Mortgage assumptions can save home buyers big money, but they can be difficult to find and even more difficult to process. Still, it’s a way for buyers to get a much lower mortgage rate than what’s now available. Though they now account for only a fraction of all house listings, government-backed mortgages — courtesy of the Federal Housing Administration (FHA), Veteran Affairs (VA) and U.S. Department of Agriculture (USDA) — are an overlooked home-buying hack saving a growing number of buyers hundreds of dollars a month and tens of thousands of dollars through the life of their mortgages. “Most agents aren’t even aware of what it entails and what to look for,” said Tyler Miller, a real estate broker who has been involved with several sales involving assumable mortgages with astoundingly low rates. Miller recently listed a four-bedroom house with an assumable 2.25% FHA mortgage with a monthly payment that’s about $1,700 less than it would be at the going rate. To tout the listing, he posted a TikTok video promoting the benefits. “I had some people tell me I was lying,” Miller said. “I said, ‘No, this is real.'”
Assumable mortgages have been lurking in the shadows of unusually low rates in recent history. Such mortgages were last popular in the 1980s when rates hit a record 18.1%. At the end of 2020 and into early January 2021, rates fell to record lows, hovering around 3% for much of 2021 and causing home sales and prices to soar. That buying binge locked in thousands of mortgages at rates that likely won’t be that low again for decades. An estimated 80% of all VA mortgages now have a rate that’s less than 4%, and many of those rate-holders are now ready to sell. An estimated one-third of all mortgages in the U.S. are assumable now.
Because many owners will hold onto those rates as long as possible, assumable mortgage listings represent only a fraction of homes currently for sale, making them one of the best-kept secrets for homebuyers these days. While some agents will include an assumable mortgage in the listing details, many homeowners don’t even know they have one — the details are buried in the fine print of their contract, which many buyers don’t carefully read. The equity gap is often the biggest hurdle. Because the buyer is essentially taking on the existing mortgage rather than receiving a new one, the buyer has to pay the seller the difference between the original mortgage balance and the current asking price. Plus, many VA mortgage holders are reluctant to let another buyer assume their mortgage because once they do, they forfeit the right to use the benefit to buy another one. Unlike FHA mortgages, VA mortgages are considered a government benefit with perks that include the ability to forgo private mortgage insurance and no-, or a low-down payment and competitive low rates.
Source: Star Tribune
