Home prices were already high when Ellen Harper, a software architect living in Atlanta, started searching for a house in 2021. But she couldn’t have anticipated the quick surge in interest rates the following year and, even with a large down payment, the new math made her uneasy.
Earlier this year, however, she stumbled upon what felt like a portal to the not-so-distant past: listings of thousands of homes that come with a low-rate mortgage, which can be transferred from the existing homeowner to a new home buyer, known as an assumable mortgage.
Ms. Harper, who is in her 50s, managed to snag one of these homes, closing two weeks ago on a four-bedroom brick colonial, in Fairburn, Ga., with a $1,400 monthly payment. It’s an amount she’ll be able to comfortably afford into retirement thanks, in large part, to a 2.49 percent mortgage rate. That’s less than half the current rate of 7.22 percent on 30-year-fixed loans, the most popular type of mortgage.
“I didn’t want to get a bad mortgage and be in a ball and chain situation where all I would be able to do is pay the mortgage,” Ms. Harper said. She found her home through Roam, a start-up that went live in September that lists homes with assumable low-rate loans, and assists buyers through the process. “There were other homes — they were nice and everything,” she added, “but I went for the lowest rate I could find.”
Assuming a mortgage isn’t some type of gimmick; it’s a built-in benefit on certain government-backed mortgages, as long as the new owners qualify. The process won’t work for all would-be buyers because there are several hurdles they may need to clear before they can claim the keys, often including a hefty down payment. For home sellers, it can be advertised alongside marble countertops, to attract more potential buyers.
Finding an assumable 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 started tagging assumable properties and making them searchable. And more companies — from small, bootstrap operations to start-ups like Roam — are seizing the opportunity, compiling lists or maps of eligible properties, and charging homeowners a fee to help navigate what can be a nerve-racking assumption process.
An estimated 12.2 million loans, or 23 percent of active mortgages, are assumable, according to Black Knight, a data firm, though most conventional mortgages (which account for the majority of existing loans) are not. It’s an embedded feature in mortgages backed by the Federal Housing Administration, which are widely used among first-time home buyers, as well as those from the Department of Veterans Affairs.
The number of assumptions completed is just a fraction of all home sales, but it’s growing. There were more than 6,000 completed in 2023, up 139 percent from 2022. This year, there were already 3,896 assumptions completed.
Many homeowners with low-rate loans probably aren’t quite ready to give them up: Nearly two-thirds of assumable mortgages with rates below 4 percent were taken out within the last three and a half years, according to Black Knight.
Several stars need to align when attempting to assume a mortgage. Since many homes have rapidly appreciated in price, and the assumed loans are partially paid down, there may be a significant gap between the purchase price and the remaining mortgage. That means potential home buyers may need hefty down payments, or at least be able to qualify for a second mortgage, which will be at a much higher rate.
Another hurdle is finding a seller willing to entertain such an offer, and hoping the mortgage servicer holding the loan — who is paid much less than for a typical new mortgage — will process the assumption in a timely manner.
Several new companies are attempting to smooth the process, including Roam, which recently received $3 million in an investment led by the venture capital firm, Founders Fund, and Tony Xu, chief executive of DoorDash, among others.
Roam runs a website similar to Zillow’s, except all of the listings, currently in 18 cities across 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 who are knowledgeable about assumable loans in the markets where it operates. Its transaction coordinators will call the mortgage servicer — the firm that manages the loan — until the deal gets done. Roam’s help doesn’t come cheap: It charges 1 percent of the home sales price, for example, $4,500 on 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 his listing agent were quite skeptical. That’s when her real estate agent, Kevin Hosner with Chapman Hall Realtors in Atlanta, got creative. They promised to pay the seller $2,000 more if they didn’t close within 60 days. Roam used that as inspiration for a new guarantee: If the assumption isn’t processed within 45 days, the company will pay the homeowner’s mortgage on a prorated basis until it does. Ms. Harper ultimately paid $357,000, with a down payment of roughly $170,000.
“Just because it is assumable, technically, it doesn’t necessarily mean the seller is as willing to do it,” Mr. Hosner said. “It isn’t as quick as a cash offer that will close in two weeks.”
Mr. Hosner, who was previously a church pastor, has completed dozens of assumable transactions and has a preacher’s passion for spreading the word about their availability. But not all agents want to be bothered with the extra headaches, and many buyers have run into problems with mortgage servicers or lenders processing the assumptions. The assumable mortgages can take anywhere from 45 to 90 days or longer to close, whereas buying a home with a new mortgage generally takes about a month to 45 days in many parts of the country, mortgage brokers said.
“Servicers have been very reluctant to do them,” said Ted Tozer, a nonresident fellow at the Urban Institute’s Housing Finance Policy Center. “They are actually losing money on each one that they do because they have substantial costs that are not covered by the fee they can charge.”
Both the F.H.A. and V.A. have caps in place on how much mortgage servicers can charge for assumptions.
Running the numbers
For buyers, seeking out low-rate mortgages may seem like a no-brainer. But there’s a lot to consider, including the prospect of qualifying for a second mortgage, something that could potentially gum up the closing process or kill the deal altogether.
Raunaq Singh, the chief executive of Roam, said the uncertainty of securing a second loan was a frequent stumbling block — some mortgage servicers who held the assumable loan would extend additional credit, but not always. To address the issue, Roam recently started working with Spring EQ, a national lender, that will provide second loans to Roam customers with credit scores of at least 640 and down payments of at least 15 percent. “Now they can shop for any home and not worry,” Mr. Singh added.
Imagine a home that cost $400,000, which comes with an assumable mortgage of $280,000. The home buyer would need to come up with $120,000 to close the gap, either with cash or loans. A buyer who puts 20 percent down, or $80,000, still needs another $40,000, plus closing costs.
Here’s how the math shakes out: The home buyer’s total monthly payment would be $1,761, compared with $2,237 monthly for a new mortgage with a 7.5 percent rate. That includes the assumable mortgage payment of $1,230 (with a 3 percent rate) and a second loan, of $336 (with a 9.5 percent rate), according to Roam’s calculations.
There’s another ongoing cost included in the monthly payment: On F.H.A. loans, the home buyer would also need to pay a mortgage insurance premium of $194, which is an F.H.A. program fee to cover the lender’s losses if the borrower defaults.
Mortgage insurance usually covers the risks associated with a low down payment. But here, even borrowers putting lots of money down will still need to pay the fee — most likely 0.80 percent of the loan amount each year, which is divvied up and paid monthly — for the life of the loan, though there are exceptions.
People assuming V.A. loans must pay a one-time fee of 0.50 percent of the loan balance to the agency, but there aren’t any ongoing insurance costs. There are other limitations, however. If a buyer who isn’t a veteran assumes the mortgage, the seller could lose all or part of his or her entitlement to another V.A. loan until the old one is paid off.
Still, for many would-be buyers, it’s worth it.
Ryan Carrillo was one of many homeowners who wanted to move, but didn’t want to surrender his 2.75 percent mortgage.
Once he learned his F.H.A.-insured mortgage was assumable, he figured he could try to find another one. But he quickly became frustrated trying to find assumable listings.
“I thought to myself, ‘We’re in a world now where the underlying mortgage is more valuable than the real property — surely there has to be a way to do something with that,’” he said.
That led him to an idea that he shared in a text to an entrepreneurial friend, Louis Ortiz. In August, the two unveiled Assumable.io, a small homegrown operation. It now includes a website with 26,000 active listings and charges $1,850 to help aspiring borrowers through the process that Mr. Carillo is about to embark on 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 relatives.
He’s not planning to pass his mortgage onto his buyer — he’s worried it will take too long to complete given his impending move.
The mortgage he’s assuming carries a 4.87 rate, which translates into savings of more than $400 a month than if he had taken out a new loan at the 7.12 percent he was quoted.
“Assumables are a time machine to the low rates of the past,” he added. “As I ran the numbers,” he added, “it was a no-brainer.”