As soon as they started house hunting, pastor Stephen Shumate and his wife realized that affording a single-family house was far beyond their budget. But instead of having to stay put, they found a workaround: They bought a house — and the seller’s mortgage.

The couple is now closing on their three-bedroom, two-bathroom house outside Phoenix, along with its previous owner's 2.75% annual mortgage rate.

"It really did open up some opportunities in this house that we couldn't have afforded," Shumate said. "If we had the same down payment and the same purchase price, but at the new mortgage, it would be significantly more a month."

More homebuyers like the Shumates are opting to assume the seller's mortgage rather than taking out their own loan to buy a house. These loan deals result from persistently elevated interest costs that shot up in recent years. As of Monday, the average 30-year, fixed-rate mortgage stood at 6.95%, up from 5.3% two years earlier. Rather than make a down payment and borrow at the higher current rate, an assumable mortgage lets buyers pay the previous owner’s rate and remaining mortgage balance.

The demand for assumable mortgages comes as prospective homebuyers face mounting affordability challenges — sometimes big enough to push them from the house-buying market altogether. The median monthly mortgage principal and interest payment on home purchase insurance has increased $852 in the past three years, a study from researchers at the Harvard Joint Center for Housing Studies found. In turn, the income necessary to afford those payments has also increased.

In the first quarter of 2024, households needed to earn at least $120,000 annually to afford a median-priced house in the United States, up from an inflation-adjusted $82,000 three years earlier. At the same time, apartment rents are 26% higher than they were in early 2020, further limiting options.

Those market changes have forced prospective homebuyers to either stay where they are or find an alternative way to purchase a house.

Work-arounds for high borrowing rates, including assumable mortgages, aren't a perfect fit for every homebuyer, though. They require that fixed mortgage rates change sharply over a short time so a buyer's monthly savings isn't offset by a hefty cash down payment. This financing also often results in a longer wait for a deal to close. For those buyers who have the means to make an assumable mortgage work, however, it can mean the difference between buying a house or not.

One such condition limiting buyers from assumable mortgages are restrictions surrounding the types of mortgages that can be assumed. Only Federal Housing Administration loans for first-time homebuyers, known as FHA loans, and mortgages backed by the Department of Veteran Affairs, known as VA loans, can be assumed.

Any FHA or VA mortgage can be assumable, even if the seller and listing agent are unaware of the option, creating an inventory of houses with assumable mortgages both on and off the market. While some industry professionals estimate the total number of houses across the United States with assumable mortgages could easily be in the millions, the amount of those homes now listed for sale could range from 950 to well over 30,000, depending on the search criteria used by various online listing platforms.

But even if a house has an assumable mortgage, there are still other conditions that need to be just right to make an assumption worth it for a buyer. The COVID-19 pandemic-induced boomerang of mortgage rates created such a situation.

When the Federal Reserve cut interest rates in 2020 in response to the pandemic, mortgage rates tumbled. The 30-year, fixed-rate average started its decline in April 2020 and bottomed out at 2.65% in January 2021. It hovered around 3% until the spring of 2022, when the Fed began raising interest rates, and it’s been climbing since.

Last fall, the 30-year, fixed-rate average began rapidly climbing and reached a post-2020 peak of 7.79% in October. That spike in rates sidelined buyers, creating a “major problem and a major market halt,” according to Kristy DeWitz, a real estate agent in Arizona who specializes in assumable mortgages.

“When the rates went up really high, it was a very quick change,” she told CoStar News in an interview. “We suddenly had a big problem where most first-time homebuyers were completely priced out, like there's no way they could afford mortgages.”

Since then, mortgage rates have fluctuated. In recent weeks, they have settled just below the 7% threshold. That’s down from last year’s highs, but still significantly higher than the pandemic’s ultra-low average rates and above 2019’s 3.5% to 4.5% range.

Assumable mortgages are an alternative that offers a solution for buyers, sellers and brokers trying to operate in a tight market, according to DeWitz.

“The buyer can pay more for it because they're getting a better interest rate…The seller actually gets more cash in their pocket because they don't need to take a lowball offer,” she said. “The buyer wins and the seller wins."

The recent uptick in rates, and resulting slowdown in the market, has caused other mortgage alternatives to have a resurgence, too. For example, zero-down mortgage loans, an offering that was popular during the subprime mortgage crisis that led to the Great Recession beginning in 2007, are making a comeback.

United Wholesale Mortgage, one of the nation’s largest lenders, introduced its 0% down purchase program in May. The program allows buyers to pay for 97% of their house with a mortgage and pay the remaining 3%, up to $15,000, with a second, interest-free “down payment assistance loan.” Though that loan will not accrue interest, the borrower will be responsible for paying the full amount when if they sell the house, pay off their first mortgage or refinance.

Another caveat making assumable mortgages difficult for some buyers is that they require a down payment not everyone can afford. Unlike a conventional residential mortgage that gives borrowers the opportunity to decide their down payment, assumable mortgages come with a set down payment calculated as the difference between the current loan balance and the price of the house. That means buyers might need to prepare for a trade-off: a higher one-time down payment in exchange for lower monthly payments.

For a family such as the Shumates, that trade-off can be worth it. The family has lived in a mobile home outside of Phoenix for three years, but they were interested in owning a single-family house instead. "It's pretty small," said Shumate, speaking of the family's mobile home.

Shumate said he and his wife had saved enough to make a down payment on a single-family house, but because they are a single-income family, the monthly mortgage payments they'd be responsible for would push them out of their budget.

“We kind of just assumed we wouldn't be able to buy a house anytime soon,” he said. “It didn't seem possible.”

Shumate learned about assumable mortgages in a news article and started doing research, finding a house with an assumable mortgage that fit their budget, both in terms of a down payment and their monthly mortgage payments. They’re in the process of closing on that transaction.

Another reason assumable mortgages aren't for everyone: They often take longer to close on than a normal transaction.

Brokers estimate a typical transaction can take about 21 to 30 days to close, while assumable mortgages can take up to 60 days.

Ryan Leff, another homebuyer who used an assumable mortgage to purchase his home, said he and his wife waited an extra month to close on their house in Waddell, Arizona. Initially, the couple had a close date of April 10. That got delayed until May 14, Leff said in an interview.

“The situation my wife and I were in was a bit unique because we were living with my mother-in-law, and so we had a place to stay, pretty much rent-free, during the delay,” he said. “The only thing that I was kind of imagining is, gosh, what would have happened if we were in an apartment or something, and our lease was ending, and then all these different things were going on, we were getting delayed. I couldn't imagine the headache that would have happened had we had a little bit different of a scenario.”

But the drawbacks don't mean that assumable mortgages aren't of benefit to some buyers. For those who can use the workaround, "it's a way for them to attain homeownership in a world right now where it's very difficult," DeWitz said.