Home prices were already high when Ellen Harper, a software architect living in Atlanta, started looking for a home in 2021. But she couldn't have anticipated the rapid rise in interest rates the following year and, even with a big down payment, the The new mathematics worried her.
Earlier this year, however, he stumbled upon what seemed like a portal to the not-so-distant past: listings for thousands of homes that come with a low-rate mortgage, which can be transferred from the current owner to a homebuyer. new. , known as an assumable mortgage.
Ms. Harper, who is in her 50s, managed to secure one of these homes, and two weeks ago closed on a four-bedroom brick Colonial in Fairburn, Georgia, with a monthly payment of $1,400. It's an amount she will be able to comfortably afford until her retirement thanks in large part to a mortgage rate of 2.49 percent. That's less than half the current rate of 7.09 percent on 30-year term loans, the most popular type of mortgage.
“I didn't want to have a bad mortgage and be in a situation where all I could do was pay the mortgage,” Ms. Harper said. She found her home through Roam, a new company that launched in September that lists homes with affordable low-interest loans and helps buyers through the process. “There were other houses, they were nice and all,” she added, “but I went for the lowest rate I could find.”
Assuming a mortgage is not some kind of trick; It's a benefit built into certain government-backed mortgages, as long as the new homeowners qualify. The process won't work for all potential buyers because there are several hurdles they must clear before they can claim the keys, which often include a sizable down payment. For home sellers, it can be advertised along with marble countertops, to attract more potential buyers.
Find an affordable mortgage
Last popular in the 1980s, when mortgage rates topped 18 percent, many real estate professionals are unaware that assumable mortgages are even possible. But as mortgage rates continue to rise, word is spreading. Realtor.com, a home listing website, recently began tagging assumable properties and making them searchable. And more and more companies — from small startup operations to startups like Roam — are taking advantage of the opportunity, compiling lists or maps of eligible properties and charging homeowners a fee to help them navigate what can be a stressful guessing process.
An estimated 12.2 million loans, or 23 percent of active mortgages, are assumable, according to Intercontinental Exchange, a data and technology firm, although the majority of conventional mortgages (which represent the majority of existing loans ) they are not. It's a feature built into mortgages backed by the Federal Housing Administration, which are widely used among first-time home buyers as well as those of the Department of Veterans Affairs.
The number of completed assumptions is only a fraction of all home sales, but it is growing. In 2023, more than 6,000 were completed, 139 percent more than in 2022. This year, 3,896 assumptions have already been completed.
Many homeowners with low-rate loans are probably unwilling to give them up: Nearly two-thirds of assumable mortgages with rates below 4 percent were taken out in the past three and a half years, according to Black Knight.
Several stars need to align when trying to take on a mortgage. Since the price of many homes has appreciated rapidly and assumed loans are partially repaid, there may be a significant gap between the purchase price and the remaining mortgage. That means potential homebuyers may need sizable down payments, or at least be able to qualify for a second mortgage, which will have a much higher rate.
Another hurdle is finding a seller willing to accept that offer and hoping that the mortgage servicer holding the loan (who gets paid much less than for a typical new mortgage) processes the assumption in a timely manner.
Several startups are trying to make the process easier, including Roam, which recently received $3 million in an investment led by venture capital firm Founders Fund and DoorDash CEO Tony Xu, among others.
Roam has a website similar to Zillow's, except that all of the listings, currently in 18 cities in seven states, have assumable mortgages under 6 percent and are large enough to cover at least half of the purchase price.
The company has partnered with real estate agents knowledgeable about assumable loans in the markets where it operates. Your transaction coordinators will call the mortgage servicer (the company that services the loan) until the deal closes. Roam's help isn't cheap: It charges 1 percent of the home's sales price, for example, $4,500 for a $450,000 home. Buyers pay only if the deal closes.
In Ms. Harper's case, her broker submitted her offer five different times because the seller and her real estate agent were quite skeptical. That's when his real estate agent, Kevin Hosner of Chapman Hall Realtors in Atlanta, got creative. They promised to pay the seller an additional $2,000 if they didn't close the deal in 60 days. Roam used that as inspiration for a new guarantee: If the assumption is not processed within 45 days, the company will pay the homeowner's mortgage on a prorated basis until he does. Ms. Harper ultimately paid $357,000, with a down payment of approximately $170,000.
“Just because it's affordable, technically, doesn't necessarily mean the seller is willing to do it,” Hosner said. “It's not as quick as a cash deal that will close in two weeks.”
Mr. Hosner, a former church pastor, has completed dozens of assumable transactions and has a preacher's passion for spreading the word about his availability. But not all agents want to worry about the extra headaches, and many buyers have had problems with mortgage servicers or lenders processing assumptions. Assumable mortgages can take 45 to 90 days or more to close, while buying a home with a new mortgage typically takes between a month and 45 days in many parts of the country, mortgage brokers said.
“The trustees have been very reluctant to do it,” said Ted Tozer, a nonresident fellow at the Urban Institute's Housing Finance Policy Center. “They're actually losing money on everything they do because they have substantial costs that aren't covered by the rate they can charge.”
Both the FHA and VA have limits on how much mortgage servicers can charge for assumptions.
running the numbers
For buyers, looking for mortgages with low rates may seem like a no-brainer. But there's a lot to consider, including whether you qualify for a second mortgage, something that could potentially hinder the closing process or kill the deal entirely.
Raunaq Singh, CEO of Roam, said the uncertainty of getting a second loan was a common obstacle: Some mortgage servicers who had the assumable loan would extend additional credit, but not always. To address the problem, Roam recently began working with Spring EQ, a national lender, which will make second loans to Roam customers with credit scores of at least 640 and down payments of at least 15 percent. “Now they can buy any house and not worry,” Singh added.
Imagine a house that costs $400,000 and comes with an assumable mortgage of $280,000. The homebuyer would need to come up with $120,000 to close the gap, either in cash or with loans. A buyer who makes a down payment of 20 percent, or $80,000, still needs another $40,000, plus closing costs.
Here's how you get the calculations: The home buyer's total monthly payment would be $1,761, compared to $2,237 per month for a new mortgage with a rate of 7.5 percent. That includes the affordable mortgage payment of $1,230 (at a 3 percent rate) and a second loan, $336 (at a 9.5 percent rate), according to Roam's calculations.
There is another ongoing cost included in the monthly payment: On FHA loans, the home buyer would also have to pay a $194 mortgage insurance premium, which is a fee under the FHA program to cover the lender's losses if the borrower defaults.
Mortgage insurance typically covers the risks associated with a low down payment. But in this case, even borrowers who put down a lot of money will have to pay the fee (most likely 0.80 percent of the loan balance each year, divided and paid monthly) for the life of the loan, although there are exceptions.
People taking on VA loans must pay a one-time fee of 0.50 percent of the loan amount to the agency, but there are no ongoing insurance costs. However, there are other limitations. If a non-veteran buyer assumes the mortgage, the seller could lose all or part of his or her eligibility for another VA loan until he pays off the previous one.
Still, for many potential buyers, it's worth it.
Ryan Carrillo was one of many homeowners who wanted to move, but didn't want to give up their 2.75 percent mortgage.
Once he knew his FHA-insured mortgage was affordable, he thought he might try to find another one. But he quickly became frustrated trying to find acceptable listings.
“I thought, 'We're now in a world where the underlying mortgage is more valuable than the actual property; surely there has to be a way to do something with that,'” he said.
That led to an idea he shared in a text message to an entrepreneur friend, Louis Ortiz. In August, the two unveiled Assumable.io, a small local operation. It now includes a website with 26,000 active listings and charges $1,850 to help aspiring borrowers through the process Carrillo is about to undertake for his own family. He and his wife, who had their first child in January, are moving from Phoenix to Texas to be closer to family.
You don't plan to transfer your mortgage to your buyer; he worries that it will take too long to complete given his impending move.
The mortgage you are taking on has a rate of 4.87, which translates to a savings of more than $400 a month than if you had taken out a new loan at the 7.12 percent rate you were quoted.
“Fungibles are a time machine to the low rates of the past,” he added. “As he was doing the numbers,” she added, “it was a no-brainer.”
