Buying a house in the United States: This method teaches you how to secure a super low interest rate.

【Epoch Times August 5, 2024】The current mortgage interest rates are the biggest cause of the sluggishness in the US real estate market! Despite the downward trend in fixed rates over the past thirty years, they still remain close to 7%, making it unacceptable for most buyers and sellers. Waiting for rates to drop! However, waiting for rates to go below 5%, or even 4%, might take until next year, the year after, or even longer.

If I tell you that there is a way to get low rates now, you should be very excited!

First of all, good things are never easy to come by. So, in order to get low rates, sacrifices must be made, efforts must be put in, and there are limitations. If you are willing to accept and strive to find, then you can achieve the dream rates that everyone desires!

Let’s look at a case study. In Westford, Massachusetts, a young couple aged 24 successfully bought a house earlier this year. The thirty-year fixed rate at the time was over 7%! But they ended up with a low rate of 2.6%!

The young couple, Mickey Ricard and Grace Lucchese, wanted to find a three-bedroom house to live with Mickey’s mother. At the time, rates were even higher than they are now, so they struggled in the housing market, unable to find an affordable house.

One day, Mickey’s mother said, “Hey, son, I saw a house for $429,000. You must go take a look.” So Mickey and Grace went to see the house, a colonial-style old house with a white fence and three rooms, well maintained. They felt that this was the house they had been looking for!

During negotiations with the seller on the price, Mickey wanted to haggle, but the seller said, “Actually, you can assume my mortgage.” What does that mean? “Assuming the seller’s mortgage,” it’s like nothing they had heard of before. Usually, a buyer’s mortgage application calculates a new fixed or adjustable rate based on the current rate and the buyer’s qualifications. But the concept of assuming the previous homeowner’s rate was unheard of!

This type of mortgage is called an “Assumable Mortgage,” which essentially allows the buyer to “take over” the seller’s loan. Does this mean that any previous homeowner’s loan can be “assumed” by the buyer? Of course not, or else the housing market wouldn’t be so sluggish.

So what was Mickey’s seller’s rate? It was the dream rate that everyone wishes for, 2.6%! According to Grace, the conventional thirty-year fixed rate mortgage at the time was around 7.6%, but by assuming the previous homeowner’s loan, their monthly payment dropped from $3,800 to $1,700. This was truly remarkable! The same house but a world of difference.

Although it sounds very enticing, processing an Assumable Mortgage is quite challenging. It is said that Assumable Mortgages have actually been around for decades, and it’s not a new concept. However, due to its limited exposure, as I mentioned earlier, it has many restrictions, with even many loan officers not having heard of it, let alone dealt with it.

3% interest rate! How did they do it?! | Assumable Mortgage: What is this loan? | Banks in the US don’t want to touch it 【#USRealEstateHotspot】Episode 165

One limitation is that the seller’s mortgage must be a government-backed loan, such as an FHA Federal Housing Administration loan, VA Veterans Affairs loan, or USDA US Department of Agriculture loan. According to Realtor.com, approximately 15% of homes for sale in the US meet this condition. The chances are higher around military bases because VA loans make up a significant portion.

When Mickey approached the bank for a loan, the bank told him, “Unless you apply for a regular mortgage, you cannot buy this house.” Despite Mickey’s insistence on processing the Assumable Mortgage, he was informed, “Only the bank’s ‘Special Services Team’ can handle this case, and this unit can only be contacted via ‘fax,’ with no callbacks or a way to track the progress.”

Due to the various obstacles from the bank, Mickey had no choice but to hire a company specializing in such cases to help push through the loan — “Assume Loans.” The company’s head, Mark McDonough, acknowledged that Assumable Mortgages often face such hurdles. Even though banks rarely deal with such cases, they do not have the authority to deny you this service.

With the help of Assume Loans, Mickey and his family finally got this “dream mortgage.” However, besides being rarely sought, this type of loan has two reasons why banks avoid it at all costs.

Firstly, when processing an Assumable Mortgage assumed from a veteran, banks can only charge a maximum fee of $300; if it’s an FHA loan, the fee limit is $900. In contrast, for a regular mortgage, banks can charge fees ranging from 2% to 7% of the home purchase price. The difference between the two fee structures is significant, no wonder banks steer clear.

Another reason banks avoid processing Assumable Mortgages is that the process is usually more complex, lacking the automated systems that support regular loans due to fewer people using them. Many tasks need to be manually handled, as opposed to the almost entirely automated processes of conventional mortgages, making the process slower.

A significant benefit for the buyer of an Assumable Mortgage is being able to inherit a lower interest rate from the seller. Additionally, the buyer only needs to repay the remaining loan balance of the seller. For example, if the seller has a thirty-year loan and has already repaid five years, the buyer only needs to repay the remaining 25 years of the loan.

Wow! Sounds amazing, right? But some might have already thought of a question. As property prices have generally apprec…

In the end, to obtain an Assumable Mortgage is indeed not easy. The primary condition is that the seller must have an FHA, VA, or USDA loan from one of the three government agencies. Therefore, the first priority is to find properties that meet this requirement.

How many of these mortgages are there in the US? According to Realtor.com, over the past ten years, approximately 17.1% of mortgages in the US are FHA loans, 7.7% are VA loans, totaling about 25%, which does not include USDA loans.

Moreover, statistically, these federally guaranteed loans have the highest proportion in several states, including 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%).

In other words, if you can search for properties in these states, there is a higher chance of finding an Assumable Mortgage. However, most of these states are not the preferred choice for Chinese friends to live in. So, as I mentioned at the beginning, sacrifices are needed—perhaps tolerate the absence of Asian supermarkets and the departure from familiar living circles. If you are looking to experience a new life, then it might be suitable for you.

Apart from states, there are also cities with a higher proportion of chances to find an Assumable Mortgage. Through a special “Assumable Mortgage” filter, Honolulu, Hawaii has a 3.3% chance of finding an Assumable Mortgage among listings.

In New Orleans, Louisiana, it’s 2.8%, Ogden, Utah, 1.6%, Tucson, Arizona, 1.4%, Augusta, Georgia, 1.3%, San Antonio, Texas, 1.21%, Virginia Beach, Virginia, 1.16%, Salt Lake City, Utah, 1.08%, Jacksonville, Florida, 1%, and Tampa, Florida, 0.97%. The chances seem scarce, but for the sake of money, it’s worth looking into.

For example, in Tampa, Florida, I found a property priced at $615,000 that offers the option of an Assumable Mortgage. Upon investigation, it was found that the buyer could assume the rate obtained by the previous homeowner in April 2022, which was 4.51%, compared to the current rate of 6.565% in August 2024, two percentage points lower. However, the buyer should be aware that a significant appreciation of the property has occurred, so the buyer will need to make up the price difference brought by the appreciation. This will not be a small number. Whether it’s worth it depends on the buyer’s considerations.

Before rates drop, an Assumable Mortgage could perhaps be one of the methods for resolving the situation. I hope it provides a little help when buying a house. As mentioned in previous articles, even if the Fed starts cutting rates, mortgage rates may not decline quickly. This makes it challenging to break away from the status quo, and it will be difficult for both buyers and sellers. So please stay vigilant about rate changes at all times. ◇