Deciphering the VA Lender’s Handbook Chapter 5 Part 6
In the last article, we began talking about processing a VA loan assumption. The ability to be assumed is one of the greatest advantages of a VA loan, but a VA loan
cannot be assumed without going through your loan servicer, who may need to go through the holder of the loan or even the VA itself in order to obtain approval. In this article, we’re going to go into detail about the requirements for approval of a loan assumption, as well other aspects of VA loan assumptions such as processing time guidelines and decision notices. There’s a lot to talk about to do with VA loan assumptions, so if it’s something you’re considering, be prepared to learn a great deal of information about them.
There are several requirements that the VA has in order for assumptions to be approved. Thankfully, they are really pretty obvious and none of them should come as a surprise. The first requirement is that the loan must either be current or will be brought current at the time of the assumption. In other words, the seller needs to be up-to-date on his or her payments in order for a loan to be assumed. Second, the prospective purchaser is creditworthy; the buyer needs to have sufficient income and a solid enough credit history to qualify for the loan. Third, the buyer needs to agree to assume all of the obligations of the loan, absolving the seller of any responsibility. These obligations include the obligation to indemnify the VA if a claim is paid.
Part of the approval process involves a processing fee, which can be collected in advance using a reasonable estimate for the cost of the credit report. There is, however, a maximum amount that the seller can be charged for the processing fee, which covers processing the request for assumption approval and changing the loan records. The maximum amount depends on whether the assumption was approved by the servicer or holder with automatic authority or by the VA, and on whether there is a maximum prescribed by the state in which the loan is being assumed. For loan assumptions approved by servicers or holders with automatic authority, you can expect a maximum charge of $300 plus the actual cost of the credit report or the state maximum, whichever is lesser. For loan assumptions approved by the VA, the maximum is $250 plus the credit report or the state maximum.
The time it can take to process the application for loan assumption depends on whether the servicer or holder has automatic authority or not. If the servicer or holder does have automatic authority, they are required to complete their processing and notify the seller of their decision within 30 days of receiving the approval application package. If the package is submitted incomplete, the 30-day clock does not start until the seller has provided the servicer all of the required documents. In cases where neither the servicer nor the holder of the loan has automatic authority, the application package must be submitted to the VA for processing within 21 days of when all of the required documents were submitted to the servicer.
Since, in the case of no automatic authority, the servicer isn’t even required to get it into the hands of the ones who will actually do the processing for 21 days, you might expect a significantly longer wait overall. But actually, the VA gives itself 14 days to complete the processing of the application, so the maximum you could wait if the application has to be sent to the VA is 35 days. Granted, that is assuming that everything goes correctly; if requests for information are not responded to in a timely manner, the overall processing time may be extended with no penalty to the VA or the loan servicer/holder.
When the results come back, it will either be an approval or a disapproval. If it is an approval, it will contain instructions to the seller for conducting the assumption, including the assumption of liability, payment of the funding fee, and any documentation needed. If it is a disapproval, it will include an explanation of why it was disapproved and instructions on how to submit an appeal.