While the housing market may be shifting in favor of buyers this year, high mortgage rates in certain markets have made it difficult for those buyers to afford homes.

Mortgage rates took a historic plunge in the summer of 2021, averaging 2.89% for a 30-year loan, but then skyrocketed to over 7% in the fall of 2022. And many experts see rates staying between 6% and 8% in 2023.

To combat these high mortgage rates, buyers and Realtors have become creative, using a sometimes-overlooked benefit: a VA loan assumption.

Any VA home loan entered into after 1988 can be assumed by another buyer. This means a borrower can take over the terms of the existing VA mortgage, even if they are not eligible to take out a VA loan themselves.

The process differs from the usual homebuying experience in several ways: Instead of shopping around for the best mortgage rate, a buyer will have to prove their creditworthiness to the seller’s lender. While VA loans don’t require a down payment, buyers will have to have cash on hand (or take out another loan) to bridge the difference between what is owed on the mortgage and the current sales price.

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It’s easy to see why a VA assumption would be attractive in the current market: A buyer can lock in an interest rate well below current mortgage levels and save tens of thousands of dollars over the course of a loan. And there are other perks, too – no appraisal is needed, there is no wood-destroying insect inspection, and the VA funding fee is only 0.5% versus a funding fee of up to 2.3% of the loan amount (if you are taking out your first VA mortgage; up to 3.7% for second-time borrowers). Closing costs also can be lower because there is no origination fee.

If the buyer has their own VA loan entitlement, that can be substituted for the seller’s, freeing the buyer to purchase elsewhere if they wish.

If the buyer isn’t a veteran or has no VA loan entitlement, then the seller’s entitlement is tied up in the home until it is sold.

‘It’s Not Quick and Painless’

But there is a lot of paperwork involved in these types of loans. Not every Realtor is familiar with them, and not every lender is willing to issue one.

Stephanie Pitotti Williams, a military spouse and a Realtor at Keller Williams Metro Center based in in Alexandria, Va., is something of a subject-matter expert when it comes to VA loan assumptions: she’s worked on 10 of them so far this year, when most real estate agents have never even done one.

“You have to think well in advance with these,” Williams said. “It’s not quick and painless. Not only does the agent need to know what they are doing, it takes a very persistent, detail-oriented client.”

The fastest Williams has seen a loan assumption close is 60 days, but the timeline is usually 60 to 120 days … even longer.

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In a market like this, Williams said, an assumable VA loan can be enormously beneficial for the buyer ... who will have to make it worthwhile for the seller. In some instances, a VA loan-holder may be able to negotiate a higher selling price if they allow for loan assumption, with buyers willing to pay more upfront to save more via lower interest payments.

While a non-veteran buyer may be willing to pay more to assume a VA loan, Williams said she doesn’t recommend this type of entitlement and says, “veteran to veteran substitution of entitlement is the way to go.”

Making It Work

Sabrina Adsit, a marketing professional, knows firsthand how difficult it can be for a buyer to navigate the current market.

She and her husband, Lance, an active-duty Air Force pilot, rented in the Alexandria area for three years before deciding to buy. A Realtor told them about a house that hadn’t yet hit the market in the Mount Vernon area. They saw it and fell in love with it.

“We were looking at houses we could have afforded to buy two years ago at that 2.8%-3.1% before mortgage rates skyrocketed ... but when we were approved at 6.2% in February, our priorities shifted,” Sabrina Adsit said. “The houses we could have afforded two years ago quickly became unaffordable as the monthly payments would have been huge. We came to the conclusion that we’d be renting for the foreseeable future.”

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Then her real estate agent told her they could potentially assume a VA loan on the house with an interest rate that was almost four percentage points lower. She and her husband put in a full-price offer and waived inspection, and their offer was accepted.

Sabrina Adsit knows it will be a lengthy process and won’t be closing on her new house until at least May, but she highly recommends it.

“We’re planning on staying in this area after retirement,” she said. “Buying a house didn’t feel risky at all here because it’s such a hot housing market.”