The states with the most assumed mortgages – and how to get one

Prospective home buyers are getting smarter when it comes to buying a home as mortgage rates continue to hover around 7%.

One way is through home loan assumption – meaning the buyer takes over the original home mortgage (and interest rate) after the purchase. But, the loan can only be assumed when it is backed by the US government – such as FHA, VA and USDA loans.

More than 11 million homeowners in America have defaulted loans, according to US News & World Report. And over the past 10 years, nationally, 17.1% of mortgages were FHA loans and 7.7% were VA loans, adding up to roughly 25% of mortgages that are, in theory, assumed, according to Realtor.com data. ®. This number does not include USDA credits.

The states with the highest percentage of assumed mortgages are Alaska (39.3%), Wyoming (34.4%), Virginia (34.1%), Nevada (32.8%), Oklahoma (32.5%), Maryland (32.1%), Georgia (31.5 %) ), Louisiana (31.5%), New Mexico (31.4%) and Delaware (30.8%).

“An assumed mortgage can be especially attractive to buyers because these loans effectively pass the homeowner’s current low-rate mortgage onto the buyer,” says Hannah Jones, Realtor.com senior analyst.

Jones adds that approximately 85% of outstanding mortgages have a rate below 6% – well below the current mortgage rate, which makes assumed loans an attractive prospect. But they are hard to come by.

“Conventional loans, which make up the majority of home loans across the US, are not eligible. Government loans (FHA, VA, USDA) are presumptive, but make up a much smaller portion of the market and are subject to conditions,” she says.

“Furthermore, buyers assuming a mortgage must still find the money to pay off the seller’s existing equity, either with cash or by taking out a second home loan, which will be subject to today’s mortgage rate .â€

Additional benefit of an assumed loan

In addition to the lower interest rate of an assumed mortgage, it can also shorten the life of a home loan.

The seller would have already paid the initial years of the mortgage, so the buyer would only have to cover the remaining years. For example, if the original buyer was six years into a 30-year mortgage, the new owner who takes out the loan would only pay for the 24 years remaining on the loan.

First-time homebuyers Mickey Ricard and Grace Lucchese, both 24, saw a three-bedroom colonial in Westford, MA, listed for $429,000.

The real selling point of the property came out during the negotiations. They had tried to negotiate a lower price with the owner, who suggested the couple take out his own loan.

Ricard and Lucchese learned that an assumed mortgage would allow them to essentially “assume” the seller’s mortgage and its 2.6% interest rate.

Rates at the time were 7.6%, so “our mortgage payment would go from $3,800 to $1,700 a month,” Lucchese told Realtor.com. “It was the deal of the century, a loophole, like winning the lottery.”

Tips for finding an acceptable mortgage

Many buyers claim that it can be difficult to find a home with an adjustable mortgage. To help, Realtor.com recently added an “assumed loan” search filter so buyers can find these properties more easily.

It can also be useful to focus a search on areas near military bases.

“Many of the areas with a high proportion of listings that mention an assumed mortgage are home to or near a military base, and therefore see a higher proportion of VA loans that are assumed,” says Jones.

The challenges of getting an assumed mortgage

Assumed mortgages can be difficult to obtain because there is not a great advantage to the lenders. In conventional loans, banks charge large closing costs ranging from 2% to 7% of the purchase price of a home. On an assumed loan, fees are a maximum of $300 for VA loans and $900 for FHA loans.

Since most lenders aren’t used to dealing with assumed loans, they don’t always know how to do it—especially since the underwriting systems on these loans are manual instead of automated.

Companies like Assume Loans, Roam and AssumeList help buyers navigate the process.

“We help consumers nationwide find and buy homes with assumed mortgages,” says Mike Lorino, founder and CEO of AssumeList. “We track the interest rate, loan balance, down payment requirement, and even the mortgage payment for every prospective home in a market, even if the listing agent doesn’t include any comments in the listing.â€

What you need to know about an assumed mortgage

Conventional loans are not eligible for assumption; they require the loan to be paid in full – and a new one issued – whenever a property is sold or transferred to a new owner.

These are the three types of loans that can be assumed:

• FHA Loans: These loans are backed by the Federal Housing Administration, which provides loans to low-income borrowers who may not qualify for a conventional loan. Keep in mind that the new borrower, like the old one, must qualify under all FHA conditions, including credit and employment standards.
• USDA Credits: These loans are offered or supported by the US Department of Agriculture to low-income borrowers in rural areas. As above, the new buyer will need to meet the USDA credit score and income guidelines.
• VA Loans: These loans, offered to active or retired military, can also be obtained by non-veterans.

When pumping the brakes or proceed with caution

Although assumed mortgages are in high demand, there are some situations where they are simply not advisable, including the following:

• When the asking price is much more than the mortgage balance you are assuming. You’ll have to cover the difference, either out of pocket or with a second mortgage (which is harder to qualify for).
• When the seller with an assumed VA loan needs his or her VA benefit. Because the VA benefit stays with the loan instead of the person, it can be challenging for the veteran to get another VA loan when he or she moves.