How some homebuyers are snagging rare, sub-4% mortgages
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Illustration: Sarah Grillo/Axios
Homebuyers typically covet amenities like walk-in closets or cold-plunge pools — but the latest hot thing in the housing market is the old-school sub-4% mortgage.
Why it matters: The new idea to revive the housing market is something called an "assumable mortgage," where a homebuyer not only acquires a house but also the seller's mortgage.
The big picture: Sounds cool in theory — homebuyers and sellers surely miss the ultra-low mortgage rates of a now-bygone era — but the problem is these assumable mortgages are rare, hard-to-obtain specimens.
- Despite the difficulties, assumables are getting attention — in the form of new startups that help you find one, as well as media spots (like this one!).
- It demonstrates how desperate the real estate world is to solve its biggest problem: "rate lock."
Catch up fast: Also known as the "golden handcuffs," rate lock is the phenomenon in which homeowners feel they can't sell their house because they'd have to give up the low mortgage rate they nabbed before rates rose (the average rate on the 30-year mortgage is now hovering at 7%).
How it works: Any government-backed loan, including FHA, VA and USDA mortgages, could be assumed by a purchaser.
- 23% of outstanding mortgages, about 12.2 million, fall into this category, but only 13%, or 6.8 million, have rates below 4%, according to data from Intercontinental Exchange.
- The universe might be even smaller than these numbers suggest. About two-thirds of assumable mortgages were taken out within the past 3.5 years, says Andy Walden, vice president of enterprise research strategy at ICE.
- "Meaning borrowers may not be ready to sell just yet," he says.
Zoom in: Some real estate listings now note if a home comes with an assumable mortgage, and there are new startups where buyers can peruse only these kinds of homes — including Roam, AssumeList and Assumable.
- If you find a house to buy, there are high hurdles to closing the deal.
- The down payment is the big one. You don't simply lay out 10% of the purchase price. The required down payment for an assumable is the difference between the purchase price and the seller's loan balance, as Roam explains in its FAQ.
- For example, if you bought a $400,000 home in the usual way, maybe you'd have to come up with $40,000. If you're assuming the mortgage on that house, you might be assuming a loan with a remaining balance of $200,000 — and you'd need to come up with the rest in cash or via a second mortgage.
Reality check: Mortgage servicers may not want to do these deals because they can charge only a few hundred dollars on assumptions, less than they'd get for new loans and "often less than the cost of processing the assumption," the WSJ reported recently. Servicers drag their feet on processing these transactions, per the report.
- There were only 6,000 assumptions completed in 2023, per the New York Times, which outlines a bunch of other reasons why this process is so hard. So far this year, there have been 3,896.
- That's not a lot.
