Selling a VA Loan-Financed House - What to Know First

We’ve been getting a lot of questions from folks about VA home loans, so we thought we’d address one of the more frequent questions that we get: I bought my home with a VA home loan and now I want to sell it - what do I need to know?

This is a very good question and one which you really should be thinking about when you first apply for a VA home loan. The reality is very high that you will need to or chose to sell your home, so it’s important that you understand all aspects of the VA home loan.

To help understand the facts around selling a home that was financed with a VA home loan, lets take a quick look at the VA home loan eligibility requirements. The VA home loan eligibility requirements are:

Served 181 days during peacetime (Active Duty). Served 90 days during wartime (Active Duty). Served 6 years in the Reserves or National Guard. You are the spouse of a service member who was killed in the line of duty.

These requirements are important to remember when you decide to sell your home because you do have a couple of options regarding your VA home loan. If your buyer qualifies for a VA home loan, he or she can assume your existing VA home loan. A VA home loan it the only fixed-rate mortgage that allows assumption. The other option when selling your home, is that the buyer takes out a new loan to buy your home.

VA Home Loan Assumption

So what is VA home loan assumption? With a VA home loan assumption, your buyer simply assumes your VA loan. If your buyer qualifies for a VA loan, he or she can automatically qualify to take your loan. This is a very straight-forward and automatic process whereby you simply notify the VA or your lender that the buyer is assuming your loan. If your loan was closed before March 1, 1998, you don’t need to notify the VA or your lender. (Though it is recommended that you do notify the VA or your lender.)

But, like everything that sounds very simple and straight-forward there are some important things to think about. With a VA home loan assumption, you are still ultimately responsible and accountable for that VA home loan. So if your buyer defaults on the loan - you are responsible. This is why it is strongly recommended that you contact the VA and your lender to have them review your buyer and make sure this person meets all requirements. You should receive a Release Of Liability so if your buyer does default on the VA loan, you are not expected to pay this loan.

If you do decide to have your buyer assume your VA loan, there are two options:

 The buyer uses your VA loan entitlement to buy the home. If you do this then you are not able to access or use your VA loan entitlement until your buyer has paid off the loan. The buyer uses his or her VA loan entitlement to replace your VA loan. This option releases you from the loan and allows you to use your VA home loan to buy another home. To do this you must fill out VA Form 26-1880.

Selling your home and choosing a VA home loan assumption can make it easier for you to sell your home - often a loan assumption makes it easier for the buyer to finance the purchase.

New Home Loan

If your buyer does not qualify for a VA home loan or you choose not to have your VA loan assumed, your buyer can also buy your home with a standard loan. With this option, you then have your VA home loan entitlement which you can use to finance your new home and you are released from liability on the home you’re selling.

With all home sales and purchases, it is highly recommended that you follow the advice and expertise of qualified real estate professionals. With VA home loans in particular, it is best to work with an agent who understands all aspects of VA home loans including the eligibility requirements, the rules and regulations around VA home loans, and who can answer any questions you have about this loan type.