In the current real estate market, interest rates have become a significant hurdle for many military and veteran families. As of April 2026, the average 30-year VA fixed mortgage rate sits at approximately 6.11%. While this is competitive compared to conventional loans, it is mountain compared to the historic lows from just a few years ago.
However, all hope is not lost, there is a technical provision within the VA home loan program that many overlook: The VA Home Loan Assumption. This feature allows a buyer to "take over" a seller’s existing mortgage—including their original interest rate and terms. This one move can unlock value for both buyers and sellers in today’s real estate market.
The Buyer’s Advantage – Reclaiming Lower Interest Rates
For a prospective buyer, assuming a VA home loan allows them to access much lower interest rates and creates the potential to lower their monthly mortgage payments. If a seller locked in a rate of 2.5% or 3% in 2021, an eligible buyer can assume that exact rate today.
- Who Benefits: This is particularly advantageous for younger veterans or service members purchasing their first home. In a 6% interest environment, the lower monthly payment of an assumed 3% loan can significantly increase a first-time buyer's purchasing power and lower their monthly debt-to-income ratio.
- The Math: On a $400,000 30-year fixed rate mortgage, the difference between a 3% rate and a 6.11% rate is about $740 per month in principal and interest payments. The 6.11% interest rate would require principal and interest payments of $2,426.56 compared to $1,686.42 for the mortgage at 3%. This means a buyer could pay $8,881.68 less per year for the assumed VA Home Loan versus a VA Home Loan that was initiated at a rate of 6.11%. That is a savings of $266,450.40 over the life of a 30-year loan.
- The Funding Fee: Unlike a standard VA purchase loan (which often carries a 2.15% funding fee), the VA assumption funding fee is only 0.5%. Using our example above of a $400,000 home, this can save a buyer $6,600 in closing costs. However, keep in mind, disabled veterans that can provide Certificate of Eligibility from the VA can get the funding fee waived no matter what type of VA Home Loan they are using. So, for some veterans this is not a differentiating factor.
- The Challenge: The buyer must cover the "equity gap"—the difference between the purchase price and the remaining loan balance—either with cash or a second mortgage. If the buyer chooses to finance the equity gap with a secondary mortgage they need to know a few things. According to VA Circular 26-24-17:
- Lien Position: the holder must take steps necessary to ensure the secondary borrowing is subordinate to the VA-guaranteed loan (that is, the secondary borrowing must be in a junior lien position relative to the VA-guaranteed loan). This might include, for example, obtaining a subordination agreement.
- Documentation of the secondary borrowing: the holder of the VA-guaranteed loan is to document in the assumption loan file the name of the secondary lender, the amount of the secondary borrowing, and the repayment terms of the secondary borrowing agreed to by the assumer.
- Allowable purposes: proceeds of the secondary borrowing may be used to pay for allowable closing costs needed to close the assumption or for amounts due the seller at closing as part of the assumption transaction.
- Cash back: assumer is not to receive cash back from the secondary borrowing.
- Underwriting: the recurring monthly payment for any secondary borrowing must be considered when evaluating the assumer’s debts on VA Form 266393, Loan Analysis, and in automated underwriting feedback (as applicable).
- Interest rate: the interest rate may exceed the rate on the VA- guaranteed loan and may be negotiated between the assumer and the lender of the secondary borrowing.
- Assumability: If the secondary borrowing is not assumable, the holder of the VA-guaranteed loan should counsel the assumer that this may restrict their ability to sell the property to another creditworthy assumer through an assumption in the future.
- Grace Period: the secondary borrowing is to include a reasonable grace period before a late charge is assessed and, in the event of default, before the secondary lender may commence foreclosure proceedings.
In my own home buying experience, I was lucky enough to catch the low-interest rate environment during late 2021. This meant that my wife and I were able to afford much more property than we otherwise would have during more typical interest rate levels. In today’s market the asking price we could afford would be hundreds of thousands of dollars less.
The Seller’s Advantage – A Powerful Marketing Tool
If you are a veteran selling your home in 2026, your low interest rate is an asset. By offering your loan for assumption, you make your home significantly more affordable than a comparable house next door where the buyer must get a new 6% mortgage.
- Who Benefits: This strategy may be highly effective for older veterans looking to downsize for retirement. By marketing a home with a sub-3% interest rate, the seller may be able to command a higher sale price. The resulting equity can then be used to purchase a smaller retirement home in all cash, eliminating a monthly mortgage payment entirely in their post-service years.
However, there is a critical distinction sellers must understand: Substitution of Entitlement.
If the buyer is also a veteran with sufficient entitlement, they can substitute their entitlement for yours. This "frees up" your full VA loan benefit so you can use it again to buy your next home. If the buyer is a non-veteran, your entitlement remains "tied up" in that property until the loan is paid off. If you may need that entitlement for your next house, think very carefully about who you are willing to sell your home to.
In my case, as a veteran in the middle of my career, if I offered my home with the assumable VA Loan for sale, I would have to find another veteran to sell to. This is simply because I would still need the VA Loan eligibility to afford another home similar to the one I have now.
A Quick Brief on VA Home Loan Entitlement
VA Home Loan entitlement can be complicated, so I wanted to break it down briefly.
Entitlement on a VA Home Loan is the portion of your loan that the VA guarantees to repay to the lender in the event that you, the veteran borrower, defaults or stops paying on the loan. Typically, this represents a guarantee on 25% of the face value of the loan. However, there are two tiers of entitlement.
Tier 1 Entitlement: This is the portion of your VA Home Loan entitlement associated with the first $144,000 of face value of the loan, or a guarantee on the first $36,000, as of April 10th, 2026.
Tier 2 Entitlement: This is sometimes called bonus entitlement and is the portion of the VA Home Loan entitlement associated with the loan amount in excess of $144,000.
- If you have full entitlement, Tier 2 Entitlement will cover 25% of the amount your lender is willing to loan you.
- If you don’t have full entitlement, your remaining Tier 2 Entitlement is based on the county loan limit minus the amount of your entitlement you have already used.
For a detailed discussion on how to run these calculations check out the VA’s resources here: https://www.va.gov/housing-assistance/home-loans/loan-limits/
The Technical Fine Print – Protecting Your Future
An assumption is not a simple transfer of ownership. It requires formal approval from the loan servicer. There are two primary factors that often determine the success and safety of this process:
- Release of Liability (VA Form 26-6381): This process involves the seller being formally released from the debt by the VA and the lender. Without this release, if the new owner defaults, the original borrower's credit and VA entitlement may be impacted. You probably don’t want to be on the hook for someone else’s failure to pay.
- Credit Qualification: The assuming buyer is generally required to meet VA and lender credit and income standards to demonstrate their ability to sustain the payments. Like any mortgage the lending entity will want to have a say in the credit worthiness of the person responsible for paying off the loan.
Whether you are an active-duty member preparing for PCS season or a veteran looking to maximize your home’s value, the VA assumption is one of the most powerful tools in your financial arsenal. Because these transactions are technically complex, it is essential to coordinate with your lender, your financial advisor and your real estate agent to ensure your entitlement, your equity and your future are protected.
Want to Explore the Pros and Cons of VA Home Loan Assumption?
If I can ever be of service with helping you to navigate the buying or selling decisions of your home with a VA Home Loan Assumption please feel free to schedule time with me for a consultation. Or, contact me using my contact page.
Disclaimer: This blog post is intended for educational purposes only; it should not be construed as legal advice, tax advice or financial planning. Consult a professional for legal, tax or financial planning advice before making any changes. All photos are from open-source domains, generated by artificial intelligence or are the property of Stars & Stripes Financial Advisors.