By: George Robinson, Senior Director, Data at TOMO
Think it would be impossible to get a 3% mortgage interest rate? Think again. It’s possible with an assumable mortgage! Any buyer can find thousands of homes with assumable mortgages with this new home search engine.
What is an Assumable Mortgage?
An assumable mortgage is a loan that can be transferred from seller to buyer. There are tons of sellers out there with low interest rates. If those interest rates are on assumable mortgages, then someone else can assume the loan! With an assumable mortgage, the buyer takes over the seller’s loan, including their interest rate, mortgage payment, and term. This is huge. That’s because the difference in interest rate between the seller’s loan and what the buyer can get today can mean a difference in hundreds of dollars of interest payments a month—and hundreds of thousands of dollars over the life of the loan.
Here is an example: say a buyer wanted to purchase a home with a $350,000 list price. That home has a 3.5% 30-year fixed FHA mortgage that the current owner has been paying for 3 years, and it has a $300,000 remaining balance. If the buyer took out a new 30-year fixed mortgage today at 7% for that loan amount, they would have monthly payments of $1996. If the buyer assumed the seller’s 3.5% mortgage, their monthly payments would be $1433. That’s $563 back in their pocket each month.
Keep in mind that since the buyer would be assuming the seller’s loan balance, they would need to cover the seller’s equity in the home and any appreciation with cash or a second mortgage. If the buyer offered the list price on the home in the example above, that means they would need to close a $50,000 gap ($350,000 list price – $300,000 assumed loan amount) at closing. This might make assumable mortgages where the seller has substantial equity in the home less attractive.
Are there Many Home Listings that Have an Assumable Mortgage?
Assumable mortgages are not the norm in the US, but they aren’t as rare as someone might think. Government loans such as FHA, VA, and USDA (1 in 5 loans depending on the market) are by default assumable mortgages. Tomo sampled mortgage data in several major metros in the US and found there are thousands of actively listed homes with assumable mortgages with rates under 5%. Almost a third of these mortgages had rates under 3%!
How can a Buyer Find Out if the House They Are Interested in has an Assumable Mortgage?
On tomo.com, check out the Negotiation Insights tab and look at the loan type. FHA, VA, and USDA loans are generally assumable. Another easy way to see which homes have an assumable mortgage is to check out our new assumable mortgage topic page, which lists all the cities and homes with this type of mortgage. A potential buyer can then drill down to the city they are interested in; here’s an example of homes with assumable mortgages in Phoenix, Arizona. A buyer can also see Tomo’s estimated remaining balance to get an idea of how much seller equity they would have to cover when assuming the loan.
In summary, assumable mortgages can offer benefits for both buyers and sellers, depending on the terms of the existing mortgage and the current market conditions. Buyers should carefully review the terms and conditions of the assumable mortgage and consider consulting with a mortgage professional or financial advisor to assess whether the assumption is the right choice for their situation.
Published by: Khy Talara
