Who Wants a 2-3% Mortgage Rate?

Who wants to go back to 2021? Most Texans would skip that year all together for the obvious low points: the pandemic, the big freeze, the subsequent power crisis, etc.. That is unless you’re looking to buy a house. If you’re in the market today, you might just raise your hand for a trip back in time to when sub-3% mortgage interest rates were the norm. These were the lowest 30-year fixed rates in history, the likes of which our generation will probably never see again. I’m here to remind you that there are still low rates to be had in the form of a VA loan assumption.

There’s a lot of misconceptions about VA loans and if you don’t have all the facts you might just overlook your opportunity to secure a rate, that in a lot of cases, is at least half of today’s rate.

marion texas historic home va assumable loan
Historic 1921 Marion, Texas home with an assumable VA loan.

The Pillars of the VA home loan benefits

Before we look at assuming a VA loan, let’s highlight some of the pillars of the VA home loan benefits. The sad fact is, eligible veterans often times aren’t aware of the full extent of how to utilize the privileges of the VA loan program, never mind the rest of the civilian population. Benefits include:

  • No down payment required!
  • No mortgage insurance required!
  • A veteran can use their benefits again and again. It’s not a one-and-done. For example, you might use the VA loan to buy your starter home. Over time you outgrow that home so you sell it, pay off the first VA loan completely, and utilize another VA loan to buy your next primary residence. You can keep moving up!
  • In addition to single family homes, the loan can be used to purchase condominiums, manufactured homes and even multifamily homes up to 4 units (as long as the veteran resides in 1 unit).
  • Benefits do not expire. Check your eligibility: You must obtain a DD Form 214. With that document, a VA-approved lender can request your VA Certificate of Eligibility. You can request it directly from VA’s eBenefits website as well.
  • VA rates are lower than conventional loans and come with the lowest foreclosure rate of any loan type. Veterans do take homeownership seriously!
  • Surviving spouses might be eligible.
  • VA loans are guaranteed by the VA, however the loan itself is provided by a private lender of the veteran’s choice.
  • You can use your VA benefits to refinance your existing mortgage, even if it’s not originally a VA Loan.
  • Very lenient guidelines for qualification. This helps those with lower credit scores, past bankruptcy, or foreclosure history.

The benefits go on from there, and rightfully so, veterans have earned it for the sacrifices they have made for our country. What happens though when a veteran goes to sell their home that is secured by a VA loan? If they find a buyer who uses a conventional means to purchase that home then seller’s VA loan entitlement is fully replenished at closing. Pretty straightforward.

The Opportunity of VA loan assumption…

first-time homebuyer san antonio texas realtor
The benefit of assuming an existing loan that was locked in at a low rate

Often times however, the veteran originally only used a portion of their entitlement to purchase that home a few years back when rates were in the 2-4% range. For example, the current VA Loan Limit in the San Antonio region is $766,550. If their mortgage on that home for sale is $210,000, they still have $556,550 untapped entitlement. Let’s say for example a veteran is selling their home due to a PCS (Permanent Change of Station) assignment, a common occurrence here in Military City USA. They could still have more than enough entitlement to buy another home at their next destination. This is why many veterans are now offering their home for sale along with their existing VA loan.

As long as the lender offers loan assumptions (some don’t), this can be a win for both the buyer and the seller. The buyer gets the benefit of assuming an existing loan that was locked in at a low rate, thus potentially saving hundreds or even thousands of dollars on their monthly mortgage payment. They also get the benefit of low costs and fees that come with assuming a VA loan vs. going through a conventional loan origination. Here’s the kicker, the buyer does not have to be a veteran! That’s right, as long as the civilian buyer can meet the lender’s loan qualification requirements, they can assume a VA loan. Typically, the buyer can only use the home as a primary residence but some financial institutions will approve the assumption for investors. The seller and their agent should verify this information with the existing lender so they have an answer for prospective investment buyers.

The seller is able to position their home on the market with the benefit of an exclusive low interest rate without having to lower their sales price or offer closing concessions to stay competitive with comparable listings.

The Downside to VA loan assumption…

The downside for the seller is that their entitlement will be tied to this home for the remaining life of the loan. If that loan has a 2% rate, it’s unlikely that it will ever be refinanced. If the new homeowner happens to default on the loan, the VA seller would not be responsible for paying back the loan, however, if they ever wanted to replenish their entitlement, they would be on the hook to pay back the portion of the loan that was still guaranteed by the VA (could be up to 25% of the loan value).

The buyer should be aware that they are responsible for any equity the seller may have in the property. Let’s say the purchase price of the home is $250,000 and the loan they’re assuming is $210,000. They would have to come up with that difference, plus closing costs, and assumption fees in the form of cash or a 2nd loan. This variable might preclude the buyer from taking advantage of a VA assumption. 

Let’s not forget! The buyer can be another veteran. Most lenders would then require the buying veteran to use their entitlement to assume the seller’s loan. The seller’s entitlement would then be replenished at closing for use again down the road. The veteran buyer would also be required to use the home as their primary residence. This option can certainly come with less risk to the seller.

listing agent san antonio hill country buyer
Consult your real estate agent on the pros & cons of a VA assumable loan.

Lastly, if a VA assumption is gonna be part of your transaction, you will need to plan accordingly. The closing process will be longer than conventional sales. It can take up to 50-60 days to close because there are more layers to the buyer approval process.

We’re here to help…

As you can see, there are a lot of good reasons for VA sellers and buyers to consider a VA loan assumption. Here at Make Texas Home Group, we currently have homes listed for sale with this exact VA loan assumption option. Click Here to View Homes. Our team has successfully completed these transactions and is here to answer your questions about all the complexities of the VA assumption process. For more information call (210) 625-1459 or email us at: mindi@maketexashomegroup.com

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Make Texas Home Group

The contents of this blog post are for information purposes only. The Make Texas Home Group is comprised of licensed Texas Realtors. We are not mortgage brokers, lawyers or financial advisors. If you need these professional services we can recommend our preferred industry partners to you, please Click Here for more information.

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Search, save, and set notifications to be notified when properties hit the market!

  • Edge to Edge HD Photos
  • Push Notifications
  • Saved Searches
  • Direct MLS Feed
  • Filters
  • 1 Touch Sharing