Historic Low Interest Rates Disappearing

Throughout the COVID-19 pandemic, mortgage interest rates fell to unprecedented levels, hitting lows around 2.5%. As the years progressed, however, these rates sharply increased, nearing 8% in 2023, with the national average for a 30-year fixed mortgage APR reaching 6.84% as of April 1. This drastic shift has effectively hindered many prospective homebuyers from entering the market.

Exploring Assumable Mortgages

Amidst this challenging landscape, a potential solution arises in the form of assumable mortgages. This type of mortgage allows a buyer to take over existing loans from sellers, potentially enabling access to more favorable interest rates from prior years.

A startup called Roam, based in New York, seeks to connect buyers with a wide array of homes that feature these assumable mortgages. Founded in September 2023 by CEO Raunaq Singh, who previously worked at Opendoor, Roam has facilitated approximately $200 million in home sales in just the first quarter of 2024, with more than 200,000 buyers registering on its platform in the past year. Although specific revenue figures were not disclosed, it’s estimated that Roam earned around $2 million from this volume of sales, as they charge buyers 1% of the purchase price.

Financial Benefits of Assumable Mortgages

Singh emphasizes the significant savings that can accompany assumable loans, suggesting that buyers might save up to 50% on their monthly mortgage payments compared to current rates. While acknowledging the need for sellers to cash out their equity, he points out that Roam’s model can allow buyers to secure a blended interest rate as low as 5%.

For instance, for a home priced at $420,000 with a seller’s existing rate of 2.25% and $135,293 in equity, a buyer could put down 20% ($84,000) while acquiring gap financing for the remainder, resulting in a blended rate of 3.45%. Singh mentions that anyone who qualifies for FHA or VA loans would likely be eligible to assume a mortgage through Roam, making homeownership more accessible to many.

Expansion Plans and Investor Outlook

Currently, Roam operates in 17 states, including vibrant markets like Arizona, California, and Florida, with plans to expand nationwide by the end of the year. Singh anticipates that the company will facilitate $1 billion in home sales through its platform by 2025.

This ambitious outlook has garnered attention, and notable investors like Keith Rabois of Khosla Ventures have joined in, leading Roam’s recent $11.5 million Series A funding round. Rabois views Roam as strategically positioned to tackle the affordable housing crisis in America, proudly supporting a team he believes can significantly alleviate buyers’ financial burdens.

Roam’s funding journey began with a pre-seed round led by Rabois in September 2023, totaling around $1.25 million. It followed up with a $3 million seed round in May 2024, further solidifying belief in the startup’s mission.

Streamlining the Buying Process

Historically, locating assumable mortgages in a city like Houston has been challenging, often yielding little to no results. Many sellers are oblivious to the existence of these loans in their financing. Singh argues that Roam actively lists over 2,000 assumable mortgages available in Houston today.

Additionally, the previous lengthy process of obtaining loan assumptions, which could take up to 45 days, has been significantly shortened with Roam. The platform allows buyers to receive pre-approval before making an offer, thus enhancing the likelihood of acceptance.

Roam claims to expedite the entire homebuying process from the typical 180 days for an assumable mortgage down to just 45 days, pledging to cover a seller’s mortgage during that period if necessary. They also ensure sellers are released from any liability for payments made after the assumption, shielding their credit from the buyer’s payment behavior.

With a small team of 12 employees, Roam aims to achieve growth that outpaces its operational costs through its innovative business model. Singh points to a massive opportunity, highlighting that $1.4 trillion in fully assumable FHA/VA mortgages were issued in 2020 and 2021, with a significant portion of homes from those years eligible for such options.