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Housing startup offers an unconventional way for buyers to get a low mortgage rate

Assumable mortgages could have a moment.

In today’s current environment where mortgage rates are lingering above 7%, exploring new creative financing ideas has become a necessity. One company is betting on giving customers a possible solution.

Roam, a real estate startup, offers listings of homes for sale with assumable mortgages, which is "a type of home loan where you can take over the interest rate that the seller currently has," Raunaq Singh, CEO of Roam, told Yahoo Finance Live (video above).

"For buyers this allows you to purchase a home with a mortgage rate as low as 2%, which would be a reduction in monthly payments by more than half compared to purchasing at today's prevailing rates," Singh said.

And sellers win, too, as it "helps you find significantly more buyers for your home, because your home is the only one in the neighborhood that comes with a mortgage included."

This comes as homebuyers' purchasing power is slipping away. The 30-year average mortgage rate edged up to 7.19% this week from 7.18% the prior week, according to Freddie Mac, the sixth straight week rates topped 7%.

Read more: Mortgage rates at 20-year high: Is 2023 a good time to buy a house?

In fact, the median monthly mortgage payment hit an all-time high of $2,632, a 14% gain during the four weeks ending Sept. 10, per data gathered by real estate listing company Redfin. The company estimates a buyer with a $3,000 monthly budget has lost almost $50,000 in buying power over the past year.

This is where Roam hopes to offer a much-needed solution to the home affordability crisis because most homeowners have a much lower current mortgage rate.

According to another report from Redfin, 91.8% of US homeowners with a mortgage have an interest rate below 6%; 82.4% have a rate under 5%; and 62% have a rate below 4%. That's a lot more attractive to today's buyer.

A notice indicating that a home has been sold appears on a sign in residential section of San Francisco, Friday, April 21, 2023. (AP Photo/Jeff Chiu)
A notice indicating that a home has been sold appears on a sign in residential section of San Francisco, April 21. (AP Photo/Jeff Chiu) (ASSOCIATED PRESS)

However, there’s a catch: Not all home loans are assumable.

Most conventional mortgages are not assumable. Loans that are backed by the Federal Housing Administration (FHA) or by the Department of Veterans Affairs (VA) or United States Department of Agriculture (USDA) are assumable as long as the requirements are met. And sellers with FHA and VA loans need lender approval.

As of July, there were just over 7.4 million FHA-insured mortgages, according to the Department of Housing and Urban Development.

According to Singh, of the home loans originated in 2020 or 2021, "about 30% to 33% of those loans were government-backed loans. And all of those loans are eligible for the assumption. So there are literally millions of mortgages out there that can be assumed today."

Meanwhile, "when the loan is assumed by the new buyer, the seller will be released from liability on the loan. They will not be on the hook for any mortgage payment that the subsequent buyer does or does not make," Singh said.

The big obstacle is getting the word out.

"Most folks don't know this as an opportunity. So they don't know how to advertise it," Singh said. "They don't tell their listing agent to advertise the affordability benefit so it doesn't end up showing up in a lot of the normal real estate platforms you might go to."

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.

Click here for real estate and housing market news, reports, and analysis to inform your investing decisions.

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