For US house hunters discouraged by high borrowing costs, there’s still a way to secure a 3% interest rate.

The catch? To make the most financial sense, it requires a large cash payment.

A so-called assumable mortgage allows buyers to take over an existing loan — including its interest rate, which in the vast majority of cases is below the current 7%. It’s a little-known strategy that can help buyers save thousands of dollars in a largely frozen real-estate market. But they must be able to afford not only the balance of the seller’s loan, but also whatever equity is owed.

Less than 1% of home listings currently advertise that the property has an assumable loan, in part because it’s mostly just government-backed loans that can be transferred. But in theory, it’s an option that could be available for roughly one in five homes with a mortgage, if a buyer asks.

How It Works
When using an assumable mortgage, the buyer must take over the seller’s remaining balance, repayment schedule and interest rate.

Both the seller and buyer must be approved by the lender holding the existing mortgage. Plus, the buyer is likely to need more cash up front. In addition to normal closing costs, an assumable mortgage can come with additional fees for processing, documentation and legal work. And the buyer will still have to pay the difference between the home’s higher purchase price and the outstanding balance of the loan assumed.

For instance, say a couple bought a $300,000 home four years ago and they used a $250,000, 30-year Federal Housing Administration loan with a 3% interest rate. They’ve since paid off $50,000, and now they want to sell that property for $400,000. A buyer wanting to assume the mortgage would need to pay the couple $200,000 in addition to taking over the $200,000 left on the loan. They can pay with cash — but if they’re short, they’d still need a loan at current interest rates with a down payment, cutting into cost savings. Not all deals will make sense financially, according to Melissa Cohn, a regional vice president at William Raveis Mortgage.

“If you can take advantage of it, it’s a great opportunity,” she said. “But you have to do the math.”

Alternative Path for Buyers
Understandably, in an interest-rate environment that has dramatically changed in recent years, buyers are looking to get creative with their purchases.

At $2,550 a month, the mortgage on a median-priced home of $429,950 — assuming a 6.9% interest rate and 10% down payment — is almost double what it was in 2021, when rates were at historic lows, data from show.

The opportunity to get a loan with a lower rate and shorter duration could save a buyer thousands of dollars, said Hannah Jones, a research analyst.

Still, transferring a mortgage remains rare.

Less than 0.5% of homes listed in May advertised an assumable mortgage, according to That’s more than double the share of homes offering a transferrable loan a year earlier. But the best route for buyers may be simply to ask sellers if they have an eligible mortgage they’d be willing to transfer.

For the most part, only government-backed mortgages — loans from the FHA, as well as the US Department of Agriculture and Veterans Affairs — are eligible for assumption. That represents about one out of five US homes with a mortgage. And the limit for a loan the government will back is about $1 million in high cost areas like New York.

However, finding a transferable loan may be a challenge at a time when there are so few listings on the market, said Keith Gumbinger, the vice president of HSH Associates.

“We have very thin inventories of homes for sale of any kind in most marketplaces,” he said.

A Deal Sweetener for Sellers
After a long inventory drought, the US housing market is starting to see listings rise. But, in many places, buyers just aren’t showing up.

Sellers who need to close quickly or are having trouble getting traction should strongly consider offering an assumable mortgage, Jones said. An alternative financing option is a great marketing feature for sellers. That’s especially true if they have a rate below 6%, which is nearly 90% of homeowners, according to real estate company Redfin.

Furthermore, sweetening a deal with a lower rate may help give a seller more negotiating power on price.

“As inventories start to climb, we’ll see home sellers wanting to find ways to sell quickly,” Jones said. “For homeowners, offering an assumable mortgage is another lever to make the home more attractive to a buyer.” 

This article was provided by Bloomberg News.