A House Hacker's Best Kept Secret: Assumable Mortgages

House hacking has become an increasingly popular entry point to real estate investing. This strategy involves purchasing a primary residence with income-generating potential and leasing out a room or converting a portion of the property, such as a basement or accessory dwelling unit (ADU), into a rental. It's an excellent way to build equity while earning rental income to offset the mortgage or other living expenses.

However, even with potential rental income, current high interest rates pose a formidable challenge to affordability—that is, unless you can find a low-rate assumable mortgage.

Roam helps house hackers turn back the clock on interest rates and purchase a home with a rate as low as 2%. With current interest rates hovering near multi-decade highs, assuming a mortgage with a rate as low as 2% compared to 7% can save you thousands of dollars annually. This translates to more cash flow towards other investments or offset living expenses. You can use the rental income to cover all or some of mortgage payment, freeing up additional funds for future investments.

After meeting the first-year primary living requirement, renting out the entire property could become a viable option, turning it into a full-fledged investment. From there, you'll be in a position to look for your next investment.

What's an Assumable Mortgage?

Assumable mortgages let you inherit the seller's loan — and its lower interest rate — bypassing current market rates by working with the seller's loan servicer to take over the existing loan. All government-backed loans, such as FHA and VA loans, are eligible for assumption by law, and there are millions of these loans in the US. Most conventional loans are not assumable because of the "due-on-sale" clause, which requires the loan to be paid off upon the home's sale. However, there are exceptions for specific situations like inheritance, divorce, or family purchases.

Real estate investment house hacking

In 2020 and 2021, when interest rates were at historic lows, around a third of new loans originated were government backed assumable mortgages. When these homes with assumable mortgages go on the market, they become ideal targets for house hackers, offering low rates with a significant portion of the mortgage amount remaining.

How to Find Properties with an Assumable Mortgage

In the past, finding homes for sale with assumable mortgages was nearly impossible. Sites like Zillow and Redfin have very few listings that indicate that a home's mortgage is assumable. Finding these coveted properties was a tedious process involving manual searches and cross-referencing with public records.

We created Roam to make finding and purchasing a home with an assumable mortgage easy. Roam's platform lets you browse by city, zip, or even school district and allows you to save your search criteria and receive listing notifications that match your preferences. Our system makes navigating the assumption process seamless, helping buyers unlock thousands in annual savings. Many of these homes are in high demand, and Roam's platform is designed to help buyers learn about new relevant listings as soon as they hit the market.

How to Qualify for a Mortgage Assumption

Being a house hacker means occupying the property as your primary residence, which means you'll meet an essential requirement for assuming government-backed loans. Even if a portion of the home generates rental income, you can assume the mortgage if you plan to maintain the home as your primary residence for at least one year.

Similar to a traditional mortgage application, assuming a mortgage also requires underwriting approval from the loan servicer. They will assess your financial stability and creditworthiness to ensure you can handle the loan obligations. Unlike traditional mortgages, Roam guides you through every step, from initial qualification to final closing, smoothing out the complexities and coordinating with all parties involved.

When assuming a mortgage, you become responsible for the remaining loan balance and continue making the seller's monthly payments at their existing interest rate. You'll also need to buy out the seller's equity in the property as a down payment.

Here are some examples:

A home listed at $300,000 has a 2.5% interest rate mortgage and loan balance of $240,000. To assume the mortgage, you would need $60,000 to cover the equity portion of the purchase price and approximately $3,000 to cover the third-party closing costs, estimated at 1% of the home's value.
A home listed at $450,000 has a 3% interest rate and a loan balance of $350,000. To assume the mortgage, you would need a $100,000 down payment to cover the equity portion of the purchase price and approximately $4,500 to cover the estimated closing costs.

Using a 2nd Lien to Cover the Down Payment

Coming up with the cash for the downpayment might be a non-starter for many buyers. But there's a solution to the downpayment hurdle – a second mortgage to cover all or some of the down payment. While a second mortgage would come at a higher rate based on the current market, the blended rate between the two loans would still be significantly lower than originating a brand-new loan. We advise structuring your financing to keep the overall costs as low as possible, blending loan rates for optimum savings.

Streamlining the Loan Assumption Process

Many homeowners with assumable mortgages need to be made aware of this option, and the intricacies of the assumption process. Additionally, some mortgage servicers might not actively promote assumptions due to lower origination fees compared to new loans.

Ideal House Hacking Home

That's where our service comes into play. Roam helps find assumable mortgages and streamlines the assumption process for a fee equal to 1% of the purchase price. This fee is often lower than what buyers would pay for originating a new mortgage, and mortgage payment savings typically offset it within a few months.

We handle communication with loan servicers, help in completing the necessary paperwork, and keep the transaction on track, making it easier for house hackers to capitalize on this valuable opportunity while making sure you close on time.

Roam's Seller Closing Guarantee

Once you're ready to make an offer, we'll reach out to the seller to help guide the process. To help make your offer even more compelling, all sellers who work with Roam now have access to the Seller Closing Guarantee, a form of insurance in the rare event of a delay in closing to give sellers peace of mind when considering an offer that includes a mortgage assumption.

Roam's proven process ensures that the typical mortgage assumption timeline takes 45-60 days to close. Understandably, some sellers may still be hesitant to accept an offer that involves a mortgage assumption because they want to avoid adding any time or complexity to the transaction.

That's why we created the Seller Closing Guarantee. We're so confident in our service and assumption expertise that we're putting our money where our mouth is.

As long as the scheduled closing date is at least 60 days out from the time the seller accepts the offer and signs the Roam Seller Closing Guarantee, Roam will compensate the principal and interest portion of the seller's monthly mortgage payments for up to 60 days after the scheduled closing date.

With the Roam Seller Closing Guarantee, sellers will be more receptive to your assumption offer, and you'll have additional negotiating room in a multiple-offer situation. Working with Roam can be the difference between closing your dream house-hacking property and starting your search over from scratch.