This One Thing Could Get You A 3% Mortgage RIGHT NOW

Hey everyone, Joe Homs here, broker, mentor, and investor with over 40 years of real estate experience. Today we're breaking down a fantastic topic: how a rare type of mortgage is landing home buyers a 3% interest rate. In today's high-rate market, that sounds almost too good to be true, right? Well, Let's analyze it together and see if it's a golden opportunity or just another short-lived loophole. Stick around till the end. I'll share my take on whether this strategy is smart, sustainable, and something you should consider. If you're serious about investing in real estate, hit that like button, subscribe, and let's dive in. Here we go.

My wife and I have been looking for a new home for the last 2 years.

This is Wes VanDell. He is a new homeowner who is facing many of the same issues other prospective homebuyers have faced in this hot housing market.

We really just hadn't had much luck, mainly due to increasing interest rates driving up the cost of our mortgage. We did put in a couple of offers. That didn't go anywhere just because it's a, it's a very hot housing market here.

But the Vaendels' story is a little different than most homebuyers navigating the market right now.

We found one that popped up. It was the right size, it was the right area, but we knew it was a little bit out of our budget just because the interest rate was too high. Just happened to look at the Realtor app again, and there was a button on that app that said this home has an assumable mortgage.

What the Vandells found is a rare type of mortgage called an assumable mortgage.

An assumable mortgage. I haven't seen this stuff since the 1970s, 1980s. Actually sold one of my homes on an assumable mortgage. And then I also took back a seller finance mortgage as well to sell the home. That was during the Carter presidency years when interest rates were close to 18%. Does that kind of ring a bell to the last president that left office? But anyways, we were still doing real estate back then. We would just have to get creative. This is called creative financing. And assumable mortgages is just another way to go if you know what you're doing.

Landing them a 2.6% mortgage rate as opposed to the 2024 average, which sits An assumable mortgage is a type of home loan where the buyer can actually take over the existing mortgage terms from the seller.

That meant a difference of over $800 a month.

A common occurrence in the 1970s and '80s, assumable mortgages are a rare find in today's real estate market. In 2023, only 4,052 Federal Housing Administration mortgages were assumed. That's still a 59% increase in FHA mortgage assumptions, Since 2021. For Veterans Affairs mortgages, the jump is even larger, with 2,244 mortgage assumptions in 2023, an increase of 713% compared to 2021. And 2024 assumptions are already outpacing previous years for both the VA and FHA. So what are assumable mortgages? How do they work, and why aren't they more common?

The vast majority of homeowners don't actually know that they have an assumable mortgage. Buyers don't know how to find them, and agents don't know how to coordinate the purchase.

While assumable mortgages might be rare to find, public interest in them is climbing. Google searches for the term assumable mortgage have climbed in tandem with increasing mortgage rates over the past 2 years.

This is the most unaffordable time to purchase in America of the last 40 years. 60 million people were priced out from being able to purchase a home.

When it comes to the average US home buying experience, most Americans follow the same process. A buyer approaches a lender to get pre-approved for a mortgage. When the buyer settles on a home, they use their own mortgage to cover the cost at a fixed rate. The home buyer then pays off that mortgage over the term of the loan, normally 15 or 30 years. What an assumable mortgage offers is the option to take over the seller's loan. So instead of taking out your own loan at a new rate, you inherit the remainder of the seller's mortgage at whatever rate they took it out at. So a home buyer that took out an assumable mortgage in 2020 could offer an interested homebuyer a sub-3% mortgage rate.

For the homeowner, the value of including their low-rate mortgage in their home sale is to maximize their probability of being able to sell the home by expanding the universe of buyers who can afford to purchase it.

In the 1970s and '80s, US—

I wanted to stop here because he said something and he said it really quick. And I wanted to make a A point, a better point, or not a better point, but just another point. And the point is that, number one, sellers have no idea most of the time that they have an assumable mortgage because mainstream media just doesn't advertise that fact that all FHA and all VAs are assumable. And the other thing that he was pointing out was real estate agents. Even though real estate agents are licensed and trained, a lot of them are not trained on this type of activity. We had a big crash in 2008. And if you weren't ready for what happened in 2008 as a real estate agent, you basically walked away from the industry. At that point in time, you had to become a short sale expert. And if you weren't a short Yeah. If you weren't a short sale expert, you weren't doing business. I was doing probably 20 transactions a month. They were all short sales, working directly with homeowners who could not pay their mortgage anymore. My point is that as a real estate agent, you need to keep up with the times and you need to keep up with training. And this is a perfect example of that. This really explode here in the next few years.

As interest rates hit record highs, peaking at 18% in 1981, assumable mortgages were more popular then but have largely fallen out of public consciousness following the passage of the Constitution in 1982, allowing private lenders to ask for immediate repayment if a property is sold. This is called a due-on-sale clause.

Assumable mortgages are not really popular at all simply because they're very limited.

Assumable mortgages do come with their own set of hurdles. The possibility of higher than expected down payments, knowledgeable lenders and real estate agents, and the fact that they're only offered through government-backed loans. VA, FHA, and United States Department of Agriculture mortgages are now the main type of mortgages able to be assumed in the US.

The most popular state in America for assumable mortgages is Texas. This is because there's a large military population there and also a large first-time homebuyer population there.

A military community. So there's an Air Force base in our community where there are a lot of VA loans. It's also a younger, you know, college town. So there's a lot of FHA loans within our community.

And government-backed loans mean more paperwork. So if you are looking to enter into an assumable mortgage, get ready to settle in. They can take a while to close.

I want to pause it here too, because she keeps saying government-backed loans, and I want to make sure everybody knows that The government's actually not giving you the loan. They're backing the loan that's provided to you by the bank. And the agreement with the government and the bank is that if you stop making your mortgage payment and they foreclose on you, the government buys that mortgage back from the bank and pays them off. And that's why it's guaranteed. So like if you were to go get an FHA or VA loan, you would just literally go to a regular lender, They would put all the paperwork together. And then again, the government guarantees that or backs it. And that's what they're talking about here.

Mobile mortgages are very complicated and they involve a lot of paperwork. And that's why—

See, now here's the mainstream media telling you things are complicated. You know what? Waking up in the morning is complicated sometimes. Life is complicated. You've got to be able to educate yourself and work around these complicated issues. We're Americans. That's what we do.

A lot of lenders simply don't want to do them. Some don't even really understand them.

So there's a lot of, a lot more detailed information that is required. We were told right up front by the mortgage company that the process is going to take at least 90 days.

Homebuyers should also be prepared to put down more money than the typical 20% down payment. Assumable mortgages require buyers to cover the money already paid towards the mortgage, as well as any appreciation on the home price.

We've seen really rapid home price appreciation. So somebody who has a home that they had 20% equity in may now have a lot more money in that home than they originally had.

For example, say a homeowner took out a 30-year fixed-rate VA loan for a home at $200,000 and paid off about $25,000 of that over 2 years. The person assuming the mortgage would have to pay the buyer the money they've already invested, that $25,000. Additionally, if that homeowner decides to sell their home for $250,000, the buyer has to cover the additional $50,000 in appreciation, either in cash or by taking out a second mortgage.

A little bit of a guessing game initially because you're negotiating on what the sale price will be of the house. Of course, you don't really know upfront what is owed on the house either. Got lucky in that respect where what was owed on the house versus what we had settled on for a sale price was almost exactly that same 20% we had saved for our down payment.

One of the biggest hurdles for getting an assumable mortgage? Awareness, not just by buyers, but sellers who don't know to advertise their home as assumable.

So about a fifth of the homes on the market, or 20 to 25% of the homes on the market, will be fully assumable at one time. The number of assumption transactions that are happening is far fewer than the number of mortgages which can be assumed.

While assumable mortgages can be hard to find, And at times complex, companies like Realm are working to streamline the process for buyers and sellers.

97%, 98% of the people who have these loans don't know that it can be a marketing advantage because what kind of homeowner sits around thinking about their loan type being the marketing advantage in their home sale?

Other companies like Assumable.io and AssumeList can help match interested homebuyers with assumable mortgages.

I think once that word starts getting out, this is a possibility. We're going to see more and more of these pop up.

Anyway, if you're interested in working with assumable loans, I have clients that are working with me now and we identify these properties. It is a normal sale process. Other than the seller has to contact the bank, the bank has to make the decision if they want somebody to assume the loan. And there is a process and it's, it's literally almost qualifying for the loan again. But at the end of the day, you're going to get the interest rate that was negotiated at the beginning and whatever loan balance is left on the loan. That's what you're going to end up purchasing that loan for. Yes, there is a gap there. Most banks like to see at least 20% down. And if there is more than that of a gap, then we have answers for that too. We have a bank that will do a HELOC loan on top of the assumable loan. Obviously, the HELOC loan is going to be at a higher interest rate. So I have clients that literally call me because I have a website that identifies all these properties. They call me on a daily basis. And some of them really, you know, I'm not exaggerating here, are $15,000, $20,000, $30,000 to get into the property. Sometimes, like they said, a lot of these are VA loans. And, you know, if you're in the military, you get transferred around a lot. If you can't keep the home, you have to sell it. And this is a perfect way to do that and then sell it to somebody who's going to assume that mortgage and the responsibility for you. So this is a great way to go. If you're interested in learning more, reach out, contact me below, and I'm happy to get you connected with what we're doing right now. Thanks for watching the video. Make sure you like and subscribe and share this video so that other people can get informed. We'll see you on the next one.