The homebuying time machine

Anthony Volpe was late to the party, and he knew it.

It was summer 2024, and Volpe, a semiretired pharmacist and college professor, was looking to buy a house near Orlando. Home prices had skyrocketed during the pandemic, but the frenzy had come with a silver lining: a steep drop in mortgage rates. These rock-bottom rates, which hit their lowest point at an average of 2.7% in early 2021, meant buyers could afford pricier places while keeping their monthly payments in check. By the time Volpe embarked on his search, though, that window of opportunity had long since closed. The typical mortgage rate had more than doubled to around 6.5%, adding hundreds, if not thousands, of dollars to the monthly bill for new borrowers. And home prices in many parts of the country were still climbing, delivering a one-two punch to buyers.

Despite missing the mid-pandemic bonanza, Volpe still found a way to get his hands on a super-low mortgage rate. Months before his home search, he’d seen a TV feature about a company called Roam, which promised to help buyers secure one of those bygone rates. In most home sales, the seller uses the proceeds from the deal to pay off their mortgage, while the buyer secures a brand-new loan at the going rate. Some homeowners, though, have loans that can be passed along to the next owner: same rate, same monthly payment. These so-called “assumable mortgages” faded into obscurity over the past few decades as mortgage rates drifted downward — nobody wants to take on an old loan when they can get a new one for cheaper. But the rate spike over the past few years has spurred renewed interest in these little-used deals and spawned companies like Roam that help grease the wheels of the transaction.

There are millions of assumable mortgages floating around the country, yet many homeowners may not even realize they’re sitting on one. Transferring the loan comes with a bevy of challenges, and real estate agents are often unfamiliar with how to pull it off. But assumables, when done right, offer a rare win-win in real estate. Home sellers with assumable mortgages can use the allure of a low rate to draw more buyers and score a higher price. Buyers, on the other hand, may stomach that slightly higher sticker price if it comes with decades of more manageable monthly payments. Embracing assumables could also benefit America’s housing market on a broad scale. The mortgage-rate shock plunged the US into a Housing Ice Age, keeping both sellers and would-be buyers stuck. Assumable mortgages could help thaw things out.

Through the Roam website, Volpe found a three-bedroom home in the Orlando suburb of Davenport, where he hopes to gather his children and grandchildren. He put down 33% of the $268,000 purchase price in cash and covered the rest by agreeing to take on the seller’s 2.75% mortgage rate. Volpe estimates he’s saving about $500 a month compared with the typical mortgage these days.

“It’s giving us more breathing room,” Volpe tells me.

The first two years of the pandemic saw a rush of Americans scrambling to lock in low mortgage rates, either by snapping up a new home or refinancing their existing mortgage. Roughly three years after rates jumped, many are still reaping those benefits: About 72% of mortgage holders have a rate less than 5%. Even more stunning, almost 21% of homeowners with a mortgage have a rate of less than 3%. While the lucky cohort of borrowers basks in their low interest payments, the ensuing years have revealed a hidden cost of those golden loan terms: a gummed-up housing market. Homeowners don’t want to move and forfeit their sweet monthly payments, making it hard for buyers trying to upgrade and renters who simply can’t afford to make a purchase. A recent study from the National Association of Homebuilders found that nearly 60% of households can’t afford a $300,000 home given their incomes and the cost of borrowing.

The power of a lower interest rate is insane.

In the eyes of Raunaq Singh, the founder and CEO of Roam, the solution to this so-called “lock-in effect” has been right there the whole time: “We should just take the mortgages that already exist at an average rate of 2% or 3% and transfer them,” Singh tells me. “You don’t need to, like, wave a wand and try to fire Jerome Powell or all these crazy things. You can just literally transfer the mortgage from the seller to the buyer.”

This is the tantalizing promise of assumable mortgages, which offer a time machine back to the halcyon days of cheap money. Mortgages insured by the Federal Housing Administration — a popular option among first-time buyers because of lower down-payment requirements — are automatically assumable, as are those backed by the Department of Veterans Affairs or the Department of Agriculture. At least 12.5 million mortgages nationwide can be passed from seller to buyer, or nearly a quarter of outstanding home loans, data from ICE Mortgage Technology, a real estate software company, shows. Roughly 6.8 million of those loans are assumable at a rate of 4% or below, and 4.8 million at a rate of 3.5% or less.

Here’s how it works: Before even considering an assumption, a buyer has to make sure they qualify for the type of loan they want to take on (one exception: you don’t have to be a veteran to assume a VA loan). The seller has to be onboard, too. The deal is processed by the loan’s servicer — the bank, credit union, or specialized company that collects the payments each month. These servicers are legally required to process assumptions for buyers who meet the government’s criteria for the loan. The buyer will then have to cover the difference between the agreed-upon sale price and the remaining mortgage balance — if a house trades for $500,000 but there’s only $420,000 left on the loan, the buyer has to pick up that $80,000 in equity. They can do that with cash, if they have a lot of it, or with a second mortgage at a higher rate. Even with that more expensive loan, the “blended” rate of the two loans may still be advantageous. When the deal closes, the seller walks away from the loan, and the buyer is now solely responsible for the monthly payments and all the terms that come with it.

Roam offers to hold a buyer’s hand through the process, first by helping them find an assumable loan on the company’s website — think Zillow, but with obscenely low mortgage rates advertised alongside glossy photos of home exteriors — and then by holding the servicer’s feet to the fire to make sure the deal gets done on time.

The deal is obviously a win for buyers, but it can also be a boon for people selling their homes. Sure, they may have to take on a higher mortgage rate on their next purchase, but they can use their assumable mortgage to lure more buyers and sell for a higher price. And who’s to say they can’t turn around and find another assumable? Most sellers end up buying another home, yet many are staying put right now because the trade-offs that come with getting a new loan aren’t worth it. If they could find a cheap mortgage to take over, they might be more willing to take the plunge and free up their old place for someone else.

A recent study of data scraped from the Roam website by researchers at Australian National University and the University of Queensland found sellers with assumable mortgages tended to sell for $20,000 more than similar houses, a 5% bump. They also sold more quickly. The researchers concluded that assumable mortgages could counteract the “lock-in effect” that has reduced mobility and kept housing supply in a prolonged rut.

“Instead of having home prices so high and mortgage rates so high, if you can unlock more inventory to come online, you can actually address a lot of the issues,” Singh tells me.

The last heyday for assumable mortgages was in the 1980s, when the typical mortgage rate peaked at nearly 20%. They’re back in vogue again as buyers look for any way to ease the toll on their wallets and sellers try to stand out in a slumping housing market. The stories of regular homebuyers collected over the past year by my colleague Alcynna Lloyd make clear the benefits for both sides of the transaction. One couple saved as much as $40,000 in interest payments. In another instance, a seller finally offloaded a home that’d been languishing on the market by agreeing to pass along their loan.

“The power of a lower interest rate is insane,” says Louis Ortiz, the cofounder of Assumble.io, another company that helps buyers around the country find homes with assumable mortgages. Ryan Carrillo, the other cofounder of Assumable.io, joins our call from a home he bought last July using an assumable mortgage (“We eat our own dog food,” he quips).

“I was able to buy more house for the budget because it’s a lower rate,” Carrillo tells me. “It’s good for buyer and seller. There’s money to be made on both sides.”

The path to claiming an assumable mortgage isn’t always smooth. Companies like Roam and Assumable may help you find a house, but that’s merely the start of what can turn into a long and aggravating journey.

Loan servicers are notorious for dragging their feet in processing mortgage assumptions — their fees on the deals are capped at $1,800, though in some cases, they make only a few hundred dollars. That may sound like a lot, but it’s a pittance compared to the thousands of dollars they collect from originating a new loan. Real estate agents tell me stories of dealing with lenders who insist on corresponding via snail mail to process the request, or resorting to calling a bank president over the phone to get a deal moving. This slow-rolling means the timeline for an assumable closing can stretch well beyond the 30 to 45 days often seen in a typical transaction. Because assumable mortgages have been so rarely used over the past decades, some lenders may not even have teams with the expertise and capabilities to process assumptions. Rob Wittman, a real estate broker with Redfin in the Washington, DC, area who’s done five assumptions in the past year, says the deals require “a certain type of person” willing to weather these headaches.

“Why can I get a new mortgage from scratch in, like, 10 days, but old money takes months?” Wittman tells me. “I think it just kind of goes to, it’s a manual process, and banks probably don’t really want to do them anyway.”

It’s good for buyer and seller. There’s money to be made on both sides.

Some people I talked to for this story said they’d favor new regulations that would allow lenders to charge more for processing assumptions as an incentive to get them out the door quicker and avoid scuttling deals — because sellers are often buying another house, they don’t have extra time to wait around for the transaction to close. Others argued that servicers should just follow their legal obligations and get the thing done, profits be damned. The roadblocks are a big reason a company like Roam even exists: For a fee of 1% of the sale price, Roam helps get these deals to the finish line, educating lenders and servicers while staying in near-constant contact with them to make sure the paperwork keeps flowing. The company even offers to cover the seller’s mortgage for two months if closing the deal takes longer than 45 days.

In some sense, though, these are just growing pains that should be expected as an industry like real estate — not known for its speediness to change — gets acquainted with a once obscure process that now holds great promise. Singh tells me servicers are far easier to work with than they were even a year ago, and he predicts that will only continue as they get more familiar with the product. And there are plenty of reasons an assumable is worth it, even if there are headaches along the way. Set aside the low rates. With assumptions, buyers don’t have to pay for lender’s title insurance, get an appraisal, or shell out for a mortgage origination fee. A difference of a few weeks could save thousands of dollars in closing costs.

The biggest issue, Singh tells me, is awareness. People just don’t know about this stuff. A mention of an assumable mortgage may be buried in a listing description on Zillow, if it’s even included at all. Agents are often unfamiliar with assumables and may steer their clients toward the comforts of a traditional deal. Buyers and sellers may not even think to check if it’s an option. The gift of a low mortgage rate evaporates the second a home seller pays off their loan. Singh is trying to make sure that happens as little as possible.

“We’re so caught up right now in this part of the rate cycle where everybody’s like, ‘I can’t move because my rate is too good,’ ‘I can’t move because the rates are not good,’ or whatever,” Singh tells me. “That’s how both sides are thinking. But I just think that shouldn’t even be a conversation.”

James Rodriguez is a senior reporter on Business Insider’s Discourse team.