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Roam CEO Raunaq Singh has a bold plan to unlock housing affordability: Connect homebuyers with home sellers who have mortgages eligible to be “assumable,” enabling buyers to take over the existing mortgage, including its presumably much lower mortgage rate.
Back in September, Singh launched Roam, a real estate portal that resembles Zillow.com or Realtor.com. However, Roam exclusively showcases homes currently for sale with loans eligible to be assumable. One of the challenges with assumable mortgages is that, typically, most conventional mortgages are not assumable. However, if specific requirements are met, most loans insured by the Federal Housing Administration (FHA) and loans backed by the Department of Veterans Affairs (VA) or the United States Department of Agriculture (USDA) are eligible.
The cost savings from getting an assumable mortgage can be huge.
Across the United States, the net effective mortgage rate among all mortgage holders is just 3.60%, a remarkable contrast to the current average 30-year fixed mortgage rate of 7.32%. For perspective, the monthly principal and interest payment on a $400,000 mortgage at a 7.32% 30-year fixed rate is $2,748. At a 3.60% rate, the same principal and interest payment would be just $1,819. The difference between the two is $929 per month, or $11,148 per year.
“Most people are shocked by this but there are actually millions of [potentially] assumable loans. Meaning the buyer can take over the mortgage and transfer from the seller. All the government loans like VA and FHA are available,” Singh tells ResiClub. “As we started to look at the problem we realized there would be three key issues. The first was discovery, being able to help consumers find those homes. The second was the transparency throughout the process. And the third problem was coordination, nobody in the entire transaction experience had experience doing the assumption—if you’re the buyer and you want to assume the mortgage, you have to coordinate with your buyer’s agent, seller, seller’s agent, lender, title, escrow, and closing officer.”
Roam—which has the financial backing of Opendoor co-founders Keith Rabois and Eric Wu—not only finds properties with assumable mortgages but is “effectively your quarterback through that process and coordinating you through the closing” Singh says.
As of today, Roam’s listing website exclusively showcases homes currently for sale with assumable loans in Texas, Florida, Georgia, Arizona, and Colorado. Singh says that these five states represent 40% of the country’s market share of assumable mortgages. The company, a licensed real estate brokerage in these five states, aims to expand to more states, including Ohio, in the near future.
When a seller in those states lists their home for sale, Roam then cross-checks it with proprietary mortgage data. If that mortgage is eligible to be assumed, it’s listed on Roam’s site.
On Roam’s site, you’re asked to fill out a simple questionnaire. Then you’re taken to a portal for your selected market.
When selecting the Atlanta metro market, the site shows 610 homes currently for sale in Atlanta that have loans eligible to be assumable.
How does Roam make money? Singh tells ResiClub that Roam is free for sellers, and instead, they collect a fee of 1% of the purchase price from the buyer through closing costs.
There are a few challenges when it comes to assumable mortgages. The first is that not many assumptions actually occur. According to The Wall Street Journal, the FHA processed just 3,349 assumptions this year through September. The second challenge is that lenders aren’t economically incentivized on these loans given their lower processing fees.
Another challenge? Some sellers might not be interested in helping the buyer obtain the assumable transfer. According to Rocket Mortgage: “Sellers often face additional risks involved with assumable mortgages, especially when letting buyers assume VA home loans. If a buyer takes over a freely assumable mortgage and transfers ownership to an undisclosed third party, sellers may still be responsible for covering any mortgage payments that the new owner misses. If sellers are unaware of the transaction, there’s an increased risk of default payments. This can be mitigated with a request for a release from the VA.”
In the view of Singh, homeowners who hold an assumable mortgage have an advantage if they plan to sell.
“They [the homeowner with an assumable mortgage] don’t know they hold an asset, or a benefit, that can unlock that sale. Early on when we started the company, I’d pull out a list of sellers who had the benefit [a mortgage that could be assumable] but didn’t know and I’d call them and say, ‘Hey your home has been on the market for 60, 70 days did you know you’re burying the lede on being able to sell your home? You’re not advertising the No. 1 benefit you have” Singh tells ResiClub. “It’s a $1,500 monthly payment as opposed to a $3,000 monthly payment.”
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