A loan guarantee from the Department of Veterans Affairs (VA) is written with the home used as collateral. If you are moving to a new home, you cannot transfer the loan to that house. However, you do have options to reinstate your VA loan entitlement to take a new VA loan. To do this, you must sell your existing home and pay the debt in full.
Selling a Property with a VA Loan
The easiest way to reinstate your VA loan eligibility before you move to a new house is to sell your existing property that has a VA-guaranteed mortgage. When you do this, the loan is paid off in full. You will receive full restoration of your VA entitlement and will not be charged a penalty for repaying the debt early. Then you can use your restored VA home entitlement for a loan on a new house. However, this method has some disadvantages. First, you will need to sell the home and pay off the debt before you can take a new VA mortgage. You will also face appraisal costs, closing costs and possibly some repair requirements on the property you are selling.
Transferring a VA Mortgage to Another Borrower
You have the option of allowing a new borrower to assume your VA home loan, whether or not he is a veteran. In this case, you will save on closing costs, repairs to the home and appraisal hassle. However, your VA home loan entitlement will not be restored immediately. Instead, the new borrower will have to pay off the loan in full first. This could take a decade or longer, and you may be held responsible if the borrower defaults on the loan. Ultimately, this is not the best option if you want to get a VA home loan on a new property soon.
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Transferring a VA Mortgage
It is not possible to switch a VA mortgage from one home to another. All home loans are made based on specific factors of the property they are intended to buy. The VA, in particular, has stringent guidelines regarding home inspections, condition and repair. It will not insure a loan on a home in disrepair or on one that does not meet the standards of the VA. Therefore, before a VA home loan is used for any property, the VA's inspectors must approve the property. This process starts anew for any new home you purchase.
Choosing the Best Option
If you are in no rush to reinstate your VA loan entitlement, there can be many advantages to allowing another borrower to assume your loan. These advantages include low closing costs, no additional appraisal and typically some financial incentive from the borrower. However, if you are moving into another home and would like to have a VA home loan on that new purchase, you must fully satisfy the terms of your existing VA loan prior to taking new one. This can cost you money up front, but having a VA loan on your new home may ultimately save you money if the interest rates and other fees are low.
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