What Happens to a VA Home Loan if the Veteran Dies?

The U.S. Department of Veterans Affairs (VA) guarantees home loans for eligible military members, veterans, and their spouses. VA loans offer tremendous benefits, including low interest rates, as little as $0 down with no private mortgage insurance, and streamlined refinancing options. 

However, many people don’t understand what happens if the veteran passes away with a VA mortgage on the house. There is also some confusion surrounding VA loans for surviving spouses of deceased military veterans. Learn more about your options so you know how to proceed. 

Does the VA Pay Off a VA Loan if the Veteran Dies? 

Many people think the VA will pay off the loan if the veteran passes away, but this is not the case. The confusion stems from the “VA guaranty,” which states that the VA will reimburse the lender a portion of the loan balance if the veteran defaults on their loan. (It’s because of this guaranty that VA lenders don’t require a down payment.) 

However, defaulting on a loan and passing away before paying off the loan are not the same. The veteran’s surviving family members or other beneficiaries must repay the VA loan one way or another. Otherwise, the VA will foreclose on the property. This means the lender will repossess the house, and the family will no longer have access to it, even if they inherited the property when the veteran passed away. 

What to Do with a VA-Backed Property After the Veteran Dies 

Hopefully, the veteran has a will or trust that specifies who inherits the house. If there is a surviving spouse, the mortgage usually becomes that person’s responsibility. If there is no surviving spouse, the veteran’s beneficiaries must decide what to do with the property. Here are some of your options: 

• Assume the loan: When applicable, the surviving spouse assumes the debt and begins making mortgage payments in the veteran’s stead. The VA does not require approval for a loan transfer/assumption in this situation. 
• Refinance the loan in your name: The death of a spouse or other family member can bring about financial hardship. That’s why the VA offers loan refinancing options, including the VA Streamline Refinance Loan and Interest Rate Reduction Refinance Loan (IRRRL). These can make your mortgage more affordable by lowering your monthly payment, interest rate, or both. 
• Pay off the loan with life insurance: If the veteran had a life insurance policy that covers the remaining mortgage balance, you can use the insurance benefits to pay off the home loan. Doing so transfers full ownership to you, so you can continue living in the house mortgage-free. 
• Sell the house: If you’re not interested in keeping the property, or you have no way to pay the mortgage, sell the house and use the proceeds to pay off the loan. This is a better option than missing payments and allowing the home to go into foreclosure. 

VA Home Loans for Surviving Spouses 

Did you know you may qualify for a VA-backed home loan if you are the surviving spouse of a veteran? This allows you to enjoy all the benefits of a VA mortgage, even if your spouse is no longer alive to take out the loan. During the application process, you’ll need to provide a Certificate of Eligibility (COE) to prove to your lender that you qualify for a VA loan following the death of your spouse. 

Who is Eligible for a COE? 

As a surviving military spouse, you may be able to get a COE if you have not remarried and: 

• Your spouse died performing military service or from a service-related disability. 
• Your spouse was missing in action or a prisoner of war for at least 90 days. 
• Your spouse was totally disabled and eligible for disability benefits at the time of death. 

Exceptions and nuances apply to these rules, so contact the VA or a VA mortgage lender for more information. 

How to Apply for a COE 

The application process varies depending on whether you’re receiving Dependency and Indemnity Compensation (DIC) or not. 

• If you’re receiving DIC benefits, fill out a Request for Determination of Loan Guaranty Eligibility—Unmarried Surviving Spouses (VA Form 26-1817). You will also need the veteran’s DD214 or other separation papers. Submit the VA form and discharge/separation papers to your lender or the VA regional loan center that serves your state. 
• If you’re not receiving DIC benefits, fill out an Application for DIC, Survivors Pension and/or Accrued Benefits (VA Form 21P-534EZ). You’ll also need the veteran’s DD214 or other separation papers, a copy of your marriage license, and the veteran’s death certificate. Submit the VA form and other documents to the VA pension management center that serves your state.