Should I look for a VA loan assumption in Colorado Springs when mortgage rates are higher?

Often, yes. When today's rates are well above the rate on a seller's existing VA loan, the savings over the life of an assumed loan can be large. Two things decide whether it's worth it for you. The first is the gap between the price and the loan balance: if you'd have to borrow it, a second loan can nearly cancel the savings. The second is time, because the loan approval takes longer than a normal purchase. If you can cover the gap and wait, an assumption is worth looking for.

Why the savings can be so large

When you assume a VA loan, you take over the seller's existing loan at its original rate and remaining term. Many Colorado Springs homeowners bought or refinanced when rates were much lower, and with the steady military turnover here, some of those homes come up for sale with low-rate VA loans still in place. How a VA loan assumption works covers who can assume (you don't have to be a veteran), the costs, and the seller's entitlement.

When you look at the money you can save over the life of the loan, it's pretty incredible. The challenge, of course, is the gap. And the trade-off is time.

A simple example

Hypothetical, for illustration only. Principal and interest only; taxes, insurance, and fees are left out, and these aren't current rate quotes. A $450,000 home. The seller's VA loan has $320,000 left at 3%, with 25 years remaining. That leaves a $130,000 gap.

Over its remaining 25 years, the assumed $320,000 loan in this example would cost about $135,000 in interest. The same $320,000 borrowed at 6.5% over 30 years would cost about $408,000. That's the kind of difference that makes an assumption worth a look.

Notice what the second loan does, though. Paying the gap in cash saves about $1,300 a month in this example. Borrowing it saves about $280. With a higher rate or a shorter term on the second loan, the savings shrink even more.

The gap: the first deciding factor

If you don't have the gap money, a second loan can almost cancel out the savings of the first. That's when it makes sense to just go for a regular listing.

If you do have the cash, the question shifts. It's less "can I come up with it" and more "what would that money earn somewhere else, compared with what I'd save?" That's a conversation to have with your loan officer, and with a financial advisor if the gap is a big share of your savings. Choosing a lender for a VA loan covers what to look for.

Time: the second deciding factor

We write every offer as though we're closing in 30 days. What gets pushed out is the loan approval and the actual closing, because they depend on the loan servicer's timeline for approving the assumption. VA guidance gives servicers 45 days to decide once they have a complete package, and in practice it can take longer.

If you don't have the time or the flexibility to wait, that's another reason not to go after one. That matters if you're on PCS orders with a report date, a lease ending, or a home to sell on a fixed schedule. How early to start buying before a PCS covers planning around orders, and the assumption page explains the Colorado contract deadline that matters most.

Search for assumable homes only, or both?

That's up to you. Assumable listings can be found in the local MLS, so you can set up a search that alerts you when one comes up. Some buyers look only at assumable homes; others watch for them while also looking at regular listings.

The same two questions point the way:

• If you have the gap money and the time, an assumption-only search can make sense.
• If you'd have to borrow the gap, or you can't wait, a regular listing is usually the better path, and an assumption becomes a bonus if one fits.

Other ways to lower your payment

An assumption isn't the only way to get a lower payment when rates are higher. On a regular VA purchase, a seller can help pay for a rate buydown within VA's concession limits; how VA seller concessions and closing costs work explains those limits. New construction sometimes comes with builder rate incentives; builder incentives covers how to compare them. And how FHA, conventional, and VA loans compare can help if you're weighing loan types.

What could change the answer

• How far today's rates are above the assumable loan's rate.
• The size of the gap, and the rate and term on any second loan.
• Your timeline, including PCS report dates or a home you need to sell.
• What your cash would earn if you kept it instead.
• How long you plan to keep the home, including as a rental.

When to talk with a professional

A VA-experienced loan officer can run your numbers for a new loan, an assumption with cash, and an assumption with a second loan side by side. If the gap would use much of your savings, a financial advisor can help you weigh it. A real estate professional who has worked through assumptions can help you find them, write the offer, and keep the servicer's process moving.

Sources

• U.S. Department of Veterans Affairs, VA funding fee and loan closing costs (assumption funding fee): https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/
• U.S. Department of Veterans Affairs, Circular 26-23-10, VA Assumption Updates: https://www.benefits.va.gov/HOMELOANS/documents/circulars/26-23-10.pdf
• U.S. Department of Veterans Affairs, Circular 26-23-27, Noncompliance in Processing Assumptions (45-day decision requirement), December 20, 2023: https://www.benefits.va.gov/HOMELOANS/documents/circulars/26-23-27.pdf
• Colorado Division of Real Estate, Contract to Buy and Sell Real Estate (Residential), CBS1, §§ 4.6 and 5.4: https://dre.colorado.gov/real-estate-broker-contracts-and-forms