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How To Avoid High Interest Rates Using VA Loan Assumptions

[Music] foreign stand by for an important message regarding VA loan assumptions are you a military family that owns a home financed with a low interest rate VA loan would you like to move to a new home but can't afford the high interest rate on your next home if so you'll want to hear about a unique feature of the VA loan program the assumable loan option hi I'm Lucian Vaillancourt real estate broker and owner of Native Sun Realty here in Jacksonville Florida I'm also a Navy veteran who purchased my own family's home with a VA guaranteed Home Loan in this video we'll explore how assumable VA loans work their pros and cons and how they can benefit both buyers and sellers in a housing market with Rising interest rates but before we do if you want to see more videos about real estate related stuff then go ahead and hit the Subscribe button and click the notification Bell so you don't miss any new videos for active duty military and Veterans I know buying and selling a home can be a challenge frequent moves and deployments make it difficult to build equity which discourages home ownership the VA by offering the option to purchase a home with no down payment and favorable interest rates allows more veterans to achieve their dream of homeownership after or even while continuing to serve their country one of the most unique features of the VA loan program is the assumable loan option and assumable Loan means that a buyer can take over the seller's existing mortgage including the interest rate and the terms of the loan since interest rates on home loans had been trending lower for many years not much attention was paid to this valuable provision however since rates have risen sharply in the last year assumable loans are now something to look into for veteran home sellers an assumable loan can make it easier to sell their home by transferring the low interest rate loan to a new buyer this can be a huge Advantage for sellers especially in a market where interest rates have doubled when compared to the rates just one year ago by allowing a buyer to assume their VA loan a veteran home seller can attract more potential buyers increase demand for their home and thereby increase their home's value so who can assume a VA loan basically any credit worthy borrower you do not have to be a veteran to assume a VA loan however unless the borrower assuming the loan is also a veteran willing to substitute their VA loan entitlement the seller's VA loan entitlement stays with a loan the seller would not be able to use their VA loan entitlement to purchase their next home in many cases this is not a problem since most sellers will have built up enough equity in their home to be in a position to meet the down payment requirement on your next purchase they would not need to zero down VA loan to finance their next home if the buyer of your home is also a veteran then they can substitute your entitlement with theirs and your entitlement would be restored you could then use your entitlement to purchase your next home with a new VA loan or assume another VA loan by substituting the seller's entitlement with yours in all cases it is essential to obtain a release of liability from the loan servicer so you would no longer be responsible for repayment of the loan this is very important because if the new owner defaults on the loan then you can still be liable and your credit will suffer so if you're a veteran seller you're probably thinking that's great for the buyer of my home but how does it help me avoid higher interest rate on my next home well now that you have sold your home you've become a buyer you can now assume another Veteran's VA loan yes even though your entitlement may still be tied to your previous loan you can assume another VA loan just like any other buyer as long as you are deemed credit worthy and approved by the current loan servicer you can assume the loan as long as a veteran seller agrees to leave their via entitlement to that loan let's look at an example to show you how this would work let's say you bought your Jacksonville home in 2020 for 240 000 in financing with a zero down VA loan at a rate of 3.5 percent you received PCS orders to Norfolk and now you have to sell your home you put your home on the market in 2023 and sell it for 340 000.

The buyer assumes your VA loan with a rate of 3.5 percent and 27 years remaining on the loan the current prevailing rate for the VA loan is a 6.75 percent so the buyer is getting a rate 3.25 percent lower than if he were to originate a new loan of course this means that the buyer would have to come to the table with enough cash to make up the difference between the purchase price and your existing loan balance this may sound difficult but assuming the buyer has also recently sold the home they're likely bringing their Equity to the transaction and are able to meet the cash requirement now back to you as a seller you can also avoid a much higher rate on your new home by assuming alone on your next home that is also financed with a VA loan you can use your hundred thousand dollar gain in equity from the sale of your old home towards the purchase of your new home if the home you purchase is at a similar price point then your monthly payments would also be similar as long as the rate of the loan you are assuming has a similar rate let's assume the price of your new home is also three hundred forty thousand and the seller also Finance the home with a zero down VA loan with a rate of 3.5 percent let's further assume the seller also owned a home for three years and has a similar remaining balance by applying your hundred thousand dollar gain in equity towards a purchase your new principal and interest payment would be nearly the same in effect you'll be transferring your existing loan to your new home there are a lot of assumptions in this scenario pun intended the likelihood of finding another home for sale with the exact same terms as your previous loan is pretty slim however the benefit of assuming a VA loan is still there you get to avoid a much higher rate on your next home purchase which we keep your payments affordable closing costs are also lower on VA assumptions for example when a loan is assumed it is not considered a new loan origination therefore no intangible taxes due there is no appraisal there are fewer lender fees the VA funding fee for VA loan assumption is 0.5 percent which is lower than the 2.15 percent for a new VA loan so it costs less to assume a VA loan than to obtain a new loan so the pros of assuming a VA loan are buyers can save thousands of dollars in closing costs and Appraisal fees at point five percent of the loan amount the funding fee for VA assumption is less than the funding fee for a new VA loan buyers inherit a VA interest rate that are often lower compared to what they would get on a new or different type of loan when a veteran assumes a VA loan the seller regains their full VA loan benefits buyers don't need to meet military service requirements to qualify now let's take a look at the drawbacks of a VA loan assumption lenders are not required to approve the assumption can be a more lengthy process if assumed by a civilian the veterans VA entitlement stays with a loan it's important for both the buyer and the seller to carefully review the terms of the Assumption agreement and consult with their real estate agents or attorneys be certain that you fully understand the specific closing costs and financial responsibilities associated with a VA loan assumption if you're a veteran home seller and would like to discuss the possibility of an assumable VA loan then give me a call or send me an email we'll review your situation and determine if it's the right option for you if you're a buyer interested in assuming a VA loan let me know and I'll help you find homes that may be willing to allow you to assume their VA loan till then this is Lucian valencourt with Native Sun Realty helping you find your place in the Sun

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