Ellen Harper, a software architect living in Atlanta, was searching for a house in 2021 when she encountered the high home prices and unexpected surge in interest rates the following year. Despite a large down payment, the new math made her uneasy. However, in early 2023, she came across listings of homes with assumable low-rate mortgages, a feature that allows the existing homeowner’s mortgage to be transferred to a new buyer. Ms. Harper managed to find a home with a 2.49 percent mortgage rate, less than half of the current rate of 7.09 percent on 30-year-fixed loans. This allowed her to comfortably afford a four-bedroom home in Fairburn, Ga., with a $1,400 monthly payment.
Assuming a mortgage on an existing home with a low-rate loan is a built-in benefit on certain government-backed mortgages, as long as the new owners qualify. Many real estate professionals are unaware of assumable mortgages, but as interest rates continue to rise, more companies are seizing the opportunity to compile lists of eligible properties. There are an estimated 12.2 million assumable loans, with most being embedded in mortgages backed by the Federal Housing Administration and the Department of Veterans Affairs. While the number of assumptions completed is a fraction of all home sales, it is growing steadily.
Roam, a start-up company, offers listings of homes with assumable mortgages under 6 percent in 18 cities across seven states. They charge homeowners a fee to navigate the assumption process, which can be complex and time-consuming. For buyers, seeking out low-rate mortgages has many benefits, but there are factors to consider, such as qualifying for a second mortgage to cover the gap between the purchase price and the remaining mortgage. Roam recently partnered with a national lender to provide second loans to their customers with credit scores of at least 640 and down payments of at least 15 percent.
For many buyers, the savings from assuming a low-rate mortgage are significant. Home buyers can save thousands of dollars each month compared to taking out a new mortgage at the current rates. Despite the potential hurdles like hefty down payments and waiting for the assumption process to be completed, many homeowners find it worth it to pursue assumable mortgages due to the considerable savings. Assumable.io, a small operation founded by Ryan Carrillo and Louis Ortiz, offers a website with 26,000 active listings of assumable properties and charges a fee to help borrowers through the assumption process.
Assuming a mortgage can be advantageous for both buyers and sellers, as it provides an opportunity to take advantage of historically low interest rates. The process may involve challenges such as finding a seller willing to entertain an assumable offer and dealing with mortgage servicers who may be reluctant to process assumptions due to operational costs. Despite the potential hurdles, the popularity of assumable mortgages is growing, with more companies offering assistance to navigate the assumption process. Overall, assuming a low-rate mortgage can be a strategic financial move for buyers seeking to save on housing costs in a market where interest rates continue to rise.
