Inherited Home with VA loan – anyway to keep low rate?
Member since 2021 · 10 posts · 2 votes
My wife and I recently inherited a property from my parents' estate, and I'm trying to sort out both the legal and loan side of things. We've been renting the house from my parents for the past 8 years (can document payments). The property is worth about $1M with a $370k mortgage at a 3.6% VA loan rate (through PennyMac).
Since VA loans are tied to the veteran (my dad, who has passed), is there any legal or financial strategy to keep this existing loan instead of being forced to refinance into today's 6%+ rates?
This would make a huge difference in affordability and family cash flow. Has anyone dealt with an inherited property and a VA mortgage — and if so, is loan assumption or transfer possible through the estate process?
Would really appreciate insights from anyone with mortgage, estate, or legal experience around this.
Hey Mark,
Good question — I'm a veteran myself and I've run into this before. Unfortunately, VA loans are directly tied to the veteran's entitlement. Once your dad passed, that entitlement doesn't transfer to heirs, so you can't just "keep" the 3.6% note the way it is. The lender will almost always call for payoff once the estate transfers ownership.
That said, there are two possible wrinkles worth checking:
Bottom line: unless one of you has VA eligibility, you're probably looking at refinancing into a conventional loan at current rates. It stinks, but at least you've got a lot of equity cushion (property worth $1M vs. $370k owed), which gives you options.
If you want to stretch every angle, I’d:
Wish I had a magic answer, but that's the reality with inherited VA loans; I'm sorry for your loss and I hope this helps you a bit, I sent you a DM on BP and hope you can assist.
Sorry for your loss.
I have gone through handling inhering a property and assuming the existing loan It was my brother who was assuming the loan, but he is borderline capable so I did all the inquiring, etc. he still has the loan over 4 years after inheriting the property.
In most cases, a relative inheriting a residential property can assume the existing mortgage under the original terms due to federal law, which provides exceptions to the standard "due-on-sale" clause. It is my belief this law applies to all loans including VA loans. I would call the mortgage holder and discuss with them, but I suspect they will tell you that you can assume the loan
Question for OP is do you desire such a low leverage option. Below 37% LTV will negatively impact the return. You may desire to look into ways to increase your leverage and use the money for other investment opportunities.
You do not state what state this is, but if it is CA the property 13 reduced property tax is only maintained if the home was the primary of the deceased and will be the primary of a child (this was the case for my brother and he is still living in the home at a tax rate that is based on a 1977 purchase plus 2% max annual increase). This implies that in CA you do not desire to have been renting the property if you plan to continue to live in the property; you will be better served if it was the primary residence of the deceased parents. Something to consider.
good luck