Selling a Home with a VA Loan: Breaking Down the Selling Process
When it comes to selling a home, one of the most common questions around VA loans is, how do you sell a property purchased with a VA loan? In most cases, it’s the same way as any other loan. There are no restrictions on who you can sell to. A Veteran can sell to non-Veterans, active-duty personnel can sell to civilians, and so on.
But there are some considerations to take into account when selling to a buyer who’s also using a VA loan or to someone wishing to assume your loan.
Generally speaking, VA loans have no set requirement for how long you live in your home before you can sell it. However, most lenders prefer you to live in the home for 12 months after closing before selling. This timeframe can be much less if there’s a legitimate reason and the lender agrees.
The VA loan program is designed to help military members purchase a home. As such, there are restrictions against purchasing a home as an investment. In other words, you can’t buy a home with a VA loan and then immediately use it as a rental property. VA occupancy requirements state that the borrower must live in the property as their primary residence within 60 days of the loan closing.
When selling a home you purchased with a VA loan, you have two options:
The rules are slightly different for either option, so be sure to read through each one carefully.
With this option, you sell your home to anyone on the open market like you would with any loan type.
There’s no restriction on who you can sell to. VA homeowners can market their property to any prospective buyer, regardless of financing method or whether they are an active service member or Veteran.
When a buyer assumes the VA loan from you as the seller, things are a little more complicated. By assuming the loan, it means that the buyer essentially takes over the payment of that loan. Both Veterans and non-Veterans can assume VA loans.
Another thing to bear in mind is that not all lenders will allow VA loan assumptions, so you should check your lender’s policy on this first.
The Veteran selling the home must also contact their lender to request a release from liability on the assumed loan. If you don’t do this, you could risk becoming liable should the new owner default on the assumed loan. It’s vital to tie up this loose end before forgetting.
The biggest benefit to loan assumption is in the case of higher interest rates. A buyer taking over an older loan with lower rates won't have to pay the higher ones. This can be an ideal choice for buyers who would rather avoid higher interest rates if they have increased since the loan first originated.
One final consideration for assumptions is how it impacts your VA entitlement.
If the person assuming your loan is not a Veteran substituting their VA loan entitlement for yours, then your entitlement remains connected to the property. This limits your future $0 down purchasing power and even puts that entitlement at risk. Without that substitution of entitlement, you would lose that portion of your entitlement if the person assuming the loan later defaults on the mortgage.
Selling a home purchased with a VA loan isn’t any different than selling a home with any other type of loan - unless you are having your mortgage assumed.
If you would rather not deal with the rules and regulations that come along with a VA assumption, selling on the open market could be your best bet. However, the benefit of having a buyer assume the loan is that your home may become a more attractive option to avoid higher interest rates.
Whichever option you choose, it’s worth checking in with your lender to see if they have any requirements or restrictions in place that apply to your loan.
Either way, if you’re planning to purchase your next home with another VA loan, be sure to check with a qualified VA lender.
