Just as with everything else to do with VA Loans, there is no shortage of policies and guidelines on what can and cannot be done in regards to reselling your home if it was purchased with a VA loan. There are several different scenarios that a person may want to sell their home and the VA has established policies and guidelines for each of them. A person may have equity on their home and be selling, a person might be trying to make a short sale in an attempt to get rid of the home quickly, or the person may have completely paid off the VA loan and would now like to sell the home.
VA loans tend to differ from conventional loans in a lot of ways, but in many others they are exactly the same. With a VA loan, the often-asked question is what restrictions are there about selling my home? The short answer to this question is that there aren’t really any. If you are selling the property outright, there isn’t any restriction on who you can sell to. This is true in every scenario except one; if the buyer is wanting to assume the VA loan that you have taken on the home, the rules are a little different than an outright sale.
The first difference is that if the VA loan originally closed after March 1, 1988, then in order to have it sold later as an assumption the buyer must be reviewed and found to be both qualified and approved by either the Lender or the VA. Essentially what that means is that the buyer must also be eligible for the VA loan benefit. The VA Loan cannot be assumed by anyone other than a VA-eligible borrower. That restriction certainly makes sense, since it wouldn’t make sense for the VA to be guaranteeing an assumed mortgage held by a someone not eligible for a VA-guaranteed mortgage.
Something important that is often forgotten by the seller is that even after the buyer has gone through the approval process and found to be eligible to take over the VA loan, there are more steps required. The person selling the VA mortgage must contact the VA directly and apply for a release of liability from the assumed loan. This ensures that the seller is no longer personally liable for the amount of the loan. For obvious reasons, this is a very important step. Technically, this step could be skipped if for some reason the seller wanted to remain liable for the debt amount. It is possible that if the property was being sold to an adult child or close relative, there may be a desire to keep the original seller liable, but situations of this are very rare, not to mention risky.
If the loan originated previous to March 1, 1988, then there is no need to go through the process above. The loan can be assumed by any person the seller decides to sell to, and they do not have to be VA loan eligible. In addition, the seller is not required to contact the VA to obtain a release of liability in order to not be held legally responsible for the remaining amount of the loan in the event the buyer defaults. However, the VA still recommends that sellers still get the release of liability, simply because it is a good idea to have that on paper.
In the event that the buyer isn’t VA eligible, they can still purchase the property by taking out their own loan. Remember as you work on selling your home that if you make a short sale you will not be able to re-use your VA loan benefit unless you pay the amount back to the VA that they covered on your behalf. It is always wise to work with your lender and the VA directly to try to avoid a short sale if you can. If you have equity on your home and are able to sell it for more than you owe on it, you will have no problem using your VA loan benefits to purchase another home. If you’re hoping to use your VA benefit to purchase a second home and begin renting out the first one, you’ll be disappointed. The VA will not allow that sort of arrangement. It’s always best to consult with a VA-approved lender as you explore your options for selling your home if it was purchased with a VA loan.