NEW YORK–Some homebuyers have found a way to sidestep prevailing 6% to 7% mortgage rates by tapping into assumable mortgages, according to a new report.
“These allow buyers to take over a seller’s existing loan, often locked in at ultralow rates, potentially saving hundreds or even thousands of dollars per month,” Fast Company reported.
It noted that while most conventional loans aren’t assumable, loans backed by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or U.S. Department of Agriculture (USDA) are—if certain conditions are met.
‘Small Share, But…’
“Fewer than one in six outstanding mortgages are potentially assumable,” Fast Company stated. “Although they still represent a small share of total transactions, assumable sales are slowly gaining traction.
According to ResiClub, HUD data on the number of FHA-insured mortgages assumed, broken down by fiscal year reveal a 127% increase over the past two years and a 44% increase over the past year, in assumable mortgages. The number is expected to grow even higher in 2025.
The Challenges
“Of course, there are some real challenges with assumable mortgages,” Fast Company added. Those challenges include:
- Not many assumable mortgages occur because they require buy-in from both the buyer and the seller.
- Many folks in the industry don’t exactly understand the process.
- The buyer must cover the difference between the outstanding mortgage balance and the purchase price of the home. This often requires a substantial down payment.
‘Three Key Issues’
To help make assuming mortgages easier, Fast Company reported that in 2023 Raunaq Singh launched Roam, a real estate portal that exclusively showcases homes currently for sale with loans eligible to be assumable.
“Most people are shocked by this but there are actually millions of [potentially] assumable loans, meaning the buyer can take over the mortgage and transfer from the seller,” Singh was quoted as saying. “As we started to look at the problem we realized there would be three key issues. The first was discovery: being able to help consumers find those homes. The second was the transparency throughout the process. And the third problem was coordination: Nobody in the entire transaction experience had experience doing the assumption. If you’re the buyer and you want to assume the mortgage, you have to coordinate with your buyer’s agent, seller, seller’s agent, lender, title, escrow, and closing officer.”
