With mortgage rates remaining high, homebuyers are looking for creative ways to reduce borrowing costs. One such strategy, assumable mortgages, has seen a surge in popularity, offering a way for buyers to take over sellers' existing loans at much lower rates, often around 3%. As this option gains traction, it provides an alternative route for those navigating today’s challenging housing market.

What Are Assumable Mortgages?

Assumable mortgages allow a homebuyer to take over the seller’s mortgage under the same terms, including the original interest rate. This means that buyers can benefit from the historically low rates that sellers may have locked in before the recent rate hikes.

Although assumable mortgages were more common in past decades, they became less prevalent after the Garn-St. Germain Act of 1982, which allowed private lenders to demand full repayment when a property was sold. Today, assumable mortgages are primarily available through government-backed loans, including VA, FHA, and USDA programs.

Growing Interest in Assumable Mortgages

With the current average mortgage rate hovering around 6%, the appeal of assumable mortgages is clear. Homebuyers are increasingly searching for this option, with Google searches for "assumable mortgage" spiking earlier this year. These loans, especially government-backed ones, present an opportunity to secure significantly lower interest rates.

Although assumable mortgages remain a niche option, their popularity is growing. For example, FHA-backed mortgage assumptions increased by 59% in 2023 compared to 2021, and VA-backed assumptions saw a 713% jump in the same period. Both FHA and VA assumptions are on track to exceed last year's totals, with more than 5,000 completions in 2024.

Assumable Mortgages: A Niche But Expanding Option

Despite the growing interest, assumable mortgages still account for a relatively small share of the market. FHA loans represented 15.9% of total mortgage applications last week, and VA loans made up 16.2%, reflecting a slight decline from previous weeks. Nevertheless, these loans offer hope to first-time homebuyers, especially as housing inventory improves in some areas.

While overall mortgage activity has slowed—applications dropped by 17% for the week ending October 11—the increasing number of assumable mortgage transactions suggests that buyers are finding ways to adapt to higher interest rates.

Assumable Mortgages Offer a Path Forward

As homebuyers continue to face rising mortgage rates, assumable mortgages provide a potential solution to securing lower borrowing costs. Though still niche, this financing option is gaining momentum as more buyers look for ways to navigate a challenging market.

‍