Individuals who purchased their homes with a VA loan have two options for selling. The seller can allow the buyer to assume their VA mortgage and its payments, or have the buyer take out a new loan to purchase the home, which will pay off the remaining VA loan.
Generally, the quickest and cheapest option for selling a VA mortgaged home is to have the purchaser assume the loan. With this method, there is no appraisal of the home required, no repair requirements, less processing, and lower closing costs. The downfall to this option, however, is that your VA loan will remain outstanding and your VA entitlement will remain associated with that loan. This means that the seller's VA entitlement will be restored only after the buyer pays off the existing loan in full.
Although having the buyer assume the loan may be quicker and cheaper, selling your VA mortgaged home on a new loan also has its advantages. The buyer's new loan will pay off your existing VA loan in full, meaning you will not have to worry about the buyer making payments on your loan. Also, there is no prepayment penalty for paying off your VA loan in full. Finally, your VA entitlement will be fully restored upon selling your home. The disadvantages of this option are that the seller will need to make repairs to the home before selling, the property must be appraised, and closing costs are higher.
There are special circumstances in which a VA mortgaged home is sold to another VA qualified veteran. In this case, the purchaser can assume the loan and a substitution of entitlement can be obtained by the seller.