The Rise of Assumable Mortgages in a Post-Rate-Hike Market
What’s Behind the Surge in Interest
As mortgage rates stagnate around 6%, prospective homebuyers are feeling nostalgic for the 3% interest rates of 2020 and 2021. Google search results for the term "assumable mortgage" spiked in May, following a steady upward trend starting in 2022.
Unlocking the Power of Assumable Mortgages
Mortgage assumptions allow buyers to take over an existing mortgage at its current rate, possibly securing mortgage rates as low as 2% or 3% depending on when the original mortgage was taken out.
A Brief History of Assumable Mortgages
Mortgage assumptions were a popular way to buy a house in the 1970s and 1980s but have largely fallen out of public consciousness. The Garn St.-Germain Act of 1982 allowed private lenders to enforce a due-on-sale clause, requiring payment in full if a property changes hands, making assumable mortgages near obsolete outside of divorce and property inheritance.
How to Find Assumable Mortgages
Now a rarer find in the U.S. housing market, a specific subsect of mortgages can still be assumed by outside buyers: Veterans Affairs, Federal Housing Administration, and United States Department of Agriculture mortgages.
The Numbers
"Twenty percent to 25% of the homes on the market will be fully assumable at one time," says Raunaq Singh, Roam founder and CEO. But, "the number of assumption transactions that are happening is far fewer than the number of mortgages which can be assumed."
FHA-Backed Mortgage Assumptions
Only 4,052 FHA-backed mortgage assumptions were completed in 2023. Still, that’s a 59% increase compared to 2021, according to numbers provided by the FHA. The VA has seen an even larger jump with 713% more mortgage assumptions in 2023 compared to 2021. Both the VA and FHA are already outpacing last year’s assumption totals at more than 5,000 assumption per department so far in 2024.
What’s Next?
Conclusion
As the search for affordable housing continues to intensify, assumable mortgages are gaining traction once again. With interest rates expected to remain high in the near future, borrowers may find themselves increasingly open to exploring alternative options for securing a mortgage. Could assumable mortgages be the key to unlocking more accessible homeownership?
FAQs
Q: How do I find an assumable mortgage?
A: You can search online databases, work with a mortgage broker, or look for properties listed as "fully assumable" by outside buyers.
Q: Which types of mortgages can be assumed?
A: Government-backed mortgages, such as VA, FHA, and USDA mortgages, are eligible for assumption.
Q: How do I qualify for an assumable mortgage?
A: You’ll need to meet the original loan’s credit and income requirements, as well as submit an application and go through the underwriting process.
