Some homebuyers are securing 3% mortgage rates through loan assumptions. Here’s how the process works and why it may not be easy.

SACRAMENTO, Calif. — ABC10 anchor Lora Painter helps answer a viewer’s question about today’s housing market. The segment takes a closer look at a strategy some homebuyers are using to secure lower mortgage rates despite borrowing costs remaining above 6% at times.

Viewer Laura Wasowicz-Pollard wrote in saying: “A friend of ours just bought their first home by assuming a 3% mortgage rate from the sellers. Can you explain how that works? Seems like a great way to bypass the higher interest rates right now.”

To answer the question, Sacramento-area real estate broker Kevin Oto explained how mortgage assumptions work and why they can appeal to buyers trying to improve affordability.

“So if you’re assuming someone’s mortgage, it means you’re buying a house, and the buyer is gonna take over the seller’s existing mortgage while keeping that low rate,” said Kevin Oto, broker and owner of Greenhaven Capitol.

Assuming a mortgage allows a buyer to take over a seller’s existing home loan, including the remaining balance, interest rate and repayment term.

Oto said buyers may benefit when sellers purchased homes in 2021 or 2022, when mortgage rates were significantly lower.

“A seller that may have bought their house, you know, in 2021 or 2022, when rates were really low, locked in at 3%, you could essentially try to assume that person’s loan. So instead of getting a loan at today’s higher rates, they’re stepping into an older loan at a 3% rate or a lower rate, which could make that loan very attractive and help with affordability,” Oto said.

The process is primarily available through FHA, VA and USDA loans, which are government-sponsored loans. Conventional loans are typically not assumable, Oto said.

“It’s possible, but it’s not as easy as it sounds. The loan first of all has to be assumable, and typically it’s only FHA or VA or USDA loans that are assumable. So conventional loans are typically not assumable,” Oto said.

Buyers must still qualify with the seller’s lender, similar to the approval process for a traditional mortgage.

Another hurdle is the home equity difference—the gap between the current loan balance and the home’s purchase price. Buyers are typically responsible for covering that amount themselves.

The process can also take longer than a traditional home loan, which may create challenges in a competitive housing market.

“Assumptions can take a couple of months to complete. So in a competitive market where a seller could be getting multiple offers, most sellers aren’t going to wait that long if they have faster options. So it could be a really good opportunity, but it’s not something a buyer can necessarily rely on,” Oto said.

The segment also noted most lenders are unlikely to offer a second mortgage tied to an assumed loan to help cover the equity gap, meaning buyers may need to come up with the money on their own.

Email your Dollars and Sense questions to ABC10 anchor Lora Painter at LPainter@abc10.com.

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