Options when Selling a VA Mortgaged Home
Veterans who purchased a house with a VA-guaranteed loan may wish to sell that house eventually. There are two ways to sell the home: veterans may have their purchaser take out a new loan that pays off their existing loan, or they may have their purchaser assume the loan and the payments associated with the loan.
Both options have advantages and disadvantages, and homes with a VA loan may be sold either way. The advantages of selling on a new loan are as follows:
- The existing loan is paid in full, so the veteran doesn't have to worry about the purchaser falling behind in the payments
- Full restoration of your VA entitlement
- No prepayment penalty
However, there are also disadvantages. Including the fact that your property has to be appraised, closing costs tend to be greater, and repairs to your home may be required. The other method of selling a house, which involves having your purchaser assume the loan, has its own set of advantages and disadvantages. The benefits of this method include:
- No appraisal required
- Low closing costs
- No repair requirements
- Less overall processing
Simply put, an assumption sale is generally quicker and cheaper. The downside is that your VA entitlement cannot be restored until the assumer pays off your existing loan in full. The only exception to this rule is when the assumer is a veteran who meets certain requirements, in which case you may be able to obtain a substitution of entitlement.
Essentially, a new loan wipes out the old loan, but is slower and more expensive to process. An assumption sale is quicker and cheaper, but leaves the old loan outstanding, and may keep you from obtaining a new VA loan.