on fees and keep the interest rate.  The loan has always been paid and it's no ones fault my grandfather passed away.  I didn't know if this was common thing when someone passes away, even more so with VA loans

Gannon Nikolich · Answer

@Doug McVinua

Thank you for your response.

I think you're right about planning on getting a new loan.  I was worried about qualifying after being self-employed for the last 9 years but I recently started working for the state government and should qualify after long enough work history.  I just didn't want to wait 2 years to do it.

Do you think I'd have better luck if I pull cash out of another property and payoff the VA loan and then take out on new loan on it since I would than own it free and clear?

There's $100k in equity in the property and should have quite a bit more after I make the repairs.  The new loan would then need to be about 60% LTV

Can I assume a VA loan after my grandfather passed away?

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