How mortgages are assumed when you buy or sell?
VA loans are of great use for veterans who do not have any or less source of income. Usually the other finance lending companies will not lend loan to the veterans are there is a risk for repayment of loan. In this case, VA provides guarantee to the lender in case if the loan cannot be repaid by the borrower.
The borrower can also go ahead and resell this financed house further or they also have an option to buy a refinanced house. In case of either transaction, there is a transfer of assumable loan from one party to another. Assumable loan is the loan that is carried forward from one party to another in case of a resale of a property.
Certainly in case of loan assumed from one party to another, the loan percentage is the most important information. Let’s assume there are 2 properties which one buyer is looking to purchase. One property comes with a mortgage percentage of 4% and the other one comes with 6%. It is not tough to decide which the buyer will go for. Lower rate of interest means, lower repayment amount. Hence, it is of very much importance to make sure that the loan percentage quoted is competitive as per the market status.
Procedure involved in assuming VA loan:
The first step in assuming a loan is that VA needs to approve any such action beforehand. If the approval is not taken the VA has all the authority to foreclose the loan. The seller in this case is liable for all the claims and foreclosure charges.
Other conditions that need to meet for assumption of loan are:
- The loan needs to be current loan i.e. running loan.
- VA provides guidelines as to who can assume the loan. The buyer must meet all these conditions laid down by VA.
- All the mortgage obligations laid down must be accepted by the buyer. In case the loan gets default, the buyer needs to repay the loan to VA.
In order to assume the loan, the buyer has to pay processing fees and also the credit report cost. The processing fee is decided based on below factors and the least out of these:
- Cost of credit report and $300 on top of that. This is for servicers with automatic authority.
- Cost of credit report and $250 on top of that. This is for servicers without automatic authority.
The difference between these two is that with automatic authority, the lender has to finalize the application and let the seller know in 30 days. In case of services without automatic authority, the lender has to submit the application and other documents within 21 days to VA. Within another 21 days, all the participants will be notified. The transfer takes place one the sale is approved and additional .5% is included in the loan balance as funding fee.
There are certain special cases as well in which the assumption is approved without taking into consideration the credit worthiness of the buyer. These cases are:
- Obligation continues to be with the seller after the sale after his willingness.
- The loan is to be saved from being default if the seller is in no condition to repay the loan.
- Seller has made all the attempts to find a buyer but cannot find one.