The Mortgage Rate Reduction Act: Explained

Overview: Mortgage Rate Reduction Act

The Mortgage Rate Reduction Act is a proposal focused on a specific home buying strategy: assuming an existing government-backed first mortgage that may have a lower interest rate than today’s market, then using a second mortgage to cover the remaining amount needed to buy the home.

The bill would update Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and United States Department of Agriculture (USDA) rules so a second mortgage can be paired with an existing FHA, VA, or USDA first mortgage in more situations.

The bill also includes a transparency piece. Within one year of enactment, FHA, VA, and USDA would post public lists of insured or guaranteed properties, including property addresses and origination dates, which may make it easier for buyers to identify homes with assumable financing.

Note that bills often change on their way to becoming law, so this page will update as new details emerge. For real-time updates, subscribe to our newsletter.

What Is the Mortgage Rate Reduction Act?

The Mortgage Rate Reduction Act would make it easier to combine two loans on the same home when the first loan is an existing FHA, VA, or USDA mortgage that a buyer assumes.

The goal is simple: if a home already has a low-rate FHA, VA, or USDA first mortgage, you may be able to take over that first mortgage and add a second mortgage to cover the difference between the purchase price and the remaining balance on the first mortgage.

How The Mortgage Rate Reduction Act Works

The Mortgage Rate Reduction Act focuses on when a second mortgage can sit behind an existing government-backed first mortgage.

Here’s what the bill would do, by program:

• FHA: allows FHA to insure certain second mortgages on homes that already have an FHA-insured first mortgage
• VA: allows VA loans to be secured by a second lien only when VA also insures or guarantees the first lien on the same home
• USDA: encourages USDA to guarantee second mortgages on homes that already have a USDA-insured first mortgage

In practical terms, the second mortgage is meant to help with the “price gap.” The price gap is the difference between the home’s purchase price and the outstanding balance on the assumed first mortgage. The Mortgage Rate Reduction Act is designed to make that gap easier to finance within FHA, VA, and USDA frameworks.

Who Qualifies Under The Mortgage Rate Reduction Act?

The Mortgage Rate Reduction Act is structured around the type of existing first mortgage on the home and how the liens are set up, not around a single new borrower category.

In general, the bill’s approach applies when:

• the home has an existing FHA-insured, VA-insured or guaranteed, or USDA-insured first mortgage that is being assumed, and
• the purchase needs a second mortgage to cover the remaining amount needed to buy the home, and
• the second mortgage meets the program’s rules for being insured or guaranteed

For VA loans under the Mortgage Rate Reduction Act, the second-lien structure is tied to VA backing on the first lien as well. That alignment is meant to keep the VA loan structure consistent across both liens on the property.

Public Property Lists Required By The Mortgage Rate Reduction Act

The Mortgage Rate Reduction Act includes a set of public posting requirements meant to make assumable opportunities easier to identify.

Within one year of enactment, the bill would require:

• FHA: a public list of insured properties, including the property address and origination date
• USDA: a public list of guaranteed properties, including the property address and origination date
• VA: a public list of insured or guaranteed properties, including the property address and origination date

These lists are designed to bring more clarity to which homes have existing FHA, VA, or USDA financing and when those loans started.

Who Sponsors the Mortgage Rate Reduction Act?

The Mortgage Rate Reduction Act is introduced in the House as H.R. 892. Sponsor and cosponsor information can change as the bill moves through Congress and gains support.

For the latest legislative updates and cosponsors, see the Bill Tracker above.