How long does it take to assume a mortgage guide, Home finance tips, Property lending advice

How Long Does It Take to Assume a Mortgage?

5 July 2024

In today’s dynamic real estate market, assumable mortgages are changing the landscape for homebuyers seeking to save money and circumvent the need to take out a new loan at today’s high rates. With mortgage rates not expected to drop anytime soon, assuming a seller’s existing mortgage at a lower rate has become increasingly attractive.

Historically, approval for assumable mortgages has been lengthy and complex, often taking several months. However, recent industry changes have significantly reduced these timelines, making assumable loans much more accessible and appealing.

What is an Assumable Mortgage?

An assumable mortgage is a special type of mortgage which enables the buyer to take over the seller’s loan when buying a home. This can save buyers thousands of dollars in interest payments over the loan’s life.

Types of Assumable Mortgages

VA Loans: Backed by the U.S. Department of Veterans Affairs, available to eligible veterans and their spouses.
FHA Loans: Insured by the Federal Housing Administration, with more lenient qualification requirements
USDA Loans: Designed to promote homeownership in rural areas, offering competitive interest rates and terms.

Assuming an existing mortgage has become a desirable choice for home buyers due to the lower interest rates they offer compared to taking out a new loan whether that be a VA, FHA, USDA, or even a conventional loan. Many assumable mortgages offer interest rates of 3% and lower, while most economists and mortgage experts forecast that rates for new mortgages are set to remain between 6.5% – 7% for the foreseeable future.

Benefits to Buyers

Lower Interest Rates: Secure lower interest rates, saving thousands over the loan’s life.
Significant Monthly Savings: Lower monthly payments make homeownership more affordable.

Reduced Closing Costs: Lower costs and fees compared to new loans.

Benefits to Sellers

Increased Marketability: Attracts more buyers, especially in a rising interest rate environment. This often leads to more offers and/or offers with higher offer prices
Competitive Advantage: Offering an assumable mortgage gives sellers an edge in the market.

The Assumption Process: Past Challenges and Recent Changes

Traditionally, the assumption process was lengthy and complex. Recent changes have streamlined this process, making it faster and more efficient.

Past Challenges

Lack of Standardization

Limited Lender Experience
Lengthy Approval Times

Recent Changes and Improvements

Standardized Procedures: Improved efficiency by standardizing processing procedures.
Increased Lender Education: Better training for staff handling assumable mortgages.
Improved Communication: Enhanced communication between lenders, servicers, and government agencies.

VA Loans: Leading the Way

VA loans have seen significant improvements in approval timelines due to recent guidance from the Department of Veterans Affairs. In December 2023, the VA released Circular 26-23-27 which provided clear guidelines for processing VA loan assumptions, including:

Mandated 45-Day Timeline: Lenders must approve applications within 45 days.
Consequences for Non-Compliance: Severe penalties for lenders failing to meet timelines.

Emphasis on Veteran Rights: Ensures accessible and fair assumption processes.

The impact of the new directive has already had a dramatic reduction in processing times from an average of 90-120 days down to 45-60 days on average today.

The Future of Assumable Mortgages

As the real estate industry evolves, assumable mortgages are set to play an increasingly important role in home financing. For many homebuyers, housing price increases in recent months coupled with high interest rates simply prices them out of the market altogether.

Websites such as AssumeList allow both agents and prospective homebuyers the ability to find homes with assumable mortgages with ease. An assumable mortgage can be the difference between a home buyer buying and being stuck in a rental agreement indefinitely. “For every 1% reduction in a home’s interest rate, the mortgage payment is reduced by roughly 10%” says Michael Lorino, CEO and founder of AssumeList.

The difference between taking out a new loan at 7% and assuming an existing mortgage at 3% would effectively reduce a buyer’s mortgage payment by 40%.

Potential for Increased Adoption

With faster approval timelines and significant savings, more buyers and sellers are likely to explore assumable mortgages. Increased awareness and success stories are driving demand.

Lender Adaptation and Innovation

Lenders are likely to continue adapting their processes and developing new products to meet borrower needs, leading to a better overall experience.

Regulatory Support and Guidance

Successes like VA Circular 26-23-27 may inspire similar guidance from other agencies, boosting adoption and standardizing processes across the industry.

How long does it take to assume a mortgage – Final Notes

Assumable mortgage approval timelines are dropping fast thanks to recent industry improvements. With streamlined processes, increased lender education, and clear regulatory guidance, buyers and sellers can now enjoy numerous benefits, including lower interest rates, reduced closing costs, and faster closing timelines.

As assumable mortgages become more popular, they provide a valuable alternative in a rising interest rate environment, helping homebuyers achieve their goals while saving money.

Comments on this guide to How long does it take to assume a mortgage article are welcome.