A property sale in which the buyer takes over the existing loan on its terms, with lender approval, instead of paying it off.
The longer version
A loan assumption lets a buyer take over the seller's existing loan rather than obtaining new financing. The buyer becomes the borrower on the same terms, and the seller is usually released, though the release itself is something to confirm rather than assume.
The motivation is usually the terms. A loan with a rate below the current market, or with prepayment costs the seller would rather not pay, can be worth more assumed than repaid. That makes assumability a value question in the sale, not just a financing detail.
Commercial loans are rarely assumable at the buyer's option. They typically permit assumption with the lender's consent, subject to conditions: the buyer and its guarantors must meet the lender's experience and financial standards, an assumption fee is paid, legal and processing costs are covered, and a replacement guarantor steps in. For securitized loans the request runs through the servicer and can take weeks.
The closing for an assumption looks much like a new loan: diligence on the buyer, title and organizational documents, an assumption agreement, new guaranties and an updated file.
In Prodeal
Assumption packages run on the same checklist machinery as originations: a template request list, borrower-side uploads, and a full record for the file.
Common questions
- What is a loan assumption?
- A transaction where a property buyer takes over the seller's existing loan on its existing terms instead of obtaining new financing, with the lender's consent.
- Why would a buyer assume a commercial loan?
- To keep a below-market interest rate or avoid the seller's prepayment cost, which can make the assumed loan more valuable than new financing.
- Are commercial loans assumable?
- Many permit assumption with lender consent, subject to the buyer meeting the lender's criteria, paying an assumption fee and providing replacement guarantors. Few are assumable without consent.
- Is the seller released when a loan is assumed?
- Usually, but the release and the replacement of guarantors have to be documented. A seller or guarantor who is not expressly released can remain liable.
- The commercial loan closing checklistWhat goes on the list and who owns each line.
- The CRE due diligence checklistEvery phase of diligence, organized the way deals close.
- The post-closing audit trailWhat examiners ask for and how to have it ready.
- Commercial loan softwareWhere this sits in the lending stack.