How a rare type of mortgage is landing homebuyers a 3% rate

As mortgage rates stagnate around 6%, prospective homebuyers are feeling nostalgic for the 3% interest rates of 2020 and 2021. Google search results for the term “assumable mortgage” spiked in May, following a steady upward trend starting in 2022.

Mortgage assumptions allow buyers to take over an existing mortgage at its current rate, possibly securing mortgage rates as low as 2% or 3% depending on when the original mortgage was taken out.

Mortgage assumptions were a popular way to buy a house in the 1970s and 1980s but have largely fallen out of public consciousness. The Garn St.-Germain Act of 1982 allowed private lenders to enforce a due-on-sale clause, requiring payment in full if a property changes hands, making assumable mortgages near obsolete outside of divorce and property inheritance.

Now a rarer find in the U.S. housing market, a specific subsect of mortgages can still be assumed by outside buyers: Veterans Affairs, Federal Housing Administration, and United States Department of Agriculture mortgages.

“Twenty percent to 25% of the homes on the market will be fully assumable at one time,” says Raunaq Singh, Roam founder and CEO. But, “the number of assumption transactions that are happening is far fewer than the number of mortgages which can be assumed.”

Only 4,052 FHA-backed mortgage assumptions were completed in 2023. Still, that’s a 59% increase compared to 2021, according to numbers provided by the FHA. The VA has seen an even larger jump with 713% more mortgage assumptions in 2023 compared to 2021. Both the VA and FHA are already outpacing last year’s assumption totals at more than 5,000 assumption per department so far in 2024.

Watch the video above to learn more about assumable mortgages, how they work, and why they can come with their own set of hurdles.