‘A time machine to the low rates of the past’: Assuming someone else’s mortgage could mean cheaper financing for your new home — but is it right for you?

Why more Americans are turning to assumable mortgages

Home loans backed by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) and the Department of Agriculture (USDA) have provisions which allow them to be transferred from the existing owner of the home to the buyer.

This means a prospective buyer could potentially assume a mortgage with incredibly low interest rates and lower their monthly payments.

While these assumable mortgages make up just a tiny slice of total homes sales, it appears that interest is growing.

More than 6,000 mortgage assumptions were completed in 2023, a staggering 139% jump from 2022, reports NYT. So far this year, 3,896 assumptions have already been completed.

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There are drawbacks to assuming another person’s home loan

Assumable mortgages can be an incredibly appealing option for house hunters balking at today’s high mortgage rates — but they’re not without some downsides.

The buyer may have to come up with a significant amount of cash upfront for the down payment to cover the homeowner’s equity (since the existing homeowner has likely paid off part of the mortgage already), or secure a second mortgage — which would come with a much higher interest rate and can be more complicated.

So, if you’re looking to buy a house currently priced at $500,000 but the remaining mortgage is just $350,000, you would have to make up that $150,000 difference.

The other problem is that mortgage servicers get paid much less than what they would for a brand-new loan and reportedly often take months to process the sale.

“Servicers have been very reluctant to do them,” Ted Tozer, a nonresident fellow at the Urban Institute’s Housing Finance Policy Center, told NYT. “They are actually losing money on each one that they do because they have substantial costs that are not covered by the fee they can charge.”

Plus, many homeowners who have secured low-rate mortgages are reluctant to give them up to begin with.

Some platforms claim to expedite the process

Some online platforms like Assumable.io and Roam claim to smooth out some of the wrinkles when it comes to assuming mortgages. For starters, they’ve compiled active listings with assumable mortgages, making it easier for buyers searching for such homes.

Roam recently partnered with national lender Spring EQ to provide a second-lien mortgage for customers with credit scores of at least 640 and down payments at a minimum of 15%.

"We’re thrilled to help more buyers take advantage of the assumable mortgage opportunity by addressing a key pain point of mortgage assumptions — the down payment,” Roam CEO Raunaq Singh said in a statement. “Our mission is to make homeownership 2x more affordable for 1 million Americans in this decade.”

If an assumption isn’t processed within 45 days, the company also says it will pay the homeowner’s mortgage on a prorated basis until it is complete.

But these services don’t come cheap. Roam charges 1% of the home sale price — so, say, $5,000 on a $500,000 home — which the buyer shells out if the sale goes through. Assumable.io charges a flat fee of $1,850 upon approval of the assumed mortgage transaction, with a $100 non-refundable processing fee due at the start.