The only goal was to not lose money.
When Matthew Kilboy listed the Washington, D.C., condominium that he and his husband had bought in 2017, they accepted that higher interest rates and a soft market for condos meant any dollar over the $529,000 they had paid was a dollar they would thank their lucky stars for.
A similar two-bedroom and two-bath unit in the building had recently gone for just under half a million. The $549,000 price they listed in April was basically a wish.
A month later, the couple closed at $565,000 — thanks to a little-known amenity that has become increasingly popular as mortgage rates have risen. Their unit came with an assumable 30-year mortgage, with a 2.25 percent fixed rate that the couple had locked in after a November 2020 refinancing. By advertising that the buyer could inherit the mortgage, the couple, who have moved to Denver, got several over-asking-price bids that seemed like a relic from the warped real estate market during the Covid lockdown.
“It was the very first sentence of the listing,” said Mr. Kilboy, 39, a former Navy nurse whose loan, backed by the Department of Veterans Affairs, could be passed to the buyer. “No one could find an interest rate that low, so we were really pushing it.”
The Federal Reserve might have slowed interest rate increases, but monthly mortgage costs remain more than double their levels from 18 months ago. This has significantly lowered the supply of for-sale inventory by discouraging the millions of homeowners who locked in bargain rates during the pandemic from selling their home and incurring potentially hundreds of dollars a month in extra borrowing costs on a new one.
Because so little is for sale, home prices have remained stable, and even resumed their ascent, despite a huge increase in borrowing costs. The refrain among real estate agents and economists is that anyone who secured a mortgage rate of 3 percent or lower owns a valuable asset that they are loath to give up.
But every asset has a price. And now an emerging cadre of investors and real estate agents are trying to, in effect, sell mortgage rates from several years ago by transferring them to new buyers.
Redfin, the real estate brokerage, has seen a steep rise in listings like Mr. Kilboy’s that have comments like “beautiful home with assumable loan at 3.25 percent.” Facebook groups have popped up to find buyers for them, while new companies are pitching services to speed up the transfer.
“Homeowners with mortgages that are capable of being assumed have something valuable that many home buyers want and would be willing to pay for,” said Daryl Fairweather, chief economist at Redfin. “For people who bought when home prices were near the peak but mortgage rates were still low, it may be an attractive way to get out of a remorseful purchase.”
Investors are just as eager: The euphemistic “creative finance” has become a huge topic of conversation on sites like BiggerPockets, a forum where landlords trade tips on topics like operating short-term rentals and buying a first investment property. In books, seminars and YouTube videos, influencers peddle advice on how to find struggling homeowners willing to transfer a low-rate mortgage without their bank’s knowledge — a valuable but immensely risky strategy that title companies say they’ve seen more of.
“It’s just too appealing,” said Scott Trench, chief executive of Bigger Pockets, adding the disclaimer that many of these strategies frequently involve extra risks and paperwork that most people are unfamiliar with.
From the pedestrian to the dodgy, it all seems to underscore the manner in which the nation’s real estate market has been frozen by regret. Buyers are resentful that the low-cost mortgages are gone. Sellers are reluctant to lower their prices from the peaks of the pandemic. In lieu of acceptance, a determined few are trying to use imagination and fine print to build a portal to the cheap-money days of 2021.
Most U.S. mortgages are not directly assumable. However, a host of popular government-backed mortgages — such as those insured by the Federal Housing Administration, the Department of Veterans Affairs and the Department of Agriculture — typically are, said Michael Fratantoni, chief economist at the Mortgage Bankers Association. These loans are frequently used by first-time buyers and account for roughly a quarter of outstanding mortgages, according to Black Knight, a mortgage technology and data provider.
In theory, any of the millions of homeowners holding a assumable low-rate mortgage have a valuable perk to sell with their home. Still, real estate agents say it can be hard in practice to transfer them. For instance, homeowners who transfer a V.A.-backed mortgage can lose their ability to get another similar loan unless they can find a V.A.-eligible buyer to take their original mortgage.
Or consider a homeowner who has a low-rate mortgage but has paid a chunk of it down: To assume the loan, a buyer would have to come up with a large down payment to account for the seller’s equity — something that very few people can do.
Craig O’Boyle is hoping to create a business making assumptions faster and easier. Mr. O’Boyle is a real estate agent who has been selling homes in Colorado for three decades, long enough that he remembers having to read through the door-stopper contracts that buyers and sellers now just click through on DocuSign. Reading over the lines about certain loans being assumable, he said, he had long thought that if rates ever spiked those owners would suddenly discover that their debts had value.
“And then here comes this shift in the interest rate market,” Mr. O’Boyle said.
Last year, he and a partner started Assumption Solutions, a consulting firm that, for a $1,100-per-deal processing fee, helps real estate agents navigate transferring mortgages between sellers and buyers. In his pitch to agents, Mr. O’Boyle argues that they push sub-3 percent rates as they do marble countertops or a view of the mountains.
“You market this, and let’s say you’re competing against the house next door, your house should sell either faster or for more money,” he said.
Even for the vast majority of people using a conventional mortgage that can’t be transferred, some sort of rate compensation is becoming the norm. While home prices have fallen from their all-time high last June, they haven’t come down nearly enough to make up for the increase in mortgage rates, and they’re rising again.
To stimulate new loans, mortgage companies have started marketing products in which borrowers can “buy down” rates by paying several thousand dollars for a year or two of significantly lower interest. One of the more popular products is a “2/1 buydown,” in which a borrower pays for an interest rate reduction of two percentage points during the first year and one percentage point in the second.
Put simply: “Most homes are unaffordable at today’s rates,” said Luis Solis, a real estate agent in Phoenix and Portland, Ore.
A majority of Mr. Solis’s recent deals have had some form of interest rate compensation that is a price cut in all but name, he said. Usually it’s a lump sum at closing that buyers use to buy temporarily lower rates. Sellers with a lot of equity can cut out the middleman and finance the buyer’s purchase below prevailing rates by acting as a lender — seller financing, it’s called.
Assuming mortgages, paying down rates: These are creative but straightforward solutions to rising borrowing costs. But on the margins, a rising number of investors looking to buy homes with minimal cash are trying a gray technique of finance — known as “Subject to" or “Subto” — in which they try to find people who have fallen behind on their debts and make a side agreement to take over their (low-interest) payments. (The deal is said to be “subject to” an existing loan.)
The strategy has obvious appeal when interest rates are high, but it comes with a huge asterisk: Once a home has changed hands, banks typically have the right to call the loan — that is, demand that the seller’s mortgage balance be paid in full immediately. Also, if the buyer falls behind on the payments, the property can be still foreclosed on — ruining the seller’s credit, for a home that he or she no longer owns.
Despite this, Bill McAfee, president of Empire Title, said he has seen an increase in customers looking to change their title under these terms, and has stock disclosures warning both sides what can go wrong.
“I’m not saying I agree with doing this, but it’s a way to get into property with very little money,” he said. “They have to figure out if it’s worth the risk.”