A VA Loan After the Borrower Has Died
There are many things that are misunderstood about VA home loans. Myths, fables, and misconceptions abound when it comes to the VA home loan benefit program. Unfortunately, these myths all surround points that really need to be well understood in order for a borrower to make the best decision regarding their VA loan. There are, of course, plenty of myths surrounding where the money for VA loans comes from. Many people mistakenly believe that the VA is the entity that is actually loaning the money to the VA borrower, when in fact they are simply guaranteeing, or insuring, that amount on behalf of the borrower to the lender they are borrowing money from. In this way, the lender has much less risk involved with the loan and can then offer the borrower a much better interest rate than they might otherwise be able to qualify for.
Another common misunderstanding is concerning what the fate of a VA loan is when a borrower dies. Considering that in the case of a short sale, the VA may step in and use the borrower’s VA loan benefit amount to make up the difference so the veteran doesn’t owe any money to the lender, it’s easy to understand why many might think that the VA does something similar when the borrower dies. However, that is not what the VA loan benefits are intended for, and a surviving spouse or offspring should not expect the VA loan benefits to cover any of the remaining balance on the VA home loan. With that in mind, let’s move on to clarify exactly what happens in the event of the death of a VA borrower.
The VA is pretty clear on their website, stating that in the event a VA borrower dies before the mortgage is paid off, that the spouse or co-borrower will need to continue making the payments. The borrower has the option of getting mortgage life insurance but that has nothing to do with the VA. From the VA website: “The surviving spouse or other co-borrower must continue to make the payments. If there is no co-borrower, the loan becomes the obligation of the veteran’s estate. Mortgage life insurance is available but must be purchased from private insurance sources.” This is an important thing to keep in mind for a borrower and his or her spouse or co-borrower as they’re considering opening a loan, especially if the borrower’s health is less than ideal or likely to worsen soon.
So in many respects, a VA home loan is not any different from any other financial obligation that a deceased person has. In fact, it’s basically identical to a conventional mortgage in the event of the death of the borrower. When a person dies, it is normal for all of their debts, including credit cards, student loans, and a mortgage to become the responsibility of the surviving spouse or the veteran’s estate. In the case of a veteran passing away, it is essentially the same. While the spouse may be eligible for compensation from the VA for the death of the veteran, no amount will come specifically from the VA loan program with the intent to pay off the balance on the loan. This is obviously a very important thing for VA borrowers to be aware of in advance. Often, lender’s or other creditors will have policies in place to assist the surviving spouse, especially when the deceased was the primary income provider for the household, but that will take place independent of the VA.
Mortgage life insurance can be a wise option for a VA borrower, and may be worth exploring. Having mortgage life insurance is not a VA requirement and amounts to an entirely personal choice. A VA-eligible borrower can obtain a VA loan without mortgage life insurance if they choose, though a VA lender may recommend it to the borrower. In the end, the decision lies with the borrower, and the borrower should invest the necessary time and effort to making the best decision and choosing the best provider if they decide to get mortgage life insurance. Any questions can be answered by a VA-approved lender or by the Regional VA office.