Sometimes things just don’t work out for you, no matter how much planning and effort you put into it. This could also happen with your VA loan. The US Department of Veterans Affairs certainly understands the possibility of this happening, and that is why it has established rules and regulations regarding the release of liability and assumption for people who have problems with their VA loans.
Although VA loans can certainly be taken over by other people, it’s best for people to prevent this from happening in the first place. Before you apply for a VA loan, make sure you’re prepared for the responsibilities associated with lending. Second, make sure you are using your VA loan for the right purposes.
The Basic Rule on Release of Liability and Assumption of VA Loans
Let’s say you’ve applied for a VA loan and been approved. You own a house, but after a certain period of time, whatever your reasons for doing so, you want to wash your hands of the property.
Your first option is, of course, to sell the property. However, this will not waive your responsibilities. You will still be fully responsible for paying your VA loans on time, even if the property is already owned by someone else.
However, there is a second option: you can always have someone else assume your loan. To do this, you must approach the necessary government department and request a release of liability for your VA loan. If your application is approved, all of your responsibilities as the original VA loan borrower will immediately transfer to your loan assumer.
If, for example, the person who had assumed your loan has not been able to make the payments on time and the property ends up seized or in default, you will not be responsible for what happened.
Three Ways to Take on VA Loans
A VA loan can be assumed in three ways, depending primarily on when you obtained the VA loan.
VA Loans Borrowed Before March 1, 1988
Military who have been able to get VA loans before March 1, 1988 are very lucky because their loans can be freely and instantly assumed by anyone else and even those who have not served in the military in any capacity. They can make other people take over their responsibilities without even having to report their decision to the government.
However, to make things official, the VA loan taker must contact the necessary government department and request an information packet. This packet contains a set of informational brochures that will help the buyer and seller of a home purchased through a VA loan with their new set of responsibilities. It will also include the necessary forms they will need to submit to the US Department of Veterans Affairs in order for the VA loan borrower’s original release of liability (ROL) to become official.
Once the forms are properly completed and submitted, the government will review the forms and make a decision later.
VA loans borrowed after March 1, 1988
VA loans obtained by the military individual after March 1, 1988 are NOT freely assumable. In other words, the original VA borrower must inform the necessary authorities of their intentions and obtain pre-approval before they can succeed in the next steps.
The person in authority will then provide a set of instructions for the military to follow in order for their Release of Liability request to be processed.
If the person taking on the loan qualifies under VA standards, he or the person who took out the original VA loan will have to pay a processing fee, credit reporting and appraisal costs, as well as a financing fee.
Unrestricted Transfers of VA Loans
If the original VA loan holder dies, the heir(s) will need to contact the necessary authorities to make the transfer of ownership official. If the original VA borrower is divorcing, he or her spouse may also file a Release of Liability application if they wish.
A VA loan is more like a privilege, and it’s a privilege not everyone is entitled to. If you are lucky enough to be eligible for a VA loan, do your best not to miss out on this golden opportunity.