Divorce and Your VA Loan - Now What

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VA Loans for Vets NMLS#184169 5050 North 40th Street, Ste 260 Phoenix, AZ 85018 602-908-5849 Jimmy Vercellino is one of the nation’s top VA Home Loan mortgage originators. A Marine veteran, he and his team work hard to help veterans take advantage of their VA loan benefit and become homeowners. From start to finish, they guide their clients through the process and make it as smooth and stress-free as possible. Visit the site at https://www.valoansforvets.com

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Presentation Transcript

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VA loan entitlement is a benefit offered to eligible military members and surviving spouses. Military spouses are included in this benefit by association.

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This distinction is important because it affects what happens to a VA mortgage in the case of divorce.

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In a divorce the non-military spouse loses VA loan rights.

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When a VA mortgage is processed the guaranty remains with the loan even if the veteran stops living in the home.

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The only way to remove the VA guaranty is refinancing the loan into a conventional mortgage or selling the home so the veteran can become eligible for a new VA loan.

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Jointly held mortgages are a bit different. In this case only one spouse needs to qualify for the VA loan and the guaranty is no longer attached only to the veteran borrower.

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This can introduce complications. If neither spouse can qualify for a new mortgage and the loan is not paid off by selling the home…

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…the veteran will be unable to take out a new VA loan while the original loan exists.

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WHAT HAPPENS TO THE VA LOAN IN DIVORCE

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Couples who own a home together with a VA loan have several options in a divorce.

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One solution is selling the property and dividing any equity or debt between the spouses.

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This option frees both spouses from the mortgage and allows the veteran to become eligible for a new VA loan.

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Sole ownership of the home can also be designated to one spouse who can then refinance the mortgage into their name alone.

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This option also frees the veteran from the loan guaranty. This solution is most common when its the non-military spouse who will remain in the home.

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A release of liability for credit and legal purposes can be requested from the VA instead.

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In this case the request is processed by the VA when the veteran and spouse are both co-borrowers but the co-borrower wants to be released from the loan.

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To be approved for a release of liability the divorce must be final. The entire estate must remain in the former spouses name.

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A loan assumption or transfer may be used as well. In this case the mortgage is assumed by the purchaser as-is with the remaining balance and loan term.

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The veteran does not need lender or VA approval to do a loan assumption. A major downside to this option is the veteran is still liable for the loan if the purchaser defaults on payments.

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Rather than using a loan assumption with a non-qualifying borrower a better solution when possible is a substitution of entitlement.

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This is another type of loan assumption in which the new buyer has their own VA loan entitlement which is substituted for the current VA borrowers.

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The veteran spouse will be free to use their VA entitlement to secure a new loan.

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This option does require that the purchaser have an entitlement sufficient to substitute for the ex-spouses VA entitlement. The home also must be occupied by one of them.

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In a worst-case scenario neither spouse can get a new loan after the divorce and the home is occupied by either spouse.

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In this case the veteran cant get a new VA mortgage until the original loan is paid off through refinancing a loan assumption or sale of the home.

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Mortgage Originator Jimmy Vercellino specializing in VA loans helps veterans use their VA loan benefit to their greatest advantage.

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For more details call 619-350-1951. Visit the site at

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First Choice Loan Services Inc. DBA FCLS in CA 959 South Coast Drive 490Costa Mesa CA 92626 Phone: 619-350-1951

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