← Real Estate Rookie
Real Estate Rookie
How to Get a 3% Mortgage Rate on Your Rental Property (Still Works in 2026)
00:25:26
Loading summary
Transcript41 lines
- [00:00]
A
What if I told you that right now, today, you can buy a property and inherit a 3% mortgage rate, even though rates are hovering around 6.5%? Trust me, this is not a loophole. This is not sketchy. It is a feature that is actually built into millions of existing homes, loans, and almost nobody talks about it. Today, Tony and I are going to break down everything you need to know about assuming mortgages, what they are, how to find them, and exactly how the process works.
- [00:31]
B
Now, here's a quick stat to set the stage. There are roughly 6 million homes in the US right now with assumable mortgages at rates below 5%. That is not a small number. And here's the craziest part. Most sellers don't even know that their mortgage can be transferred. So this is genuinely an edge for any rookie who learns this.
- [00:55]
A
This is the Real Estate Rookie podcast
- [00:57]
B
and Ashley Pear and I'm Tony J. Robinson. And with that, let's get into assumable mortgages.
- [01:03]
A
So I was actually at a real estate meetup, believe it or not, where I talked to somebody who just did this strategy. And it has just been so interesting to me to learn more and more about it. So we wanted to share it with you guys on today's episode. And that is consumable mortgages. So let's start from zero, what an assumable mortgage is. So imagine that somebody bought a house in 2021 and their interest rate is at 2.75%. They've been paying it on it for five years, but now they want to sell. So normally when a house sells, the seller pays off their old mortgage and the buyer takes out a brand new one at today's rates. Okay, Today's rates, around 6 and a half percent as of the recording of this. But with an assumable mortgage, the buyer can actually instead step in and take over the existing loan on this property. Same lender, same interest rate, same remaining balance, same term. You're literally just taking over their mortgage instead of going and getting a different mortgage. Your rate doesn't reset to today's rate. The clock doesn't start over on the amortization. You inherit exactly where they left off. So, you know, less closing costs to actually get. You know, you'll still have to pay for title and things like that, but to actually closing on a brand new loan, less, you know, payments that you'll need to bring to the closing table, too.
- [02:32]
B
So let's look at some real numbers on this on a $400,000 purchase price, or let's Say that's a loan balance. The difference between a 3% interest rate and about a six and a half interest rate that we're seeing today is almost $900 per month, right? That's almost $12,000 per year. And over the life of the loan, you're talking about a few hundred thousand dollars in interest savings. Right? And that's not a small number. So if you are a real estate investor thinking about cash flow, saving $900 per month on a mortgage payment on a rental property is massive. Right? That could be the difference between a deal that bleeds money and one that actually produces positive cash flow.
- [03:09]
A
I do want to clarify one thing here because this is similar to an other strategy that has been talked about and that is seller and that is sub two. So sub two deals, you know, are kind of do a similar thing where you're taking over the existing mortgage. The difference here with the assumable loans, you're actually getting the bank's permission, the lender's permission to actually transfer it into your name. With sub two, you're taking over the mortgage and making the payments on the mortgage, but the mortgage is not going into your name. And in a sense you're not notifying the lender of this, you know, change in sale of the property and that you are now, you know, the mortgage holder. So this is how assumable is different than doing sub 2. Sub 2 deals obviously can be done with assumable mortgages and the same kind of strategy applied, but assumable. You're going to the lender, you're getting permission and you're going to actually have your name on the loan so your debt to income will be affected and they also will vet you, which we'll get into more as to what criteria you'll need to have to actually assume one of these loans also. Okay, so which loans are actually assumable? Okay? And typically there are three different ones and here's the simple version, they're government backed loans, okay? So conventional loans are almost never assumable. So this is your FHA loan, your VA loan and your USDA loan, okay? These are government backed loans, mortgages that often have it written into the mortgages that they are assumable. Okay? With these three types of loans. For the USDA loan, it is important to remember for it to be assumable, it has to be your primary residence. FHA and VA loan, they do not. So if this is an investment property, you want to focus on finding properties with those two types of loans.
- [05:04]
B
All right? So let's break down each of these loan types. So first you have fha. These are very common with first time homebuyers because of the low down payment requirement. You can get as low as 3 1/2% on an FHA loan. And all FHA loans are assumable as long as you qualify. Now in order to qualify you need at least a 580 credit score and your debt to income ratio needs to stay under about 50%. Now there is one catch. FHA loans after, I believe it was 2013, require mortgage insurance for the life of the loan. So you have to factor that cost in. But again if we're talking about trading a 7% interest rate for a 3% interest rate, I'll pay the PMI.
- [05:42]
A
The next is a VA loan. So I want to make this very clear because this can be a huge common misconception that in order to assume a VA loan you don't need to be a veteran. So you don't have to have any military experience to be able to sue assume a VA loan. You do to have to start a VA loan from start the scratch to purchase a property to get a VA loan. But to assume it, you do not need to be a veteran to actually assume the loan. So any qualified buyer that meets their criteria, their lender credit and income requirements can actually assume one of these loans. The one thing that the seller does need to be aware of though and as a person and have some moral compass if they're not aware of these different things, it should tell them that if a non veteran assumes their VA loan, their VA benefit stays tied up until that loan is paid off or refinanced. So in this scenario, let's say I go and buy a property, I get a VA loan and Tony's going to buy it from me. When Tony assumes that loan, the mortgage goes into his name. But I now still have that VA benefit tied up. And in some areas, you know, you have a certain set limit of how much you can get for a VA loan. So you could possibly have two VA loans at a time as long as you're under a threshold of let's say 500,000 or maybe you've met your threshold in your area. So you can only have one VA loan at a time. And that means they won't be able to go out and buy a new property with a VA loan. So I think that's something important to disclose if you are being buying a VA loan from somebody and this would cap their threshold and they wouldn't be able to use that again for another property.
- [07:29]
B
All right, so the next type of loan is a USDA loan and USDA stands for United States Department of Agriculture. So things like farm, you know, rural agriculture, these are assumable. But the requirement here is that you have to use the property as, as your primary residence. Now I'm assuming it's because like a lot of folks, you know, like when they're using usda, it's because they're buying farmland. Right. And that's a big part of the, the push behind usda. So if you are using this loan, it is assumable, but it's got to be your primary residence. So this will work well in a house hacking type of situation or maybe even if you're doing like, you know, if you want to buy a farm. Right. Or something to that effect. These loans will work really well.
- [08:07]
A
Okay, so let's quickly go through the criteria so you can get a picture of if you'd even qualify to assume one of these loans. So FHA 580 plus credit score on an FHA loan, VA loan you need to have a 620 plus credit score. Some lenders will accept 550 depending on what your other criteria is. Just remember non veterans can actually, you know, get assume the loan. You don't have to be a veteran. And then for USDA we talked about it has to be an owner occupied, can't be used for investment properties only. And for that you need a 6:40 credit score. And then conventional almost never actually goes through. They have a do on sale clause that actually blocks assumptions. And that is why a lot of people do sub 2 on conventional deals.
- [08:58]
B
So let's talk about maybe the thing that we haven't discussed yet, but it's incredibly important. But it's the, it's the equity gap. So we'll talk about what that means and how you as the buyer can actually get around this or how you should be accounting for this. And we'll cover the equity gap as soon as we get back from a quick word from today's show sponsors.
- [09:16]
C
Most investors only think about insurance when something goes wrong. A tenant injury, storm damage, loss of rent. Then suddenly the cheapest policy doesn't feel like the best one anymore. That's why a lot of biggerpockets investors use steadily for landlord insurance designed specifically for rental properties. Whether you own one property or growing portfolio, they make it simple to get covered proper, properly. And biggerpockets pro members get an extra 5% off their landlord insurance premiums. Visit biggerpockets.com landlord insurance to get a quote today. Do you ever notice how every passive investment somehow turns into a very active lifestyle? Active spreadsheets, active phone calls, active stress. Here's a better question. What if you could buy brand new construction homes 10% below market value in the best markets across the country without making real estate your second job? That's exactly what Rent to Retirement does. They're a full service turnkey investment company handling everything for you. In some cases, investors get 50 to 75% of their down payment back at closing, plus interest rates as low as 3.75%. They've partnered with Biggerpockets for over a decade, helping thousands invest smarter. If you want to do the same, visit biggerpockets.com retirement to learn more.
- [10:31]
A
When you first start something, whether it's a business, a side hustle, or even investing, it feels like you're doing 10 jobs at once. You're figuring out branding, setting things up, trying to get customers, and somehow keeping everything organized behind the scenes. That's where having the right platform actually changes the game for millions of businesses. That platform is Shopify. Shopify powers millions of businesses worldwide and handles about 10% of all E commerce in the U.S. it's built to help you manage everything in one place, from inventory and payments to analytics and growth. You can launch a store that actually looks professional using their ready to go templates and even use built in AI tools to write product descriptions or improve your listings. And when it comes to growth, Shopify helps you market like you've got a full team behind you with easy email and social campaigns to reach your customers wherever they are. Plus, if you ever get stuck, they've got 24. 7 support to help you figure it out. So instead of juggling a bunch of disconnected tools, you can run your entire business from one platform and actually focus on growing it. It's time to turn those what ifs into with Shopify today. Sign up for your $1 per month trial today at shopify.com Rookie go to shopify.com Rookie that's shopify.com Rookie all right guys, welcome back.
- [11:49]
B
So we talked about the different types of loans that are assumable, what it actually means to assume a loan. But let's talk about the equity gap because this is a concept that a lot of folks get confused on, but it's where a deal might fall apart if you don't run the math correctly. So the equity gap is when you assume a mortgage, you're taking over the remaining loan balance not the purchase price of the home. And those two numbers are very different again, the purchase price and the remaining loan balance.
- [12:14]
A
So let's say that a seller bought their house in 2021 for 350,000. They put 5% down and they got a VA loan at 2 and a half, 2 or 2.75%. We're going to use in this example, a lot of times with VA you can do 0% down, but 5 years of payments and home appreciation later, let's say the house is worth 450,000 and the remaining loan balance is around 320,000. You are buying the house for 450,000 and you assume the loan at 320,000. So that leaves a gap of $130,000. So this is what they call the equity gap, and this is where you need to bring capital or find a way to cover that $130,000 somehow. So let's get into how to actually cover that gap.
- [13:01]
B
Yeah, so option one is the simplest option is just bringing the cash. So you just bring $130,000 to closing. That is the simplest path. But clearly it means you've got to have the cash which isn't accessible to everyone.
- [13:14]
A
Option two is actually getting a second mortgage. You assume the low rate first mortgage and take out a separate second mortgage to cover the gap. This is the most complex, but it is how a lot of assumptions actually get done. The key is to calculate your blended rate. Okay. So the average across both loans, Even if your second loan is at 8 or 9%, your blended rate of them combined comes out to maybe 4.5 to 5%. But you need to make sure your property is being going to be able to cover both of those payments too. And a lot of times lenders restrictions getting a second mortgage on a property, but there are options out there.
- [13:53]
B
And then option three is seller financing. Right. Some motivated sellers will carry a portion of that equity as a private loan, meaning you pay them back directly over time. This is especially worth asking about on homes that have been sitting on the market for a while.
- [14:07]
A
Okay. Now the sweet spot, the best assumptions are properties where the equity gap is actually manageable. That usually means sellers who bought in 2020, 2021 or 2022, where they have that great interest rate. But maybe they didn't put a lot of money down and are in markets where the appreciation is moderate, where there's not a lot of growth right now, maybe they don't have a lot of that gap, a lot of, you know, equity built into the property. So the longer someone has owned and the hotter the market, the bigger the gap you're actually going to have.
- [14:40]
B
If you're running the math and the blended rate comes out to, you know, 6% or higher, the savings start to shrink and the added complexity may not be worth it. Right. So use the blended rate as your gut check. And, and it might even be beneficial to start reaching out to those lenders who will take that second lien position before you get too far down the rabbit hole of doing all this work. Because if you can lock someone in and you already know what their rate is on that second mortgage, well, now you can do that math more effectively upfront to understand what that blended rate might be as you're shopping for some of these assumable loans. So now that we talked about all these other elements, let's talk about how to actually find these listings. And, you know, Ash and I were talking before we recorded and she like blew my mind with some of the stuff that she found on her side. So I'm excited to share this with you guys. But the, you know, 98% of people, even the sellers, don't know that their mortgages are actually assumable. So that, that's, that's where the problem is. Right? So you will almost never find a listing on Zillow that has been properly tagged as assumable. The seller doesn't know it, the agent often doesn't know it. Like, so nobody's putting it into the listing. But this actually creates an opportunity. If you know how to find these properties, then then you have an edge over almost every other buyer.
- [15:50]
A
So let's go through the step by step process of how to actually get this deal done of a Sumo property. So first you need to find a property with an assumable loan. So there's different platforms that you can actually use that tell you this information. And one is roam.com, another is assumelist.com and these are websites that specifically look for these properties with assumable loans on them. You can also use different resources like Propstream and you can filter. Sometimes they'll have that information, that data if a property is a VA loan or an FHA loan.
- [16:26]
B
So then step two is to confirm assumability with your actual servicer. Now, the seller cannot give you details directly due to privacy laws. The seller has to initiate the request with their servicer first to confirm the loan is assumable, get the current balance, and authorize the process to start.
- [16:41]
A
Then step three is you make your offer with the assumable loan built in. So you're going to include an assumption contingency in the offer. So this is saying that you will purchase the property if it's contingent on you actually assuming the loan. So this means that their lender will approve you to actually take over the loan. So that way if you don't get approved, you have that option to be able to back out of the deal.
- [17:04]
B
And then step number four is to apply with the servicer directly, right? Unlike a normal mortgage where you shop lenders, here you're going to apply directly with the seller's existing servicers since they hold the debt. So you don't get to choose who you work with. You're just bringing your full financial package, pays up, tax returns, bank statements, credit pool, the whole thing, and you're taking it to that servicer. So it looks very similar to a new mortgage application.
- [17:27]
A
Then step five, underwriting and approval. So this is where they're going to look at you. They should have all the information they need on the property. They could request, you know, a new appraisal in some circumstances to make sure that the property hasn't become super dilapidated and actually isn't worth that. But most of the time that doesn't happen. It is just they look at you and they qualify you. It can take, you know, 45 days to actually do this process to approve you, but sometimes it could take up to 60 to 90 days. So just make sure you're putting that into your contract too. That closing may take a little bit longer if you're in a state where maybe it moves faster. New York, this is typical anyways, so not really a big deal.
- [18:08]
B
And then step six is actually closed, right? So at closing, you sign the assumption documents, the seller is officially released from the mortgage and you take over as the end, you take over as the borrower. So the transfer is like a pretty normal process. The mortgage now shows on your credit report just like any other home loan. Now, one big thing to call out, and this is actually a good point for a lot of you guys that are listening, is that the closing costs on the assumable mortgages are oftentimes cheaper than a new mortgage. For FHA, the assumption fee is up to $1,800 for a VA loan, it's 0.5% of the remaining loan balance plus some small processing fees, usually a couple hundred bucks there. You compare that to, you know, the 2 to sometimes 3% that you might get on closing costs for a usual transaction, and you're saving quite a bit.
- [18:54]
A
Here we're going to take a short break, but when we come back, we're going to talk about some of the pitfalls and cons of actually doing an assumable loan. We'll be right back.
- [19:02]
C
When you're just getting started in real estate, it feels like every dollar has a job down payment, reserves, repairs, and then summer comes and you're like, can I afford to take that trip? Should my money stay in the deal that was me recently. I didn't want to guess anymore though. I wanted to know exactly where I stood before making any decision. Monarch is the personal finance app that tracks everything accounts, investments, savings goals and spending. Get your first year of Monarch Core for half off just $50 with promo code Rookie. The first time I used it, I realized my savings rate had quietly dropped while my day to day spending crept up a little bit. Nothing dramatic, but it was enough to slow down my next deal. Now Monarch runs in the background, the weekly AI recap flags changes, and I can actually see where my money's going and if I'm still on track. It's kind of like having a financial advisor in your pocket, especially when you're trying to balance life and investing. You can use code rookie@monarch.com to get your first year of Monarch Core Half off at just $50. That's 50% off your first year at monarch.com with code rookie. Billion dollar investors don't typically park their cash in high yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, Private credit. Now, the same passive income strategy is available to investors of all sizes thanks to the Fundrise Income Fund, which is more than $600 million invested and a 7.97% distribution rate. With traditional stuff savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com pockets to invest in the Fundrise Income fund in just minutes. The fund's total return in 2025 was 8% and the average annual total return since inception is 7.8%. Past performance does not guarantee future results. Current distribution rate as of 12312025 carefully consider the investment material before investing, including objectives, risks, charges and expenses. This and other information can be found in the Income Funds prospectus@fundrise.com Income this is a paid advertisement. Your summer starts now with Memorial Day deals at the Home Depot. It's time to fire up summer cookouts with the next grill four burner gas grill on special buy for only $199 and entertain all season with the Hampton Bay West Grove seven piece outdoor dining set for only 499 this Memorial Day. Get low prices guaranteed at the Home Depot while supplies Last pricing valid May 14th through May 27th. US only exclusions apply. See homedepot.com price match for details.
- [21:40]
A
Okay, welcome back. So yes, this sounds great, this sounds exciting, but we wouldn't be doing our due diligence if we didn't warn you of some things to be cautious of when actually doing an assumable loan. So the first is just this process can be slow and painful and frustrating. So just make sure you're baking that into your contingency into your contract that you have the time to actually go through this process because it can be a slow and painful process but worth it in the long run if you are able to get that lower interest rate to assume their loan.
- [22:13]
B
One borrower profile by NPR was told that there were 1500 people ahead of him and his servicers assume like assumption processing queue and you didn't hear anything back for months, right? So just to give you guys some context, this is not for the faint of heart, but the good deals are usually sometimes the hardest ones to get. So if you can stick it through, have the right mindset going into it, that's how you find the good deals
- [22:35]
A
and just continuously follow up, follow up, follow up, follow up. Ask if they need anything. Not saying, hey, what's going on with my loan? Give me an update. You know, it could be just be more like this is what I usually do. Hey, just want to check in if you needed anything from me, like flipping a little mindset that you know I'm holding them up, you know, let me know what I need to give you so that it's not holding it up anymore, even though it's usually the other way around that they're waiting to do something for sure.
- [23:02]
B
And sometimes you just got to stay in control of your own loan, right? Like I just did a HELOC on my primary residence and luckily I've gone through this transaction enough times where I was talking with like the transaction coordinator at the, at the credit union where I got the line of credit from and she was just like super slow like getting me information back from, from escrow and like I saw the escrow company in one of the email threads she sent me. So I just called them myself and I said hey, here's what I'm waiting on, like what do you need? And within a day I was able to solve what they were waiting on. Whereas before we had this person in the middle that was, you know, extending everything. So be in the driver's seat. But it's important to know. Now, the other piece here is we've mentioned this before, but just to reiterate, the USDA loan is off limits for investors, right? So we just want to say this clearly. If you are assuming a USDA loan, it has to be your primary residence. This is not a rental property. Play right 6 the FHA or VA loan if you're looking for an investment property.
- [23:54]
A
Okay? So the next thing is to actually check your math before you fall in love or get excited about an assumable loan. So even though the headline is exciting that you could get this low rate, make sure you actually run the numbers on the deal and don't get too focused. And how are you going to fill the gap? What does that blended rates look like? What, where is that capital coming from? Is it a line of credit? Is it cash? And make sure the numbers still pencil out that even if you're putting in, you know, a large capital infusion of money, what is your cash on cash return going to be on the property? So don't get too focused on just what the low interest rate is and what the monthly payment is going to be just for that assumable loan.
- [24:36]
B
All right, guys, we covered a lot in today's episode, and hopefully you got some insight into not only what an assumable mortgage is, but the power behind it, why it's so beneficial, and how to hopefully go find your first one. So let's just quickly recap what we've discussed so far. So first, an assumable mortgage lets you take over a seller's existing loan at their original rate, balance and terms. Only FHA, VA and USDA loans are assumable. Conventional loans almost never are. And there are millions and millions and millions of homes in the US right now with assumable mortgages below 5%. And most sellers don't even know that they have this. This is your edge. You do have to make sure you account for the equity gap. That's the main challenge. You got to run the blended math on your rate and then the sweet spot of sellers who bought recently but don't have a ton of equity built up. Guys, the process can take a long time to make sure you build in your patience. But if you guys can do all of those things, then you're setting yourself up in a really strong position to hopefully find and close on an assumable mortgage at a really low rate.
- [25:37]
A
And let's start with where to find those deals. You can go to roam.com, assume list or assumable IO or just start when you're looking at properties, you're asking the agents, you're asking the seller what type of loan that they have on the property and just trying to find out the information that way. Next, you can work with a real estate agent that actually has the knowledge of doing an assumption. Ask them if they've ever worked with somebody to, you know, figure out this process to negotiate that, especially if a seller is not, you know, even aware that this can be done for a property. If you're going ahead and you have an agent that you work with that is already knowledgeable about assuming a loan, then they can help facilitate that conversation with the seller and be knowledgeable. Because that's one thing I don't like sometimes about negotiating a deal with an agent is that they're really the middleman and they really need to understand, like especially seller finance, things like that. They need to understand how it works for them to properly negotiate that for you inside of the deal.
- [26:39]
B
So one challenge for all of you that are listening, take what you've learned in today's episode and just go out there and try and start searching on these different tools that we presented with you or to you to see if you can find anything. Right? And if you do find something, start having that conversation. Right? You know, I was looking at some of these websites or we were on here, and you've got to sign up for some, you know, Rome, you've got to create a profile, but there's house, houses listed, assume list, same thing. Just go out there and start talking to folks. Call the folks that that have these listings and just ask questions. And the more you ask, the more knowledge you gain, the more confidence you build and hopefully you'll get to a point where, man, I've talked to like five or six different agents. I think I got a good sense here. Let me try and submit an offer on one of these and we'll see what happens.
- [27:18]
A
Well, thank you guys so much for listening to this week's episode of Real Estate Rookie. If you've done an assumable loan, maybe you've sold a property with it or you bought one. Comment below. Then tell us about the deal and how it worked out for you. I'm Ashley, he's Tony. And see you guys on the next episode of Real Estate Rookie.
- [27:36]
B
Hey, Rickies, if you're watching this, we want you to apply to be a guest on the Real Estate Rookie Podcast. That's right. Ashley and I are looking for amazing stories just like yours to be a part of our Real Estate Rookie Podcast. Now look, you don't need to be an expert. You don't need to have done thousands of deals. Even if you've done one deal, your story could help inspire the next listener
- [27:54]
A
as a rookie investor. Especially if you just got your first deal. It is all fresh in your minds and you are the best person to tell your story. Give your experience on how you got it done to help someone else get their first deal.
- [28:07]
B
So head over to biggerpockets.com/guest if you want to be a part of our show again. That's biggerpockets.com/guest and we'd love to have you on.