Did you buy your home during the pandemic? If so, you’re likely enjoying a super low mortgage rate, maybe even below 3%. But what about those who missed that chance? They might feel locked out of the market. Thankfully, there’s a solution: assumable mortgages.
An assumable mortgage lets a buyer take over the seller’s mortgage, including their low interest rate. This arrangement benefits everyone. The buyer enjoys a lower monthly payment, the seller has a unique selling point that could attract more offers, and the housing market gets a boost.
In the U.S., around 6 million homes have assumable mortgages with rates below 5%, according to Assume List, a service that helps buyers find these opportunities. However, not all mortgages qualify for transfer, and both buyers and sellers often aren’t aware of these options.
Notably, government-backed loans, specifically FHA and VA loans, are typically assumable. Yet, most homeowners don’t know this. Jerry Devlin, founder of Assume Loans, highlights that many could save hundreds of thousands of dollars through this process.
Companies focused on these transfers are emerging, making it easier for buyers to find homes with assumable mortgages. For instance, Roam uses AI to update listings for these types of mortgages, while also helping navigate the complicated process.
A look at recent data shows significant opportunities in places like Houston, with 433 listings featuring assumable mortgages below 3%. In contrast, Zillow reported only three such homes. This discrepancy points to a knowledge gap among sellers regarding their mortgage options.
However, transferring a mortgage can be a long process. By law, mortgage servicers have 45 days to assess a buyer’s credit for approval. In practice, this can stretch into months. For sellers, the potential for high fees, up to $1,800, discourages them from pursuing these transfers.
Additionally, rising home prices complicate things. The average home value has increased by 54% since January 2020, creating large gaps between existing mortgage amounts and current home prices. Buyers may need hefty down payments to bridge this gap, often in six-figure amounts. Laurie Goodman from the Urban Institute points out that this down payment requirement limits access for many first-time buyers.
Brendan Burroughs, a real estate buyer, faced a $105,000 down payment but had success thanks to early investments. His current low mortgage rate is significantly lower than what many peers pay. Without the assumable mortgage option, he likely would have struggled to find a home.
This market is tough, especially since many homeowners hesitate to sell for fear of losing their advantageous rates. A recent study from Groundwork Collaborative suggests making conventional mortgages assumable could ease market congestion.
As for the future, there’s movement at the federal level. The head of the Federal Home Financing Agency has hinted at exploring assumable or portable mortgages, which could allow sellers to carry their lower rates to new homes. However, skepticism remains about how effectively this can address the housing crisis.
Real estate agent Charles Johnson stressed that while assumable mortgages can be life-changing, they often come with their own challenges. Only a few homes meet the criteria, and potential buyers need substantial cash and patience. Despite these hurdles, the interest in saving on home purchases remains strong, suggesting a hidden demand that could be tapped into with greater awareness.
Overall, assumable mortgages provide a unique pathway for navigating today’s challenging housing market. As more buyers and sellers learn about this option, it has the potential to unlock more opportunities and ease some pain points in the current landscape.
