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Unlocking Opportunity: The Return of Assumable Mortgages in a High-Rate Market

Embracing Assumable Mortgages Amidst Soaring Rates

As mortgage rates continue their ascent, an old but resurging trend is capturing the attention of homebuyers. In this article, we explore the rising interest in assumable mortgages, a strategy gaining momentum in the current real estate landscape.

The Assumable Mortgage Advantage

An assumable mortgage provides prospective homebuyers with an enticing option: taking over an existing mortgage from a seller rather than seeking a new one. By assuming the mortgage, they inherit not only the loan but also its terms, including the interest rate. This practice, popular in the 1970s and 80s, has found renewed appeal as today’s mortgage rates hover around 8%. With many homeowners locked into substantially lower rates, the notion of assuming a seller’s loan has become increasingly attractive.

The Government-Backed Assumable Loans

While assumable mortgages aren’t available for conventional loans, government-backed loans, such as those supported by the Veterans Administration (VA), the United States Department of Agriculture (USDA), and the Federal Housing Administration (FHA), have assumable features. These government-backed mortgages constitute approximately 22% of active mortgages, according to a recent report by The Wall Street Journal.

A Viable Solution for Homebuyers

This significant share of assumable loans is now being advocated by some real estate agents as a viable solution for homebuyers facing the challenges of today’s elevated home prices. Christopher Tapia, a Compass real estate agent in Florida, has been actively encouraging prospective buyers to seek homes with assumable loans, emphasizing its importance in helping lower and middle-income families achieve homeownership amidst the current market conditions.

“Thinking Outside the Box” for Homeownership

Tapia notes, “Today, in this era, we have to think outside the box.” With ongoing inventory shortages, surging home prices, and rising mortgage rates contributing to an affordability crisis, assumable mortgages offer a lifeline for those seeking the American dream of homeownership. It’s a creative solution to a complex problem.

Veterans United Analysis

Chris Birk, Vice President of Mortgage Insight at Veterans United Home Loans, acknowledges the growing interest in mortgage assumptions. An analysis conducted by Veterans United reveals that three-quarters of VA homeowners currently enjoy mortgage rates below 4%, making the assumption of these loans an attractive prospect. Additionally, more sellers are now advertising assumable loans in their home listings.

Locking in Ultra-Low Rates

Birk points out that the appeal of assuming a loan was negligible when interest rates were at modern-day lows. However, in the current high-rate environment, the opportunity to secure an ultra-low rate proves advantageous for both potential buyers and veteran home sellers.

Balancing the Equation

Although assumable loans present a compelling solution, there are instances where the numbers may not align favorably for buyers. Birk advises caution, especially for VA loan holders considering allowing non-veterans to assume their VA loans, as this could impact their ability to obtain future VA loans. As he puts it, “Some homeowners decide that’s a risk worth taking, while others ultimately opt for a more traditional home sale once they understand the potential downsides of an assumption.”

In a market characterized by soaring mortgage rates, the resurgence of assumable mortgages offers a unique avenue for homebuyers and sellers to navigate the challenges of homeownership. By embracing this innovative strategy, they can work towards achieving their real estate goals in a rapidly changing landscape.

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