{"id":161471,"date":"2023-10-31T17:48:03","date_gmt":"2023-10-31T23:48:03","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=161471"},"modified":"2024-02-28T14:25:31","modified_gmt":"2024-02-28T21:25:31","slug":"how-you-can-get-in-on-real-estates-best-kept-secret-assumable-mortgages","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/how-you-can-get-in-on-real-estates-best-kept-secret-assumable-mortgages","title":{"rendered":"How You Can Get In on Real Estate\u2019s Best Kept Secret: Assumable Mortgages"},"content":{"rendered":"\n<p><span data-preserver-spaces=\"true\">Housing is the single-largest expense for most Americans. Those looking to offset living expenses, build equity, and earn rental income have become enamored with&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/real-estate-investing\/house-hacking-strategy\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">house hacking<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">For new investors, house hacking is a great way to get into real estate investing. You can refine your strategy while living cheaper than you likely would otherwise. Over a few years, one house hack can quickly turn into two or three and help you&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rookie-262\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">scale your portfolio<\/span><\/a><span data-preserver-spaces=\"true\">.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Even so, investors looking for deals are facing resistance from the market. Low inventory, coupled with high interest rates, aren\u2019t exactly ideal buying conditions. As a result, cash flow is hard to come by. This shift has caused investors, including house hackers, to look for creative ways to make the numbers work, like&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/house-hacking-renting-by-the-room\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">renting by the room<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;or&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/the-future-of-short-term-rentals-rests-in-the-guest-experience\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">short-term rentals<\/span><\/a><span data-preserver-spaces=\"true\">.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Perhaps the best-kept secret in real estate circles is an opportunity called&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/assumable-mortgages\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">assumable mortgages<\/span><\/a><span data-preserver-spaces=\"true\">. This type of financing gives house hackers an opportunity to turn back the clock on interest rates to as low as 2%, giving them more buying power.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What Are Assumable Mortgages?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Assuming a mortgage means taking over an existing loan rather than originating a new one when you purchase a house. All government-backed loans, such as FHA and VA loans, are assumable, and there are millions of these assumable mortgages out there. In 2020 and 2021, when most new mortgages originated were below 4%, about a third of those loans are eligible for assumption today.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">How it works<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">Like a traditional loan application process, when you assume the mortgage from the seller, you will need to go through underwriting with the mortgage servicer. The existing mortgage servicer will want to ensure that you have sufficient funds and credit in alignment with the loan\u2019s criteria, as well as conduct any additional due diligence as part of their approval process.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">When you assume a mortgage, you become responsible for the remaining loan balance, taking over the seller\u2019s monthly payments and keeping the existing interest rate. To take over the loan balance, you need to buy out the seller\u2019s existing equity in the property.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Imagine this scenario for a potential seller:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Property value of $300,000<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">$60,000 in equity<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">2.5% interest rate<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">You would need to come to closing with $60,000, leaving you with a remaining loan balance of $240,000 at 2.5% interest.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In instances where a higher down payment is required, you may be able to take out a second mortgage at 80% of the&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/loan-to-value-ratio\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">LTV ratio<\/span><\/a><span data-preserver-spaces=\"true\">. While that second mortgage would be at today\u2019s interest rate, your blended rate between the two loans would be far lower compared to taking out an entirely new mortgage.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If you decide to employ this strategy, calculate your savings based on the blended rate of the two loans to determine if it makes financial sense to pursue the assumable mortgage.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Types of assumable mortgages<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">You can\u2019t just assume any seller\u2019s mortgage. As noted, all government-backed loans are eligible for assumption. Each of these comes with the caveat that you must meet the eligibility and underwriting requirements.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Here are a few different examples of assumable government-backed loans:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">FHA (Federal Housing Administration):<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;If you aren\u2019t currently using an FHA loan, you can assume one.&nbsp;<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">VA (Veterans Affairs):&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">You don\u2019t need to be a veteran to assume a VA loan.<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">USDA (U.S. Department of Agriculture):&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">These are likely in more rural areas, so if that\u2019s where you want to buy, you should look into this.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">In contrast, most conventional loans are not assumable. That\u2019s because they often feature something called a due-on-sale clause, which means the outstanding balance of the loan must be paid when the property is sold. There are some specific exceptions on conventional loans: successor in interest (after a death), divorce, and a family purchase.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Why House Hackers Should Capitalize on Assumable Mortgages<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Assumable mortgages can be a great asset to house hackers. Before you can take advantage, it\u2019s important to understand the ways it can help jump-start your investment portfolio.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Mortgage eligibility<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">As a savvy house hacker, you have a unique advantage because you will be occupying the property as a primary residence, which is a requirement for getting approved for an assumable government loan.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Lower interest rates<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">Recently,&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/mortgage-rates-reach-multidecade-highs-as-housing-demand-slips\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">interest rates hit a 23-year high<\/span><\/a><span data-preserver-spaces=\"true\">, so why purchase a home at over 7.5% when you could assume a mortgage with an interest rate as low as 3%?<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Let\u2019s assume $35,000 is your down payment. If you bought a $350,000 house at just over 3% instead of 7.5%, your payments would be about $1,360 per month instead of $2,380 per month. That translates to over $12,000 in savings per year. Think about how much easier it will be to offset those payments and turn that home into a cash-flowing property in the future.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Cash Flow<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">Ask any investor scouring the MLS or off-market deals, and they\u2019ll likely mention that cash flow is hard to come by. In contrast, people who bought properties during the era of historically low interest rates looked like investing geniuses\u2014even if they weren\u2019t.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">A by-product of low interest rates coupled with a potentially higher down payment on an assumable mortgage is increased&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rental-property-cash-flow-analysis\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">cash flow<\/span><\/a><span data-preserver-spaces=\"true\">, both now and in the future. While living in the property, you might be able to live for free, reduce your expenses, or put extra money in your pocket.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The wealth snowball really begins as you move to the next property. You\u2019ll be able to rent out the space you formerly occupied to make more money, whether that be an additional unit, in-law suite, ADU, or bedroom.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What\u2019s the Catch?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">If assumable mortgages are so advantageous, why aren\u2019t more people using this strategy?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Put simply, finding an assumable mortgage on your own is challenging. And if you manage to locate a home with an assumable mortgage, the lack of knowledge about how to follow the assumption process serves as another barrier.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Now, house hackers have access to resources that help overcome each of these obstacles.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Finding an Assumable Mortgage Made Simple<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Historically, the biggest challenge has been finding homes with assumable mortgages. Keyword searches for assumable mortgages on real estate sites turn up only a handful of results. The rest are hidden in plain sight.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The assumable mortgage discovery problem is now being addressed by a company called&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.withroam.com\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Roam<\/span><\/a><span data-preserver-spaces=\"true\">, a platform that helps buyers find and purchase a home with an assumable mortgage. Roam\u2019s founder and CEO, Raunaq Singh, explained:<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">\u201cFinding an assumable mortgage used to be like looking for a needle in a haystack. It required you to look through public records, then cross-reference the information with the MLS (multiple listing service) to see if the home was listed for sale. You could also take the approach of finding a house you like and asking the listing agent if they knew what the financial situation was. Obviously, this can become a cumbersome process as you look through dozens of houses in your search.\u201d<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Singh, who previously worked at Opendoor and served as the company\u2019s first loan officer, decided to start a company focused on a solution to this problem, saying: \u201cI saw that many people were being priced out of homeownership by high interest rates and knew that assumable mortgages could alleviate the problem. There just wasn\u2019t any easy way to locate these loans.\u201d<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">With Roam, finding an assumable mortgage is no longer a cumbersome process. House hackers can now simply go to Roam\u2019s platform in states where they operate to streamline the process.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Streamlining the Loan Assumption Process<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Did you know that something like 29% of homeowners have an FHA or VA mortgage? Yet the FHA has processed roughly 3,300 assumptions this fiscal year\u2014only a fraction of what\u2019s out there.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Part of this can be explained by the lack of access to a database of assumable mortgages. The other part of this equation is threefold:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">Unfamiliarity:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;Due to the limited number of annual assumptions, many agents, buyers, and sellers are unfamiliar with the process.<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Lack of incentive for mortgage servicers:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;Mortgage servicers make more money by originating a new loan than they would from an existing mortgage. Servicers also make more in interest from higher interest rates.<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">The paperwork:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;The assumption process tends to take longer than a traditional sale. There is very specific paperwork that ensures that the loan is successfully transferred. Filing the paperwork incorrectly or missing information can prolong the closing timeline.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">You can take charge of this yourself if you feel so inclined\u2014but you also don\u2019t have to. For a 1% fee, Roam oversees the entire process to ensure that the transaction stays on schedule. This includes project managing loan servicers, helping you get your paperwork in order, and making the process hands-off for agents.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Another Tool in Your House-Hacking Toolkit<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">The power of assumable mortgages cannot be overstated for those in the position to take advantage of them. This largely untapped financial instrument can offer significant potential to those looking to maximize their real estate investments.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">However, not all homes come with assumable mortgages. As you navigate your real estate journey, you may find yourself faced with choices. You might need to weigh the options between your dream home in an ideal location and a more favorable interest rate, or you may have to exercise patience in your search for the perfect fit.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In the end, the decision is in your hands. Just ask yourself: \u201dDo the potential benefits make the effort worthwhile?\u201d<\/span><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_d5d8320b76212c1e554271604b707d51\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_959acfcec20518007fd9695ed3187517\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<div id=button-custom-event-block_d30418454376e5400e0d15536580ccc6 class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\" x-on:click=\"window.analytics.track(&#039;Blog Block | B2C Marketplace Lender Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/how-you-can-get-in-on-real-estates-best-kept-secret-assumable-mortgages&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/signup\" x-on:click=\"window.analytics.track(&#039;Blog Block | Acquisition | Free Membership Signup&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/how-you-can-get-in-on-real-estates-best-kept-secret-assumable-mortgages&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Housing is the single-largest expense for most Americans. Those looking to offset living expenses, build equity, and earn rental income have become enamored with&nbsp;house hacking. For new investors, house hacking [&hellip;]<\/p>\n","protected":false},"author":159074,"featured_media":161474,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7406],"tags":[],"class_list":["post-161471","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-creative-financing"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/161471","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/159074"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=161471"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/161471\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/161474"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=161471"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=161471"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=161471"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}