Assumable mortgages give buyers a second chance at low rates
Assumable mortgages give buyers a second chance at low rates
Earlier this year, Hasan and Macie Haider were renting a three-bedroom apartment in St. Petersburg, Florida, when they learned that Macie was pregnant. They both work from home for a homeowner’s insurance company. Suddenly, their housing needs changed.
“We started thinking, ‘OK, well, we’re going to need a little more space,’” Hasan Haider said. “‘Are we in a decent school area?’”
They started shopping for a house. But with high prices and high interest rates — they got quotes of around 6.75% — they quickly realized they couldn’t afford more space.
“So I just kept looking into, like, is there some way we could get a low interest rate?” Haider said. “Is that even a thing?”
He came across a startup called Roam, one of a few companies that help buyers find properties with assumable mortgages, meaning the buyer can take over the seller’s loan with the same terms. Roam was offering interest rates as low as 2%.
“I was like, this, ‘Is this a scam’?” Haider said. He asked around and learned it wasn’t.
Assumable mortgages were popular back in the early 1980s, said Raunaq Singh, founder and CEO of Roam, when mortgage interest rates shot up as high as 18%. They fell out of favor when rates went back down.
“Now assumable mortgages are making a comeback, because people can’t afford to be able to purchase at today’s prevailing rates,” Singh said.
When Roam launched in September of 2023, the average interest rate for a 30-year mortgage rate was more than 7%, according to Freddie Mac. Though rates have fallen since then to an average of just over 6%, that’s still double the 3% averages home buyers snagged in the early years of the pandemic.
Only government-backed mortgages, from the Federal Housing Administration, U.S. Department of Veterans Affairs or U.S. Department of Agriculture, are assumable. Conventional mortgages typically have to be paid off when the house is sold. But Singh said about a third of the mortgages issued in the ultra-low rate years of 2020 and 2021 are eligible.
The trick is finding them.
“Unfortunately, 98% of sellers don’t actually know that they’re eligible for the opportunity to include their mortgage in their home sale,” Singh said. “And furthermore, buyers don’t know how to find these homes and agents don’t know how to coordinate the purchase.”
That’s where Roam comes in. The company merges mortgage data with real estate listings to identify homes for sale with assumable mortgages, and then helps buyers through the process, for a fee of 1% of the sale price.
So far, Roam’s listings cover just six states: Arizona, Colorado, Florida, Georgia, Illinois and Texas.
Hasan and Macie Haider eventually turned their home search to Illinois to be closer to family and found several houses on the site.
“Every house we saw checked every box,” Haider said. “It was like, ‘We could totally afford this.’”
They found a house in Huntley, Illinois, in suburban Chicago, with a 2.6% interest rate. But there was a catch:
“The way the assumption works is you have to cover the difference between the purchase price and how much is left on the mortgage,” said Haider.
The way home values have soared in the past few years, that difference can be sizeable. For the Haiders, it was about $127,000. They put down as much cash as they could and got a second mortgage — with a 9% interest rate — to cover the rest. Still, even with taxes and insurance, the monthly payment for a five-bedroom house worked out to about $3,400 — less than the rent on their Florida apartment.
“It still made sense dollar-wise,” said Macie Hader.
Now, it did take 72 days to close. The average for a traditional deal is less than 45 days. That’s a potential deterrent for both buyers and sellers.
Mortgage servicers don’t love assumptions, said Ted Tozer, a former mortgage banker who’s now a fellow at the Urban Institute, because under government rules they can’t charge enough to cover their processing costs.
“So right now, you’re in a situation where lenders will do them because they’re required to do them, but they’re probably not going to get high priority,” Tozer said. “It could take months to get an assumption processed.”
Tozer has been pushing regulators to allow lenders to charge the same fees for assumptions they charge for new mortgages, to encourage faster processing. But as interest rates come down, he said, demand for assumptions will too.
As for how companies like Roam will stay in business when that happens, Singh said he has other ideas — including portable mortgages, which stay with the owner instead of the house.
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