5 Things To Consider Before Assuming A Loan

As real estate sellers and purchasers adjust to the current lending and interest rate environment, loan assumptions are once again becoming an important tool for closing, particularly for stabilized properties with existing commercial mortgage-backed securities, life company or agency debt.

Under the low interest rate environment that existed for many years in the commercial real estate market, the assumption of an existing loan in connection with a real estate acquisition was not a popular structure, given the relative ease of closing on new acquisition financing or even acquisition or renovation financing. In fact, while negotiating loan documents in the recent cycle, most borrowers did not pay particular attention to the loan assumption provisions in their loan documents. Instead, they focused energy (and comments) on other important facets of the loan, such as financial covenants and reserve requirements.