Loan Assumption

Loan Assumption: What the Market Actually Requires

Assumability varies sharply by capital source. Agency and government-insured multifamily loans are assumable by design, subject to the new borrower qualifying under the original underwriting standards. CMBS loans are assumable with servicer consent, a slower and more paper-intensive process, but a standard feature since defeasance makes early payoff so expensive. Life company loans are sometimes assumable by negotiation. Bank loans are rarely assumable at all, because banks underwrite the borrower relationship as much as the asset. Assumptions surge whenever rates rise, because debt written in a cheaper era becomes an asset in its own right.

Expect an assumption fee of 0.5% to 1% of the outstanding balance plus lender legal costs, and a 60 to 90 day approval timeline that must be built into the purchase contract. The new borrower typically must satisfy the loan's original sponsorship covenants, commonly net worth equal to the loan amount and liquidity around 10% of it, and the seller is usually released from the guaranty and carve-outs only when the assumption closes.

The recurring problem is the leverage gap: assuming a partially amortized $9,000,000 loan on a $14,000,000 purchase means writing a $5,000,000 equity check, far more than a fresh higher-leverage loan would require. Solutions include agency supplemental loans behind the assumed first, mezzanine debt or preferred equity where the loan documents permit them (CMBS documents frequently prohibit both without lender consent), and seller financing. When in-place debt carries a below-market rate, that value should be priced into the deal: assumable low-rate debt routinely adds real dollars to what buyers will pay and widens the pool of bidders.

Why It Matters for Your Loan

When in-place debt is cheaper than anything the market currently writes, an assumption can be the single largest source of value in a transaction, for both sides. Sellers market assumable debt to widen the buyer pool and defend price; buyers lock financing terms unavailable anywhere else. Commercial Lending Solutions evaluates assumption economics against fresh debt on every applicable deal and structures supplemental loans, mezzanine, or preferred equity to close the leverage gap where the documents allow it.