thegardenisland.com
Friday, May 10, 2024 • B3
THE GARDEN ISLAND
BEAT HIGH RATES — TAKE OVER SOMEONE’S LOAN Both the FHA and VA have caps in place on how much mortgage servicers can charge for assumptions.
Tara Siegel Bernard THE NEW YORK TIMES Home prices were already high when Ellen Harper, a software architect living in Atlanta, started searching for a house in 2021. But she couldn’t have anticipated the quick surge in interest rates the following year, and even with a large down payment, the new math made her uneasy. Earlier this year, however, she stumbled upon what felt like a portal to the not-so-distant past: listings of thousands of homes that come with a low-rate mortgage, which can be transferred from the existing homeowner to a new homebuyer, known as an assumable mortgage. Harper, who is in her 50s, managed to snag one of these homes, closing two weeks ago on a four-bedroom brick colonial in Fairburn, Georgia, with a $1,400 monthly payment. It’s an amount she’ll be able to comfortably afford into retirement, thanks in large part to a 2.49 percent mortgage rate. That’s less than half the current rate of 7.09 percent on 30-year-fixed loans, the most popular type of mortgage. “I didn’t want to get a bad mortgage and be in a ball-and-chain situation where all I would be able to do is pay the mortgage,” Harper said. She found her home through Roam, a startup that went live in September that lists homes with assumable low-rate loans and assists buyers through the process. “There were other homes; they were nice and everything,” she added, “but I went for the lowest rate I could find.” Assuming a mortgage isn’t some type of gimmick; it’s a built-in benefit on certain government-backed mortgages, as long as the new owners qualify. The process won’t work for all would-be buyers because there are several hurdles they may need to clear before they can claim the keys, often including a hefty down payment. For home sellers, it can be advertised alongside marble countertops, to attract more potential buyers. Finding an assumable mortgage Last popular in the 1980s, when mortgage rates topped 18 percent, many real estate professionals are unaware that assumable mortgages are even possible. But as mortgage rates continue to rise, word is spreading. Realtor. com, a home listing website, recently started tagging assumable properties and making them searchable. And more companies are seizing the opportunity, compiling lists or maps of eligible properties and charging homeowners a fee to help navigate what can be a nerve-wracking assumption process. An estimated 12.2 million loans, or 23 percent of active mortgages, are assumable, according to Intercontinental Exchange, a data and technology firm, though most conventional mortgages are not. It’s an embedded feature in mortgages backed by the Federal Housing Administration, which are widely used among first-time homebuyers, as well as those from the Department of Veterans Affairs. The number of assumptions completed is just a fraction of all home sales, but it’s growing. There were more than 6,000 completed in 2023, up 139 percent from 2022. This year, there were already 3,896 assumptions completed. Many homeowners with lowrate loans probably aren’t quite ready to give them up: Nearly twothirds of assumable mortgages with rates below 4 percent were taken out within the last 3 1/2 years, according to Black Knight. Several stars need to align when attempting to assume a mortgage. Since many homes have rapidly appreciated in price, and the assumed loans are partially paid down, there may be a significant gap between the purchase price and the remaining mortgage. That means potential homebuyers may need hefty
KENDRICK BRINSON / THE NEW YORK TIMES
Ellen Harper, who was able to obtain a mortgage at less than half the current rate of 7.09 percent on 30-year-fixed loans, the most popular type of mortgage, is seen in the kitchen of her new home in Fairburn, Ga., on May 5, 2024. down payments, or at least be able to qualify for a second mortgage, which will be at a much higher rate. Another hurdle is finding a seller willing to entertain such an offer, and hoping the mortgage servicer holding the loan will process the assumption in a timely manner. Several new companies are attempting to smooth the process, including Roam, which recently received $3 million in an investment led by the venture capital firm Founders Fund, and Tony Xu, CEO of DoorDash, among others. Roam runs a website similar to Zillow’s, except all of the listings, currently in 18 cities across seven states, have assumable mortgages under 6 percent and are large enough to cover at least half of the purchase price. The company has partnered with real estate agents who are
knowledgeable about assumable loans in the markets where it operates. Its transaction coordinators will call the mortgage servicer until the deal gets done. Roam’s help doesn’t come cheap: It charges 1 percent of the home sales price. In Harper’s case, her broker submitted her offer five different times because the seller and his listing agent were quite skeptical. That’s when her real estate agent, Kevin Hosner with Chapman Hall Realtors in Atlanta, got creative. They promised to pay the seller $2,000 more if they didn’t close within 60 days. Roam used that as inspiration for a new guarantee: If the assumption isn’t processed within 45 days, the company will pay the homeowner’s mortgage on a prorated basis until it does. Harper ultimately paid $357,000, with a down payment of roughly $170,000.
On FHA loans, the homebuyer would also need to pay a mortgage insurance premium of $194, which is an FHA program fee to cover the lender’s losses if the Running the numbers borrower defaults. Mortgage insurance usually For buyers, seeking out lowcovers the risks associated with a rate mortgages may seem like a low down payment. But here, no-brainer. But there’s a lot to even borrowers putting lots of consider, including the prospect money down will still need to pay of qualifying for a second mortgage, something that could poten- the fee for the life of the loan, tially gum up the closing process though there are exceptions. People assuming VA loans must or kill the deal altogether. pay a one-time fee of 0.50 percent Raunaq Singh, the CEO of of the loan amount to the agency, Roam, said the uncertainty of sebut there aren’t any ongoing incuring a second loan was a frequent stumbling block; some surance costs. There are other mortgage servicers who held the limitations, however. If a buyer assumable loan would extend ad- who isn’t a veteran assumes the ditional credit, but not always. To mortgage, the seller could lose all address the issue, Roam recently or part of his or her entitlement to started working with Spring EQ, a another VA loan until the old one is paid off. national lender, that will provide Still, for many would-be buyers, second loans to Roam customers it’s worth it. with credit scores of at least 640 Ryan Carrillo was one of many and down payments of at least 15 homeowners who wanted to percent. move but didn’t want to surrenImagine a home that cost $400,000, which comes with an as- der his 2.75 percent mortgage. Once he learned his FHA-insumable mortgage of $280,000. The homebuyer would need to sured mortgage was assumable, come up with $120,000 to close he figured he could try to find anthe gap, either with cash or loans. other one. But he quickly became A buyer who puts 20 percent frustrated trying to find assumdown, or $80,000, still needs anable listings. That led to an idea that he other $40,000, plus closing costs. shared in a text to an entrepreHere’s how the math shakes out: The homebuyer’s total neurial friend, Louis Ortiz. In Aumonthly payment would be gust, the two unveiled Assumable. $1,761, compared with $2,237 io, a small homegrown operation. monthly for a new mortgage with It now includes a website with a 7.5 percent rate. That includes 26,000 active listings and charges the assumable mortgage payment $1,850 to help aspiring borrowers of $1,230 (with a 3 percent rate) through the process that Carrillo and a second loan, of $336 (with a is about to embark on for his own 9.5 percent), according to Roam’s family. He and his wife, who had calculations. their first child in January, are There’s another ongoing cost moving from Phoenix to Texas to included in the monthly payment: be closer to relatives.