MINNEAPOLIS — After Deb Zielikowski's husband died last year, she decided to trade in the lakeside home where she had planned to spend her retirement years for a home in the city closer to family.
But when she realized that a 7% mortgage rate would mean dipping into her savings, she put that plan on hold, instead deciding to move in with her daughter in the hopes that interest rates would eventually come down.
She didn't have to wait long.
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Last October, when mortgage rates were still hovering near 7%, she stumbled upon an ad for a townhouse in Coon Rapids, Minnesota, that came with a KitchenAid refrigerator, electric blinds and an unexpected luxury: a low-interest assumption mortgage.
“It felt like I won the lottery,” said Zielikowski, who took on the seller's 2.25 percent mortgage rate.
The deal saved her about $700 a month compared with current interest rates and freed up her budget so she could buy a new car and spend part of the winter at her aunt's house in Florida.Her $349,900 townhouse is one of hundreds of transferable mortgaged properties in the Twin Cities that qualified sellers can transfer to qualified buyers, taking advantage of a return to the days of low interest rates.
Though they currently account for only a small percentage of all residential property, these government-insured mortgages offered by the Federal Housing Administration, the Department of Veterans Affairs and the U.S. Department of Agriculture are an oft-overlooked homebuying secret that is helping a growing number of buyers save hundreds of dollars each month and tens of thousands of dollars over the life of their mortgage.
“Most real estate agents don't even know what it entails or what to look out for,” says Tyler Miller, a Minnesota real estate broker who has been involved in buying and selling several assumeable mortgages with surprisingly low interest rates.
Miller recently put his four-bedroom home in Blaine, Minnesota, on the market with an FHA mortgage at a notional interest rate of 2.25%, with monthly payments about $1,700 below market value. To promote his listing, Miller posted a TikTok video touting its benefits.
“Some people said I was lying,” Miller said. “I said, 'No, this is true.'”
Assumable mortgages exist in the shadow of the extraordinarily low interest rates of recent years: The last time such mortgages were popular was in the 1980s, when rates reached a record high of 18.1%.
Interest rates plummeted in late 2020 and early January 2021, hovering around 3% for much of 2021, sending home sales and prices soaring. This buying spree locked in thousands of mortgages at interest rates that are unlikely to be that low again for decades to come. An estimated 80% of VA mortgages like the ones Zeljkovsky envisioned now have interest rates below 4%, and many of those rate holders are now ready to sell.
Currently, a 30-year fixed-rate mortgage averages about 7%. While that's still below historical averages, there's a generation of buyers looking forward to an era of low interest rates that are unlikely to come back anytime soon.
About one-third of home loans in the U.S. are assumeable mortgages, and because many owners try to hang on to their interest rates for as long as possible, assumeable mortgage listings make up only a small percentage of homes for sale, making them one of the best-kept secrets for today's homebuyers.
Some real estate agents list transferable mortgages in property details, but many homeowners don't even know they have them. The details are buried in the fine print of contracts, and many buyers don't read it carefully. In Minnesota, just under 5% of the more than 30,000 homes listed on Realtor.com had transferable mortgages. The website finally introduced a transferable mortgage search feature in February.
Ryan Carillo and Luis Ortiz launched the Assumable.io website, which specializes in assumeable mortgages, after Carillo discovered that the 2.75% FHA mortgage on his own home was assumeable.
The site allows you to search for properties by city and also features detailed mortgage data, such as interest rates you can assume and how much you'll pay compared to what you'd pay at your current interest rate. All of the 30,000+ properties nationwide featured on the site have mortgages you can assume, along with important details like the down payment required and how much you'll save in interest over the remainder of your mortgage.
“This is a huge opportunity,” Carrillo said, noting that traffic to the site has doubled every month since it launched.
A nearly new townhouse in Maple Grove, Minnesota, that recently went on the market was originally listed for $485,000 but comes with an assumeable mortgage at half the current interest rate, saving the prospective buyer about $1,000 per month. Over the life of the loan, that low interest rate will save the buyer about $400,000 in interest payments.
Roam is a new website that specializes in assumeable mortgages. It charges buyers 1% of the purchase price to help with the process. The company claims that buyers who use the site can save an average of $15,000 a year on their mortgage payments.
“It's not a panacea and it won't work for every transaction or every buyer,” Ortiz says, “but it does give buyers the opportunity to purchase larger homes if they can take advantage of the equity gap.”
This equity gap is often the biggest stumbling block: Because the buyer is essentially assuming the existing mortgage rather than taking out a new one, the buyer must pay the seller the difference between the original mortgage balance and the current asking price.
That wealth gap could be large, given that it's only been a few years since interest rates spiked, but home prices have been steadily rising.To eliminate that barrier, Ortiz and Carrillo said they are now offering access to their site to lenders willing to take out second mortgages.
Chris Burke, vice president of Veterans United Home Loans, which has a national agent network that specializes in working with military buyers, said the number of VA mortgage underwritings has increased 600% from 2022 to 2023.
“We've seen a significant increase in interest in these properties,” he says, “but it's a foreign concept for many buyers, and even sellers.”
He said any lender or servicer should be able to complete the transaction, but it helps to work with a professional who is familiar with the process.
Brady Holland, the agent who helped Zeljkovsky buy the townhouse, said mortgage underwriting can be more complicated because it requires both the buyer and seller to submit paperwork. This is especially true for sellers who are essentially selling the mortgage to the buyer.
“It was a little difficult,” he said. “I had to call [the processor] We'll review the situation every other day. … It takes a team to make it happen.”
Many VA mortgage holders are reluctant to let another buyer assume their mortgage because if they do, they will lose the right to use the benefit to purchase another mortgage. Unlike FHA mortgages, VA mortgages are considered a government benefit, which comes with perks such as being exempt from private mortgage insurance.
VA mortgage holders have the right to transfer those benefits to eligible non-veterans, as long as the seller does not plan to purchase the home with another VA loan.
In the case of the home Jeljkovsky purchased, the seller was a widow who had moved into an apartment and was not planning on buying a home again, allowing her to waive her right to additional VA mortgage benefits.
While mortgage assumptions can sometimes take longer than a traditional new mortgage, that wasn't the case with Jelikowski's purchase, which closed less than two months after she first saw the home. She said the hardest part of the process was filling out online forms and applications, but her tech-savvy daughter helped her with that.
“Until interest rates came down, I didn't know if I was going to live with my daughter for six months or two years,” she said. [assumable] Interest rates have made all the difference in the world.”
– Jim Buchta, Star Tribune
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