I recently had a conversation with a potential buyer who was considering purchasing an investment property via an assumable mortgage. The topic of why assumable mortgages aren’t more popular came up, and after explaining several reasons, I realized that this question has puzzled many buyers. Assumable mortgages can offer significant benefits—especially in a high-interest-rate environment—but they remain underutilized. Let’s break down why assumable mortgages haven’t gained the mainstream traction you might expect.
1. Lack of Awareness and Education
The most significant factor behind assumable mortgages not being more popular is that not enough people, including real estate agents, even know they exist. Mortgage rates have been on a general decline for over a decade, so assumable mortgages weren’t needed, let alone discussed. When rates are falling, buyers are less interested in assuming an existing loan because they can often secure a new mortgage with a lower rate.
Historically, assumable mortgages surged in popularity during the 1980s, when interest rates spiked to astronomical levels. In an environment where rates are rapidly increasing, like the last couple years, assumable mortgages should be top of mind for buyers and sellers. However, with rates having been low for so long, the tool has fallen out of everyday real estate conversations.
2. Misconceptions and Skepticism
Even when people are aware of assumable mortgages, there are widespread misconceptions that can deter potential buyers. Some believe the process is impossibly long, others think they aren’t feasible or available, and a large number assume they’re limited to owner-occupied buyers. In fact, many buyers—and even agents—don’t realize that investors can sometimes take advantage of assumable mortgages too.
As an investor, you don’t have to live in the property to assume the mortgage, which could open doors to excellent deals in the current market. Still, this piece of information is often lost, and few buyers or agents know the finer points of navigating the assumption process.
3. Limited Availability and Discovery
Even when buyers are aware of the potential advantages of assumable mortgages, finding properties with this option can be a challenge. The truth is, not all sellers (or their agents) realize that the loans on their homes are assumable, which means this potential selling point goes unadvertised.
It’s not uncommon for me to call listing agents and ask if a property has an assumable mortgage, only to be met with surprise or confusion. In many cases, sellers and their agents haven’t thought to market the property this way, even though it could make the listing more attractive, especially to investors who are looking for favorable terms in a high-interest-rate environment.
4. The Process is Lengthy and Complicated
There’s no denying that assuming a mortgage is more complicated than securing a traditional loan. While the average mortgage process typically takes around 30 days, assuming a loan can take 60 to 90 days. This added time and complexity can discourage buyers who want a smoother, quicker deal.
Much of the delay comes from working with the lender currently servicing the mortgage. These lenders may not have much incentive to facilitate the assumption process. Imagine they have a loan on the books for $400,000 at a 2.5% interest rate. If they make the assumption difficult and the sale happens through a regular mortgage, they stand to issue a new loan at a much higher rate, perhaps 6.5%. From a business perspective, it’s more profitable for them to avoid assumptions if possible.
5. Friction from Lenders
Lenders don’t make the assumption process easy for buyers. Although FHA and VA loans are designed to be assumable, the servicing banks often add friction to the process. Why? As mentioned earlier, a lender making a loan at 2.5% interest has little motivation to transfer that loan to a new borrower when the market is offering higher rates. They may add hurdles to discourage the assumption, hoping the property sells through traditional means so they can issue a new, higher-rate mortgage.
However, federal regulations are on the buyer’s side in these situations. FHA and VA loans include provisions that allow assumptions, and if lenders want to keep servicing these government-backed loans, they must honor these terms. That said, the banks aren’t always enthusiastic, so it’s crucial to work with someone experienced in these processes.
6. Agent Desire
Another factor holding back assumable mortgages is the lack of agent desire. Many agents simply don’t have the desire to facilitate deals using the assumption route. It takes extra work for an agent to seek out properties with assumable loans and negotiate the assumption. Not every agent is willing to put in the time or effort required to facilitate a process that could take 60 to 90 days, especially when a typical sale closes in 30.
7. Agent Number Sense
Many agents don’t understand the numbers behind assumable mortgages and why they can be so beneficial to investors, particularly in an environment with high interest rates where the numbers just don’t pencil.
8. The Bright Side: Why It’s Still Worth Considering
Despite all these challenges, the rewards of an assumable mortgage can be significant, especially in today’s market. Let’s say you’re eyeing a property with a $400,000 mortgage at a 2.5% interest rate. If current rates are 6.5%, you could potentially save thousands of dollars each year on interest alone. Over the life of the loan, this could translate into tens of thousands in savings. For investors looking for long-term cash flow, this could make all the difference in a deal penciling out.
Experienced real estate professionals, especially those with a track record of handling assumable mortgages, can smooth out the bumps. Working with someone who understands the process and knows how to navigate the hurdles presented by lenders can significantly cut down on delays and complications. Hiring a mediator who specializes in assumptions can also push the process forward, sometimes getting the deal done in less than 45 days.
Conclusion
Assumable mortgages may not be the easiest or most well-known option, but they offer a powerful opportunity in the right circumstances. The lack of knowledge and desire to do an assumption means an amazing opportunity for you to find a great deal. With higher interest rates making real estate investing more difficult, the ability to take over an existing, low-interest loan could mean significantly improved return metrics. Yes, it takes longer, requires more effort, and comes with its fair share of friction—but for the savvy investor, it can be well worth the trouble.
Understanding the benefits and challenges of assumable mortgages is key. If you’re interested in exploring this option, make sure to work with an agent who has experience with these types of transactions and can guide you through the process smoothly.