The Hidden Gem of Assumable Mortgages: Homebuyers Locking in 3% Rates


Last updated: October 19, 2024

As mortgage rates hover around 6%, many homebuyers long for the days of 2020 and 2021, when rates were as low as 3%.

Recently, there’s been growing interest in assumable mortgages, as searches for the term spiked in May 2023 following a steady rise starting in 2022.

Assumable mortgages allow buyers to take over a seller’s existing loan, potentially securing rates as low as 2% or 3%, depending on when the original mortgage was issued.

These mortgages were more common in the 1970s and 1980s, but the Garn-St. Germain Act of 1982 made them rarer by allowing private lenders to enforce a due-on-sale clause requiring the loan to be paid in full if the property changes hands.

This shift left assumable mortgages largely reserved for cases like divorce or inheritance.

However, some mortgages remain assumable: specifically, those backed by the Veterans Affairs (VA), the Federal Housing Administration (FHA), and the U.S. Department of Agriculture (USDA).

According to Raunaq Singh, founder and CEO of Roam, “Twenty percent to 25% of the homes on the market will be fully assumable at one time,” though the number of assumption transactions remains much lower.

In 2023, 4,052 FHA-backed mortgage assumptions were completed, representing a 59% increase from 2021.

VA-backed mortgages saw an even larger jump, with a 713% rise in assumptions over the same period.

Both the VA and FHA are already exceeding last year’s numbers, with more than 5,000 assumptions completed by each department in 2024.

For those in the housing market, this rare option offers a chance to lock in a desirable rate, benefiting both buyers and sellers in the business of real estate.

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Jon Morgan, MBA, LLM, has over ten years of experience growing startups and currently serves as CEO and Editor-in-Chief of Venture Smarter. Educated at UC Davis and Harvard, he offers deeply informed guidance. Beyond work, he enjoys spending time with family, his poodle Sophie, and learning Spanish.
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