Jun 3, 2024 - Real Estate

How to score a rare sub-4% mortgage in the DMV's tight housing market

Illustration of a percent sign with a house and upside-down house within the zeroes, forming upward and downward pointing arrows.

Illustration: Shoshana Gordon/Axios

As mortgage rates and Washington house prices remain high, an unusual real estate amenity is getting buzz: a 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 — DMV homebuyers and sellers surely miss the ultra-low mortgage rates of a now-bygone era, especially as we see record-high home prices — but the problem is these assumable mortgages are rare, hard-to-obtain specimens.

  • Enter a wave of new companies created to help buyers find homes with assumable mortgages — like the Alexandria-based AssumeList.

What they're saying: "Buyers are screaming for help with finding homes with low interest rates," says Assume List founder Michael Lorino.

  • The DMV has a higher concentration of properties with assumable mortgage rates in the covetable 5% and under range relative to the rest of the country, says Lorino, thanks in part to its military presence and subsequent number of VA home loans.

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 adds.

The intrigue: Assumable mortgages could help free up inventory, says Lorino, as "golden handcuff" folks who don't want to sell their house and lose their low mortgage can in turn search for a new home with an equally low rate.

Yes, but: If you find a house to buy, there are high hurdles to closing the deal — especially in an expensive region like ours.

  • 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. Roam lists homes with assumable loans and helps with the buying process.
  • 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.

In an area like the DMV, where homes have appreciated substantially over the last few years, this means most buyers have to be prepared to put down some serious cash, says Lorino.

  • Assumable mortgages are already tough to find. Finding one tied to the even rarer affordable DMV home makes it tougher, Lorino tells Axios — aka it's not exactly a route everyone can take.

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.

And while assumable mortgages might be buzzy right now, they still only make up an extremely small portion of our real estate market.

  • Out of all the DMV's completed home sales last year, only 0.34% of sellers indicated they could offer an assumable mortgage, per data from Bright MLS.
  • And only 24.1% of listings with the option for an assumable mortgage were actually financed that way, according to Bright MLS.
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