On May 22, 2023, the Department of Veterans Affairs (“VA”) published Circular 26-23-10 to provide clarification on assumption procedures and to republish the stacking order for Assumptions with VA-Prior Approval, Assumptions without Substitution of Entitlement, Assumptions with Substitution of Entitlement, and Assumption Appeals.
A VA loan assumption involves the transfer of ownership and release of liability of a VA-guaranteed loan and can be processed with or without a substitution of entitlement. A VA loan assumption can only be processed and closed by the current loan holder or servicer. VA statutes and regulations require that VA approve an assumption if: (a) a loan is current; and (2) the assumer is contractually obligated to purchase the property and to assume full liability; and (3) the assumer is creditworthy according to VA’s credit and underwriting standards.
Properties that are security for VA-guaranteed loans may be transferred even though the loans are not paid in full, but a Veteran may remain liable to VA for any loss that occurs in a future default unless the property is transferred to a creditworthy purchaser who agrees to assume the payment obligation. Any purchaser may qualify to assume a VA loan.
Assumptions may be closed with or without a substitution of entitlement. If a loan is assumed by an eligible Veteran who intends to occupy the property and has sufficient entitlement, they may agree to substitute their entitlement for the seller’s entitlement. The seller’s entitlement would then be restored. If not, the original Veteran’s entitlement will remain encumbered by the loan until it is paid in full.
The following fees may be charged to the assumer of a VA guaranteed loan: assumption processing fee, VA funding fee, credit report fee, recording fees and recording taxes, hazard insurance, taxes, flood insurance and assessments, title examination and title insurance and other fees approved in advance as local deviations. The seller may pay for real estate commission and brokerage fees.
Certain unrestricted transfers of ownership may be permitted without the holder or VA approval, such as transfers of ownership but not liability. Spouses may be released from liability without an assumption by presenting a divorce decree or legal separation agreement awarding property to the Veteran that is encumbered by a VA-guaranteed loan.
A seller and buyer must submit an application for an assumption. The documentation required for underwriting is the same as a VA purchase loan. The holder or servicer of the loan must provide an approval or denial within 45 days of receiving a complete package. If an assumption application is not approved, it may be appealed to VA within 30 calendar days.
After an assumption is closed, the credit package and a copy of the executed deed and assumption agreement must be submitted to VA within 45 days. VA Circular 26-23-10 includes the stacking order for Holder/Servicer Approved Assumptions found here as Exhibit A and the stacking order for Assumption Appeals and VA Prior-Approval Requests, found here as Exhibit B.
If you have any questions regarding this article, please contact DocMagic’s Compliance Department.
