Ask Eli: Assumable Low Interest Loans

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This regular sponsored Q&A column is written by Eli Tucker, Arlington-based real estate agent and resident of Arlington. Please submit your questions to him. by email for answer in the next columns. Video summaries of some articles can be found on YouTube at Ask Eli, live with Jean playlist. Enjoy!

Question: Is it possible to take over a seller’s existing loan if it has a low interest rate?

Answer: Thank you to our veterans and active duty military for your service.

In keeping with the theme of last week’s columndiscussing popular mortgage products/strategies and in honor of Veterans Day, this week I’ll be covering assumable VA loans.

An assumable loan is a loan that can be transferred from a seller to a buyer, allowing the buyer to maintain the interest rate of the seller’s existing loan rather than accepting a market interest rate. This can be valuable in a high interest rate environment like the one we find ourselves in now, when most homeowners have an interest rate well below current market rates.

To help me provide the best information on assumable VA loans, I contacted Skip Clasper of Sandy Spring Bank ([email protected]), which I highly recommend for a range of loan products including VA loans, construction/rehabilitation loans, and jumbo loans.

Only certain loans are assumable

VA loans (available to veterans, military, and surviving spouses), FHA loans, and USDA loans are the only traditional loan products that can be assumed. They represent a relatively small percentage of existing home loans in Arlington (likely a single-digit percentage of total loans). I don’t know of any conventional loan that can be supported.

Key Details on Taking on a VA Loan

There are important details and caveats about taking on a VA loan that buyers and sellers should understand before transferring a loan:

  1. Buyers do NOT need to be a veteran or otherwise qualify for a VA loan to take on a VA loan.
  2. Sellers CANNOT obtain a new VA loan until the previously assumed loan is paid off (or refinanced), unless the new buyer is a veteran and uses their assumed loan eligibility.
  3. It is less expensive (closing costs) to assume a loan than to create a new one. VA financing fees are only 0.5% for assumable VA loans.
  4. You need a down payment that covers the difference between the assumable loan balance and the purchase price. For example, if the seller’s loan balance is $200,000 and the purchase price is $500,000, the buyer assumes a debt of $200,000 and will need to cover the remaining $300,000 through a down payment or an alternative debt such as a second trust.
  5. Buyers must qualify for the loan using the normal income, debt and credit guidelines.

As you can probably determine from the details above, there are only a limited number of scenarios in which assuming a VA loan makes sense for both parties. The biggest hurdle to assuming a VA loan is that the VA loan eligibility stays with the loan, so if the buyer doesn’t have their own VA loan eligibility, the seller needs to be sure they agrees to give up this very valuable benefit until the new buyer pays for it. off or refinance.

If you would like to discuss buying, selling, investing or renting, please do not hesitate to contact me at [email protected].

If you would like a question answered in my weekly column or to discuss buying, selling, renting or investing, please email [email protected]. To read one of my older articles, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube at Ask Eli, live with Jean playlist.

Eli Tucker is a licensed real estate agent in Virginia, Washington DC and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460

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