A new startup called “Roam” has launched a service to make assuming a mortgage painless.
The company is backed by some prominent real estate figures, including Opendoor co-founder Eric Wu and former Fannie Mae CEO Tim Mayopoulos.
The goal is to help more home buyers take advantage of the many low-rate mortgages in existence via a loan assumption.
This includes FHA loans and VA loans, both of which are assumable by home buyers.
Roam acts as a hands-on guide for buyers and sellers to ensure the process goes smoothly in exchange for a 1% fee.
How Roam Makes It Easy to Assume a Mortgage
While many home loans are assumable, including all government-backed loans (FHA/VA/USDA), the process isn’t so straightforward.
Roam notes that the loan assumption process is “opaque and time-consuming,” and often requires buyers to fill out forms with paper and pen and fax them to the lender or loan servicer.
There’ also uncertainty for the home seller, who might not be sure if they’re still liable for the loan post-assumption.
To alleviate some of these pain points and ensure the process is done correctly, Roam manages all the operational details on behalf of the buyer, seller, and real estate agents.
Additionally, it makes it easier to find homes for sale that feature an assumable mortgage.
Once you sign up via their website, they’ll compile a set of for-sale listings that feature an assumable, low-rate mortgage.
These listings will also be tailored to fit your other criteria, such as location, home price, number of bedrooms and bathrooms, and so on.
If you come across a property you like, they will work with the lender and loan servicer to begin the loan assumption process.
As noted, this includes obtaining a release of liability of the loan for the home seller, which should ease their concerns as well.
Bridging the Gap Between Old Loan Amount and New Purchase Price
One sticking point to a loan assumption is the shortfall between the sales price and the remaining loan balance.
For example, the existing loan balance might be $450,000, while the new sales price is $550,000.
The buyer could come in with the difference, but it’s unlikely they’ll have the funds unless they have very deep pockets.
In this case, Roam has “preferred partners” that can provide additional financing, typically in the way of a second mortgage.
Together, this should still provide a blended rate that is well below current market rates.
If we consider a 2.5% first mortgage at 70% loan-to-value (LTV) combined with a second mortgage for an additional 10% at a rate of 8%, the blended rate is roughly 3.2%.
At last glance, the 30-year fixed is priced around 7.25%, so that represents quite the discount.
To that end, only mortgages with rates below 5% are included in the Roam listings.
How Much Does It Cost to Use Roam for an Assumable Mortgage?
While this service sounds pretty great, there is a cost to use it. At the moment, Roam is charging 1% to the home buyer via closing costs. I assume the 1% is based on the assumable loan amount.
In exchange for this fee, Roam says it will “coordinate every detail on behalf of sellers, buyers, and agents,” including connecting buyers and sellers, handling paperwork, and overseeing the financing.
Home sellers do not need to pay anything to take part and Roam will ensure the seller’s name is removed from the mortgage.
This means sellers will not be associated with the mortgage or held liable once the process is completed.
That should provide peace of mind to the seller, who might be concerned about their credit score being affected by the buyer’s subsequent mortgage payments.
If it’s a VA loan that is being assumed, Roam can help find a qualified military buyer if the seller would like to free up their entitlement.
This allows military homeowners to take out a new VA loan when it comes to their next home purchase.
Roam may also make money from their second mortgage partners, though they are fine with home buyers using the lender of their choosing.
Same goes with real estate agents. If the home seller doesn’t have a listing agent, Roam can recommend one. This may also earn the company a fee.
But the company can work alongside any listing agent, loan servicer, or mortgage provider to complete the process.
Is This a Good Deal?
Over the past couple decades, assumable mortgages weren’t a thing because mortgage rates were constantly falling.
In fact, mortgage rates hit record lows in 2021 and have since nearly tripled in just over two years.
This has finally made the assumable mortgage a thing, and a potentially very powerful thing.
If a home buyer is able to obtain the seller’s mortgage, possibly in the 2% range, it would be a huge feat, even with a 1% fee.
For example, take a $500,000 home purchase that has a $400,000 outstanding loan balance set at 2.5%.
The $400,000 loan amount would be about $1,580 per month. But let’s suppose the home buyer needs a second mortgage to bridge the gap with the new purchase price.
A $50,000 second mortgage set at 8% would be another $367 per month, or about $1,950 all in.
Compare that to a single new mortgage at $450,000 with an interest rate of 7%, which would be roughly $3,000.
And it could be subject to mortgage insurance as well if it’s one loan at 90% LTV.
The only thing you’d really need to watch out for would be an inflated purchase price if the seller believes they can charge more thanks to their assumable mortgage.
But even then, the property would need to appraise and the savings could still eclipse a slightly higher price, as explained in the scenario above.