Veterans Benefits Administration Circular 26-23-10
Department of Veterans Affairs May 22, 2023
Washington, DC 20420
(LOCAL REPRODUCTION AUTHORIZED)
VA Assumption Updates
1. Purpose. The Department of Veterans Affairs (VA) is publishing this Circular to clarify
assumption procedures and republish the stacking order for Assumptions with VA-Prior
Approval, Assumptions without Substitution of Entitlement, Assumptions with Substitution
of Entitlement, and Assumption Appeals.
2. Background. VA statute and regulations require an assumption be approved if:
a. The loan is current, and
b. The assumer is contractually obligated to purchase the property and to assume full
liability, and
c. The assumer is creditworthy under VA’s credit and underwriting standards.
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(1) Assumption Processing: Assumptions are a fundamental feature of a VA-guaranteed loan
and are to be processed by the current holder or their authorized servicing agent as follows:
(a) Holders or Servicers with Automatic Authority
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: Loan holders, or their authorized
servicing agents, with automatic authority shall process and decide assumption applications for
loans they hold or service within 45 calendar days of receipt of a complete application. If both
the loan holder and their authorized servicing agent have automatic authority, they must decide
who will process the assumption.
Assumption applications disapproved by the holder, or its authorized servicing agent, may be
appealed to VA within 30 calendar days. The appeal may be requested by the seller or
assumer.
(b) Holders or Servicers without Automatic Authority
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: If neither the loan holder nor its
authorized servicing agent has automatic authority, the assumption application and credit
package must be submitted to VA for prior approval within 35 calendar days of receipt of a
complete application.
(c) Assumption Types: An assumption involves the transfer of ownership and release of
liability of a VA-guaranteed loan. An assumption may be processed with or without a
substitution of entitlement.
(d) Assumption without a Substitution of Entitlement: The original Veteran’s entitlement
remains encumbered by the loan until the loan is paid in full. The seller would not receive a
restoration of entitlement.
(e) Assumption with a Substitution of Entitlement: If the assumer is an eligible Veteran who
intends to occupy the property as their home and has sufficient entitlement, they may agree to
substitute their entitlement for the seller’s entitlement. The seller would receive a restoration of
entitlement.
1
See 38 U.S.C. § 3714. See also 38 C.F.R. §§ 36.4303(l) and 36.4340.
2
38 C.F.R. § 36.4303(l)(1)(i).
3
38 C.F.R. § 36.4340(l)(1)(ii).
Circular 26-23-10 May 22, 2023
(f) Assumption Fees: The holder or servicer may charge an assumption processing fee not to
exceed $300 on assumptions processed by holders or servicers with automatic authority, or
$250 on assumptions that require VA prior approval. This fee is intended to cover all costs of
underwriting, processing and closing the assumption. If the loan is disapproved, and the
assumption fee was collected previously, the portion attributable to changing the loan records,
$50, must be returned to the party who paid the fee if the loan remains disapproved after 60
calendar days (to allow time for processing requested appeals).
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The following charges, if incident to the loan, may be charged to the assumer of a VA-
guaranteed loan:
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(i) Assumption processing fee (as described above),
(ii) VA funding fee
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(unless the assumer is exempt, or the transaction is the result of an
unrestricted transfer),
(iii) Credit report,
(iv) Recording fees and recording taxes incident to recordation,
(v) Applicable taxes, hazard insurance, flood insurance and assessments,
(vi) Title examination and title insurance, if any, and
(vii) Fees approved in advance as local deviations.
It is permissible for the seller to pay for real estate commission or brokerage fees.
d. Unrestricted Transfers of Ownership: Certain transfers of ownership, referred to as
Unrestricted Transfers,
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are permitted without the approval of the holder or VA. These
transfers convey ownership but not liability. These transactions are not considered assumptions
or releases of liability but must be reported to VA by the servicer through VALERI. A list of
such transfers is available in VA Lenders Handbook, Chapter 5, Topic 6 section, Unrestricted
Transfers. The holder or its authorized servicing agent may charge a fee, not to exceed $50, to
update the loan records. The VA funding fee is not assessed on unrestricted transfers. If the
transferee wishes to become liable for the loan, the holder or servicer must evaluate their
creditworthiness under VA’s credit underwriting standards and complete an assumption.
e. Spousal Releases: VA does not require the servicer to complete an assumption to release a
spouse, whose entitlement is not encumbered by the VA-guaranteed loan, from liability to a
loan if the request is made due to a decree to dissolve the marriage or a legal separation
agreement awarding the property to the Veteran whose entitlement is encumbered by the VA-
guaranteed loan. The servicer may proceed with the spousal release, and update VALERI with
the obligors as appropriate, if the Veteran or ex-spouse provides the following documentation
to the servicer:
(1) A copy of the decree to dissolve the marriage or legal separation agreement verifying the
property was awarded to the Veteran whose entitlement is encumbered by the VA-guaranteed
loan; and,
(2) A recorded copy of the legal document (ex. quit claim deed) transferring ownership to
the Veteran whose entitlement is encumbered by the VA-guaranteed loan.
4
38 C.F.R. § 36.4303(l)(1)(ii)(D).
5
See 38 C.F.R. § 36.4313.
6
38 U.S.C. §3729.
7
38 C.F.R. § 36.4309(c)(1).
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Circular 26-23-10 May 22, 2023
3. Assumption Procedures: As indicated above, assumption processing procedures differ
based on the authority held by the loan holder or its authorized servicing agent.
Loan holders and servicers are reminded that repayment of partial claim assistance, provided
as part of VA’s COVID-19 National Emergency recovery measures, must be repaid in full
immediately upon the Veteran’s transfer of ownership of the property.
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a. Holders or Servicers with Automatic Authority: Loan holders or servicers with automatic
authority must process and report closed assumptions to VA. The following is intended to
provide information on assumption processing:
(1) Application: The seller and buyer will submit an application for an assumption, through
which the assumer is agreeing to assume full liability to the loan.
(2) Process and Underwrite: The documentation required to underwrite an assumption is the
same as for a VA purchase transaction. The underwriter should apply the underwriting
standards outlined in the VA Lenders Handbook Chapter 4. The servicer must also ensure the
loan is current or will be made current at or before the close of the assumption. It is
permissible for the loan to be brought current through cash at close. It is not permissible to
bring the loan current through a loan modification at the time of the assumption unless the
assumption is required due to a decree to dissolve the marriage or a legal separation
agreement, or the assumer is obtaining the property by operation of law on the death of the
borrower.
If the assumption request includes a substitution of entitlement, request a Certificate of
Eligibility for the assumer to ensure they have enough entitlement to substitute for the seller’s
entitlement. Apply the occupancy standards in VA Lenders Handbook Chapter 3 Topic 5.
(3) Notify the buyer and seller: The holder or servicer must complete its examination and
notify the seller and buyer of its decision to approve or disapprove the assumption within 45
calendar days of receipt of a complete underwriting package.
If the assumption application is disapproved, the notification must advise the assumer and
seller that the decision may be appealed to VA within 30 calendar days, and provide a servicer
point of contact (including name, address, and email address) for VA to request the credit
package if the assumption is appealed. The notice must also include the reason(s) for
disapproval, and if the application was disapproved for credit reasons, the assumer must be
informed on the basis of which the adverse decision was made in accordance with the Fair
Credit Reporting Act.
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Additionally, if the assumption fee was previously collected, the holder,
or its authorized servicing agent, must refund $50 of the previously collected assumption fee if
the assumption remains disapproved after 60 days.
(4) Close the loan: Charges incident to the loan, described above in 2.c, may be charged in
conjunction with the loan closing.
(5) Create an assumption funding fee record in the Funding Fee Payment System (FFPS):
Unless the assumer is eligible for a fee waiver,
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a funding fee of 0.5% of the loan balance
must be paid on an assumption. Please note, this must be collected at close and may not be
financed into the loan balance. The funding fee must be remitted to VA within 15 calendar
8
38 C.F.R. § 36.4806(b)(2)(i).
9
15 U.S.C. §§ 1681-1681x
10
38 USC § 3729(c) 3
Circular 26-23-10 May 22, 2023
days of closing.
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If the assumer is eligible for a fee waiver, the assumption record should still
be created in FFPS. In these cases, select the ‘Funding Fee Exempt’ option.
(6) Report the assumption events VALERI: After an assumption is closed, the servicer must
report the Transfer of Ownership and Release of Liability events to VALERI as outlined in the
VA Servicer Handbook M26-4 Chapter 3.04.
(7) Submit the assumption package to VA: After an assumption is closed, the holder, or its
authorized servicing agent, must submit the credit package and a copy of the executed deed
and/or assumption agreement to VA within 45 calendar days of loan closing.
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A stacking
order is provided in Exhibit A. The assumption package should be uploaded as a Portable
Document Format (PDF) into VALERI under Documents, as Document Type: ‘Release of
Liability’.
(8) Notify VA: Notify the LGY.LPNATIONAL@va.gov that a holder or servicer-approved
assumption package has been uploaded.
b. Assumption Appeals: If the holder, or its authorized servicing agent, disapproves an
assumption application, the assumer or seller may appeal the decision to VA within 30
calendar days from the notification of disapproval.
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VA will notify the servicer upon receipt
of an assumption appeal, requesting the assumption package. If the assumer or seller request
an appeal through the holder, or its authorized servicing agent, they do not need to wait for VA
to request the assumption package. In these cases, follow the submission instructions below.
(1) Submit the assumption package to VA: The assumption package should be uploaded as a
PDF into VALERI under Documents, as Document Type: ‘Release of Liability’ within 7
calendar days. A stacking order is provided in Exhibit B.
(2) Notify VA: The VA assumption package request letter will contain a VA point of contact
(POC) and email address. Notify the POC and LGY.LPNATIONAL@va.gov that the
assumption appeal package has been uploaded.
(3) VA Decision: VA will notify the holder or its authorized servicing agent, the seller, and
assumer of its decision to approve or disapprove the assumption application within 10 business
days of receipt of a complete assumption package. It is imperative to provide the necessary
documents to avoid underwriting delays.
If the assumption fee was previously collected, the holder or its authorized servicing agent,
must refund $50 of the previously collected assumption fee if the assumption remains
disapproved after 60 calendar days.
(4) Close the loan: If VA approves the assumption, the holder or its authorized servicing
agent, should close the assumption within 30 calendar days of VA’s decision. Charges incident
to the loan, described above in 2.c, may be charged in conjunction with the loan closing.
(5) Create the funding fee record in the Funding Fee Payment System: Unless the assumer is
eligible for a fee waiver, a funding fee of 0.5% of the loan balance must be paid on an
11
38 C.F.R. § 36.4313(e)(2)
12
38 C.F.R. § 36.4303(I)(1)(i)(A)
13
38 U.S. Code § 3714(a)(4)
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Circular 26-23-10 May 22, 2023
assumption. Please note, this must be collected at close and may not be financed into the loan
balance. The funding fee must be remitted to VA within 15 calendar days of closing. If the
assumer is eligible for a fee waiver, the assumption record should still be created in FFPS. In
these cases, select the ‘Funding Fee Exempt’ option.
(6) Report the loan events to VALERI: After an assumption is closed, the servicer must
report the Transfer of Ownership and Release of Liability events to VALERI as outlined in the
VA Servicer Handbook M26-4 Chapter 3.04.
(7) Submit the assumption closing package to VA: After an assumption is closed, the holder,
or its authorized servicing agent, must submit the closing package to VA within 45 calendar
days of loan closing. A stacking order is provided in Exhibit B. The assumption package
should be uploaded as a PDF into VALERI under Documents, as Document Type: ‘Release of
Liability’.
closing package has been uploaded.
c. Holders or Servicers without Automatic Authority: If neither the loan holder nor their
authorized servicing agent has automatic authority, the assumption must be submitted to VA
for prior approval. The following is intended to provide information on prior-approval
assumption processing:
(1) Application: The seller and buyer will submit an application for an assumption, through
which the assumer is agreeing to assume full liability to the loan.
(2) Process: The holder or their authorized servicing agent must develop a credit package to
be used by the Secretary for determining the creditworthiness of the borrower. The
documentation required to underwrite an assumption is the same as for a VA purchase
transaction.
(3) Submit to VA for Prior-Approval: The holder or their authorized servicing agent must
submit a request for prior-approval of an assumption request within 35 calendar days of
receipt of a complete application package. The assumption package should be uploaded as a
PDF into VALERI under Documents, as Document Type: ‘Release of Liability’. A stacking
order is provided in Exhibit B.
(4) Notify VA: Notify LGY.LPNATIONAL@va.gov that a prior approval assumption
package has been uploaded.
(5) VA Decision: VA will notify the holder or its authorized servicing agent, the seller, and
assumer of its decision to approve or disapprove the assumption application within 10
business days of receipt of a complete assumption package. It is imperative to provide the
necessary documents to avoid underwriting delays.
If the assumption application is disapproved by VA, the holder, or its authorized servicing
agent, must refund $50 if the assumption processing fee was previously collected.
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Circular 26-23-10 May 22, 2023
(6) Close the loan: If VA approved the assumption, the holder or its authorized servicing
agent, should close the assumption within 30 calendar days of VA’s decision. Charges
incident to the loan, described above in 2.c, may be charged in conjunction with the loan
closing.
(7) Create the funding fee record in the Funding Fee Payment System: Unless the assumer is
eligible for a fee waiver, a funding fee of 0.5% of the loan balance must be paid in cash on an
assumption. The funding fee must be remitted to VA within 15 calendar days of closing. If the
assumer is eligible for a fee waiver, the assumption record should still be created in FFPS. In
these cases, select the ‘Funding Fee Exempt’ option.
(8) Report the loan events to VALERI: After an assumption is closed, the servicer must
report the Transfer of Ownership and Release of Liability events to VALERI as outlined in the
VA Servicer Handbook M26-4 Chapter 3.04.
(9) Submit the assumption closing package to VA: After an assumption is closed, the
holder, or its authorized servicing agent, must submit the closing package to VA within 45
calendar days of loan closing.
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A stacking order is provided in Exhibit C. The assumption
package should be uploaded as a PDF into VALERI under Documents, as Document Type:
‘Release of Liability’.
(10) Notify VA: The VA assumption approval letter will contain a VA point of contact
(POC) and email address. Notify the POC and LGY.LPNATIONAL@va.gov that the
assumption closing package has been uploaded.
4. Questions. For questions or comments please contact VA at 1-877-827-3702, between the
hours of 8:00 AM and 6:00 PM Eastern time.
5. Paperwork Reduction Act. The information collection requirements contained in this
document have been approved by the Office of Management and Budget (OMB) under the
Paperwork Reduction Act of 1995 (44 U.S.C. § 3501-3520) and assigned OMB control
numbers 2900-0021, 2900-0110, 2900-0111, 2900-0474, 2900-0909, and 2900-0515. In
accordance with the Paperwork Reduction Act, VA may not conduct or sponsor, and a person
is not required to respond to, a collection of information unless the collection displays a
currently valid OMB control number.
6. Effective Date. This Circular is effective immediately.
7. Rescission: This Circular is valid until rescinded.
14
38 C.F.R. § 36.4303(I)(1)(i)(A)
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Circular 26-23-10 May 22, 2023
By Direction of the Under Secretary for Benefits
John E. Bell, III
Executive Director
Loan Guaranty Service
Distribution: CO: RPC 2021
SS (26A1) FLD: VBAFS, 1 each (Reproduce and distribute based on RPC 2021
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