25 Feb Mortgage Q & A: Mortgage Assumption or VA Loan?
All about mortgage assumption with VA loans
Is it possible for parents, who have a house that is on a non-VA loan, to sell it to one of their relatives who is in the military or eligible for a VA loan, and has a less than average credit history? Will the VA allow for mortgage assumption in this case, keeping in mind that only $22,000 is to be paid and the rest of it is paid for, with the total value of the house being $160,000?
Any form of mortgage assumption can be quite the process since there are quite a few terms that determine this, as conveyed in the mortgage paperwork and the requirements of the lender. Conventional loans, unlike FHA or VA, do not permit any form of assumptions. It is recommended that one calls and check with the lender first before taking any other decisions. If assuming the loan is possible, individually meeting the requirements of the lender is also necessary for the assumer.
In case, the sale price is greater than the remaining amount, the assumer will have to cover the difference by either paying that amount in lump sum, or by taking it as a loan from somewhere. Considering the loan to be assumable and the total selling amount is the same as the outstanding balance on the house, the buyer is still in a good scenario. He or she should be able to get the loan assumed, despite the nature of his or her credit history. This is possible only because the balance amount is quite less as compared to the real value of the home.
In case you cannot assume the mortgage, or if the sale price is nearer to the actual value of the home, then it is better to buy your home using a mortgage plan that is there especially for veterans and military service members. These loans are easier to get and afford since their underwriting rules are flexible compared to conventional loans.
The most beneficial feature of VA loans is that they do not need any kind of down payment or insurance. This means that the entire amount can be converted to monthly mortgage payments, and will save on quite a bit since the buyer will not have to pay for any kind of insurance coverage for the mortgages, which is close to a few hundred dollars every month.
Whatever method that they choose to go by, the seller will still need to shop for a favorable mortgage plan, since the interest rates of VA loans are not determined by the government. This means the associated fees and costs may be different (to a limited extent: there is an upper limit to all of them). There are different ways to get the house, and the one that is best will depend on the mortgage plans that are available, and comparing them with the outstanding amount on the loan and the interest rate that will be charged thereon.