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VA Assumption + Financing the Remaining Balance – Are There Any Options?
I’m exploring possible solutions for a veteran client who’s interested in assuming a VA loan, and wondering if there are any creative financing options available to cover the remaining balance.
Scenario:
-The seller (also the landlord) is on board with the VA assumption.
-The sale price is $315K, but the current VA loan has a balance of $210K.
-That leaves a $105K gap the buyers would need to cover.
The Buyers:
-Veteran + fiancé (willing to marry before closing if needed to combine income).
-Mid-500s credit for the veteran
-Low 600s for the fiancé
-Veteran income: ~$33K W-2
-Fiancé income: ~$50K, not W-2 and hasn’t filed taxes yet (but has regular weekly deposits into a personal account)
-Monthly debts: ~$1,400
-Strong rent history: 9 years on-time
-Veteran missed payments in the past, possibly related to student loans, likely driving the lower credit score. Given their current income, the Veteran would likely qualify for $0 IDR payment. (This requires further investigation)
I know this particular case is a tough one, and it may not work given the buyers’ profiles, but it made me curious about what’s possible for this client or others in similar situations.
Are there any programs (VA or non-VA) that could help bridge that $105K difference? Maybe something like a supplemental second loan, DPA program, or even unsecured financing?
Would love to hear from anyone who’s dealt with similar VA assumption scenarios. Thanks!
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1 Reply
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Handling a VA loan assumption with a $105K equity gap cognitively and financially in your client’s case is difficult, particularly with the client’s credit profile (mid-500s to low 600s credit scores, roughly $83K combined income, $1,400 monthly debts, and fiancé’s non-traditional income sources). The client’s financial situation is tough. However, tailored financing approaches and methods could close the gap, albeit with some lender leniency, buyer qualifications, and the deal’s specifics. I will provide possible solutions, considerations, and actionable steps based on the context and the understanding of VA loan assumptions and financing options as of May 22, 2025.
Key Considerations for the Scenario
VA Loan Assumption Basics:
- A buyer can take over the seller’s VA loan with a VA loan assumption, which is beneficial in a high-rate environment (e.g., current rates ~7% vs. potentially 3% on the existing loan).
- The buyer must meet the lender’s credit and income requirements, which include a minimum credit score of 620 and a debt-to-income (DTI) ratio under 41%.
- Some lenders, like MHS Lending, may go to 580 or higher DTI with sufficient residual income.
- The buyer has to cover the equity gap ($105K in this case) between the purchase price ($315K) and the loan balance ($210K), often in cash.
- Many lenders do not allow second mortgages when a loan is assumed.
- Non-veterans can assume VA loans, but in cases where the fiancé is not a veteran, the seller’s VA entitlement remains tied to the loan unless the buyer is a veteran with their own entitlement.
Buyer’s Financial Profile:
Credit Scores:
- The veteran’s mid-500s score is below the typical 620 minimum.
- Still, certain lenders may be willing to accept VA loan applications with scores as low as 580, particularly with manual underwriting or compensating factors like a strong rent payment history.
- The fiancé’s low-600s score is closer to standard requirements.
Income:
- A combined income of $83K ($33K W-2 + $50K non-W-2) yields $6,917/month gross.
- The fiancé’s non-W-2 income might require a two-year history of consistent earnings to be counted (e.g., bank statements showing regular deposits), as unfiled taxes could complicate verification.
DTI Ratio:
- Monthly debts of $1,400 give a DTI of ~20.2%, well below the 41% guideline.
- However, the new mortgage payment (unknown but likely ~$1,000–$1,500 for a $210K loan at 3-4%) plus additional financing for the $105K gap will raise DTI.
Residual Income:
- In most regions, the VA requires a couple to have $1,025–$1,200/month in residual income, depending on loan size.
- This is crucial for approval, especially with a low credit score.
Student Loans:
- If the veteran qualifies for a $0 Income-Driven Repayment (IDR) plan, this could lower DTI.
- Still, lenders may consider deferred or non-reported debts on the credit report.
Challenges
- The $105K discrepancy is significant, and many lenders with VA assumptions will not permit second mortgages, but rather need cash to satisfy the equity.
- The veteran’s credit score history and the fiancé’s non-W-2 earnings could restrict secondary borrowing opportunities.
- Assumptions are extremely hands-on and require 60-120 days of work, making them time-intensive and requiring multitasking and organization.
- Addressing the $105K Shortfall with Alternate Financing Approaches
- These program options and financing methods, tailored to buyers’ needs, seek to address the gap creatively.
Unsecured Personal Loan:
Overview:
- The $105K gap could be closed with personal loans, and some lenders allow the inclusion of personal loans if the DTI is within limits.
- One Reddit user noted that personal loans helped close equity gaps with some lenders.
Advantages:
- “Unsecured” means no additional debt, resulting in retaining the primary home requirement for the VA loan.
- It may be easier and quicker than obtaining a second mortgage.
Disadvantages:
- Because the buyers’ credit scores range from the mid-500s to the low 600s, these loans would come with very high (10-20%+) interest rates.
- High monthly payments and a short repayment period of 3 to 7 years could put DTI above 41%.
- For example, a $50K loan at 15% over 5 years adds ~ $15K, 1,188 per month.
- The lender could be concerned with the veteran’s credit history and the fiancé’s unfiled taxes.
Feasibility:
- A limited gap proportion is feasible, like 20 to 50k.
- However, 105k without collateral is unrealistic, given the stringent credit, payment, and repayment restrictions.
- Credit unions and online lenders, like SoFi and Lightstream, could provide loans at much better rates compared to mid-600s scores.
Next Steps:
- Contact the current VA loan servicer to check if personal loans can be used to cover the gap.
- Obtain prequalification with credit unions or lenders focusing on subprime-fitting borrowers.
- Verify the fiancé’s income with 2-year bank statement submissions.
Second Mortgage (Conventional or Private):
Description:
- Some VA lenders have over-leveraging restrictions, making getting 105k using second mortgages like HELOCs difficult.
- However, some say it is workable if the second Mortgage is left out of the DTI.
Pros:
- A repayment period of 10-20 years offers decreased monthly payments relative to personal loans.
- For instance, 105k at 8% over 15 years would equate to ~1,000 per month.
- It may be easier to obtain through credit unions or portfolio lenders.
Cons:
- Requires lender approval; many VA servicers prohibit second liens on assumptions.
- Interest rates (8-12% or greater) based on a credit score in the mid-500s are worse.
- CLTV caps (private lenders 65-70%) may restrict borrowing potential.
- For a home valued at $315K, $210K + $105K = dangerous 100% CLTV.
Feasibility:
Credit score and lender restrictions make this difficult. Portfolio lenders and local credit unions may be more lenient for those marrying to boost Income and DTI.
Next Steps:
Approach flexible VA lending institutions or local credit unions and inquire about second mortgages with the VA loan servicer.
Down Payment Assistance (DPA) Programs:
Description.
- Assist with funding for closing costs and down payments through grants or low-interest loans.
- In the case of VA loans, DPA’s assistance is useful in covering the $105K gap or closing costs, which includes a 0.5% VA funding fee (~$1,050 on $210K).
Pros:
Assistance from some state or local programs aimed at veterans or low to moderate-income buyers, like the California Housing Finance Agency and Texas SETH.
Cons:
- DPA programs likely only cater to new mortgage applications rather than assume, and might not address a $105K shortfall.
- Buyers may be priced out due to income cap restrictions, such as 80 to 120 percent of the area median income ($83K combined).
- Gap coverage through non-W2 employment or low credit scores is slim.
Feasibility:
- While there is a small chance the entire amount would be funded, small grants ranging from $5K to $20K could reduce the gap.
- The buyer’s income and credit profile qualify for additional support if they marry and cash in on the combined income.
Next Steps:
- For DPA options, check state housing agencies and VA Regional Loan Centers.
- A VA-approved lender can provide tailored advice on eligibility.
Seller Financing or Wraparound Mortgage:
Description:
- As sellers, they could close part of the $105K gap through a promissory note or wraparound Mortgage in which the buyer pays the seller, who continues paying the VA loan.
- This is typical and usually requires underwriting.
Pros:
- Terms can be tailored with the seller directly, like a 5 to 10 percent rate for 10 to 20 years.
- Side steps traditional limitations imposed by the primary mortgage lender on subordinate loans.
Cons:
- The note has to be carried by a seller, who needs to be healthy financially, which is unlikely if, as a landlord, a cash closing is expected.
- Borrowers may face restrictions on wraparounds due to due-on-sale clauses set by VA loan servicers.
- Due to the legal and tax implications, an attorney must review them.
Feasibility:
- Low, as the seller-landlord probably expects to receive the full $105K to cash out equity.
- Still, it is important to determine whether the seller is motivated and flexible with terms.
It is worth determining. Steps:
- Hold discussions with the seller and their lender.
- You may choose a real estate attorney to draft the legal documents for the transaction.
Gift funds or family assistance:
Description:
Gift funds from relatives or friends can help cover part of the $105K, as VA loans permit gifts for down payment and closing costs.
Pros:
- No repayment is required, preserving DTI.
- Paying them back isn’t needed, safeguarding DTI.
- A paycheck isn’t required for simple documentation like a “gift letter” and “proof of funds.”
Cons:
- It needs a willing donor who’s furnished with considerable money.
- For ongoing affordability, this doesn’t help if DTI is stretched.
Feasibility:
This option is only feasible with buyers having access to generous family support, which may not apply.
Next Steps:
Verify with the lender that the gift funds bridge the equity gap. Prepare a gift letter if applicable.
VA Vendee Loan (Non-VA Buyer Option):
Description:
A VA Vendee Loan may apply to non-Veteran spouses, although these are mostly proprietary to VA loans. It permits financing for non-veterans with a minimal down payment of 5 to 10 percent.
Pros:
- A non-veteran fiancé may receive less scrutiny under this loan.
- This loan might supplement other loans to bridge some gaps.
Cons:
- This is predominantly applicable to purchased VA foreclosures.
- Lack of competitive options and higher interest rates than traditional VA loans.
Feasibility:
Not likely–bounded by the absence of traditional assumptions.
Next Steps:
Could you validate with a VA lender whether Vendee loans or financing is applicable?
Special Considerations for the Buyers
Marriage to Combine Income:
- Before closing, if the couple marries, it would likely strengthen the application by marrying incomes ($83K) and using the fiancé’s low 600s credit score for qualification.
- If eligible for IDR 0, the veteran’s student loans may positively impact DTI and residual income requirements.
Student Loan IDR:
- Verify with the Department of Education if the veteran qualifies for an IDR 0 payment.
- If verified, this could remove student loans from the DTI assessment, making the borrower more favorable.
- Submit the borrower’s documentation to the lender.
Fiancé’s Non-W-2 Income:
- The fiancé must submit bank statements that show weekly income deposits for two years.
- Unfiled taxes are suspicious; prompt filing with a tax professional is suggested since lenders often require tax returns.
Veteran’s Credit:
- With 5-6 years of credit history, the veteran’s score in the low 500s can be offset by strong rental listings of dependable employment for 5+ years and 9 years of on-time rental payments.
- Validate rental information (canceled checks, landlord letters).
- Work directly with the lender for manual underwriting.
Veteran Credit Improvement:
- Taking action on the veteran’s credit score in the mid-500s could improve it.
- Addressing missed payments and disputes can raise the score to 580+ in 3-6 months with the help of a VA financial counselor or credit repair services.
Feasibility Assessment
Considering the buyer’s profile, the most feasible choices are:
Unsecured Personal Loan ($20K–$50K):
- This covers a portion of the gap while staying under a 41% DTI.
- For example, a $50K loan at 12% over 7 years adds ~$880/month.
- This puts the DTI at ~33% with a $1,200 mortgage payment.
- Combine with cash savings or a small DPA grant.
DPA Programs ($5K—$20K):
- While these programs will help somewhat, they will unlikely cover $ 105 K.
- Consider veterans’ programs (e.g., VA Regional Loan Centers or state housing agencies).
Second Mortgage (if allowed):
- If DTI and residual income post-marriage are favorable, a portfolio lender or credit union may approve a $50K—$70K second loan.
- Without substantial cash reserves or a cash-strapped seller willing to finance, the full $105K is unobtainable.
- The veteran’s low credit score and fiancé’s unfiled taxes are hurdles, but flexible lenders like Gustan Cho Associates or local credit unions with manual underwriting may be willing.
Practical Steps
Contact the VA Loan Servicer:
- Verify they allow personal loans and second mortgages for equity gaps.
- Check the processing timeline (45–120 days) alongside eligibility criteria and details.
Look For A VA Lender With Better Terms:
- You may check with Chad Bush of Gustan Cho Associates, GCA Mortgage Group, and local credit unions for approvals for low credit scores.
- Provide the underwriter with the last 24 months of bank statements for the fiancé’s income and documentation to prove the rent payment history.
Explore DPA Programs:
- For veteran-specific grants, visit state housing agencies or local HUD programs.
- Confirm the income along with the credit check.
Addressing Credit and Taxes:
- Confirm IDR 0 for the veteran’s student loan debts.
- File the fiancé’s taxes promptly to mitigate claims disallowing income.
- Start the credit repair process to achieve 580+.
Negotiate with The Seller:
- Propose to the seller whether they’d accept a form of partial seller financing, such as a $50K note at 6% for 10 years.
- Validate that they are okay waiting for closing within the 60 to 120-day mark.
Talk To A VA Specialist:
- Call a VA loan broker like Chad Bush of Gustan Cho Associates at 800-900-8569 or a real estate agent specializing in assumptions, such as Chad Bush or Dino Hasapis.
Similar Situations Insights
- A Reddit user shared that one lender approved a personal loan to cover an assumption gap as long as the borrower’s DTI qualified.
- This means a lender with some leniency could be possible.
- Dino Hasapis, a realtor, stated in an interview that assumptions are complicated and require tremendous time, demanding organization, and perseverance from clients and agents.
- Gustan Cho Associates’ willingness to work with borrowers with credit scores down to 500 and high DTIs shows that niche and specialized lenders are the answer for difficult scenarios.
Working with a more experienced real estate agent and VA lender could help bridge a $105k gap while hanging onto the buyer’s credit and income constraints. The tough task might become feasible if a $20,000 to $50,000 personal loan, a small DPA grant of $5,000 to $20,000, and cash savings were available. I’d recommend getting married to boost income, verifying the fiancés’s non-W-2 income, and obtaining an IDR 0 payment. If the gap proves difficult to manage, shifting to a less expensive home or waiting until credit improves could help close the gap.
If you need more help, please call 800-900-8569 to speak with a VA loan expert, Chad Bush, at Gustan Cho Associates. Local Down Payment Assistance programs can be found at https://www.hud.gov. If you provide additional details, such as the monthly mortgage payment or particular credit challenges, I can refine the analysis further. Best of luck!