What is an assumable mortgage?
An assumable mortgage is a loan the buyer takes over at closing instead of getting new financing. The buyer signs an assumption agreement, becomes the borrower and keeps paying the existing note at the existing rate. The seller is paid the price minus the loan balance.
Most commercial apartment loans aren’t freely transferable, but many can be assumed with the lender’s consent. Without consent, the due-on-sale clause gives the lender the right to call the loan when you sell, and federal law (12 U.S.C. 1701j-3, the Garn-St Germain Act) generally lets lenders enforce those clauses. An assumption is how you sell the building and keep the loan alive.
Which apartment loans can a buyer assume?
Agency and HUD loans are usually assumable with approval, CMBS loans are assumable under the loan documents, and bank loans vary deal by deal. Read your note and loan agreement first, because the transfer section controls.
| Loan type | Assumable? | Who approves | Fee you’ll see |
|---|---|---|---|
| Fannie Mae DUS / Multifamily | Typically yes, subject to review of the buyer | DUS lender and Fannie Mae | Transfer fee, often 1% of the balance, plus review and legal costs |
| Freddie Mac Optigo | Yes, with lender consent | Servicer and Freddie Mac | Review fee, counsel fee and a transfer fee set by Freddie Mac |
| HUD / FHA 223(f) | Yes, through HUD’s transfer of physical assets process | HUD and the lender | HUD transfer fee of $0.50 per $1,000 of the original loan amount, plus lender and legal costs |
| CMBS (conduit) | Usually yes, per the loan documents | The servicer for the trust | Assumption fee set in the loan documents, plus legal costs |
| Bank or credit union | Varies; many are not | The bank | Negotiated |
How a Fannie Mae or Freddie Mac loan assumption works
Fannie Mae and Freddie Mac loans are assumed when the agency approves the buyer as a new borrower and the buyer signs an assumption agreement. Fannie Mae’s fixed-rate term sheet says its loans are typically assumable, subject to review of the new borrower’s financial capacity and experience. The buyer has to meet the same credit and management standards a new borrower would.
An exhibit to Fannie Mae’s Multifamily Guide describes a 1% transfer fee for permitted transfers, and Freddie Mac’s 2025 transfer-of-ownership update refers to a 1% transfer fee too. Freddie Mac’s Seller/Servicer Guide adds a nonrefundable review fee and a counsel fee to cover its legal costs. Your loan agreement has the exact numbers.
On Fannie Mae’s full property and loan assumption form (Form 6627), Fannie Mae releases the transferor and, where the bracketed language is used, the original key principal from their obligations under the loan documents. The release has limits: it can carve out environmental liability for the period before the transfer, and it is cancelled if your representations were false.
How a HUD 223(f) loan assumption works
A HUD-insured loan is assumed through HUD’s transfer of physical assets, or TPA, process, where HUD approves the buyer as the substitute mortgagor. HUD reviews the buyer’s principals, their experience and the property’s physical and financial condition, and the buyer signs HUD’s regulatory agreement.
HUD’s own fee is small. Under 24 CFR 200.40(h), the transfer fee is 50 cents per $1,000 of the original face amount of the mortgage, so a $5 million original loan carries a $2,500 HUD fee. The lender, third-party reports and legal work add to the total. HUD approval takes time, so plan the closing date around the approval, not the other way around.
How a CMBS loan assumption works
A CMBS loan is assumed when the servicer approves the buyer on behalf of the securitization trust under the terms in the loan agreement. The documents usually spell out the tests the buyer must meet, such as net worth, liquidity and experience, and the fee owed.
CMBS assumptions are driven by the documents. The servicer can’t rewrite the loan, so the rate, reserves, cash-management terms and maturity carry over to the buyer. Ask the servicer for its assumption package and fee quote early, because the buyer’s lawyer will want the full loan file.
The loan assumption process step by step
A loan assumption runs alongside the purchase contract, and the lender’s approval usually sets the closing date. A typical sequence:
- Pull the loan documents and confirm the transfer terms, fees and any one-time or conditional assumption language.
- Get a current payoff and balance statement, reserve balances and the maturity date from the servicer.
- Sign the purchase contract with an assumption contingency and a deadline for approval.
- The buyer submits the lender’s application: organizational charts, financial statements, real estate schedule and resumes for key principals.
- The lender orders or updates third-party reports, such as a property condition report and, where required, an appraisal.
- The lender, agency or HUD issues approval with conditions, including any new reserves or repairs.
- At closing, the parties sign the assumption and release agreement, pay the fees and record the transfer.
What does it cost to assume a commercial loan?
Assumption costs are usually a percentage fee on the unpaid balance plus legal and processing costs. On a $5,000,000 agency balance, a 1% transfer fee is $50,000. Who pays is negotiable. Buyers often cover the lender’s fees since they’re the ones getting the rate, but put it in the purchase contract so nobody is surprised.
Watch the reserves. The lender may require the buyer to fund new replacement reserves or repairs, and your existing reserve and escrow balances need to be credited or reimbursed at closing. On an older building, those balances can be large.
Release of liability: what sellers should insist on
A release of liability is the lender’s written agreement that you and your guarantor are no longer liable on the loan once the buyer takes it over. Without one, you can stay on the hook for a loan secured by a building you no longer own.
Ask for the release in the purchase contract and confirm it in the lender’s approval letter. Most agency and CMBS apartment loans are nonrecourse with carve-outs, so the guarantor’s exposure is the carve-out guaranty and the environmental indemnity. Have your attorney read which pre-closing obligations survive the release.
How an assumable loan raises the price buyers pay
An assumable loan raises the price because the buyer pays less interest for years and keeps more of the same NOI as cash flow. A lower payment improves the DSCR, and buyers price that into their offers. The value of the loan is roughly the present value of the payment savings over the remaining term, minus the assumption fee.
That benefit fades as maturity gets closer. A loan with five years left is worth much more than one with 18 months left, because the buyer will have to refinance at market rates soon. Buyers also discount loans with heavy reserves, a small balance relative to the price, or a prepayment penalty that limits their exit.
Worked example: assumed 3.75% loan vs a new loan
A 24-unit building has NOI of $480,000 and sells for $8,000,000, a 6.0% cap rate. The seller’s Fannie Mae loan has a $5,000,000 balance at 3.75%, 25 years left on the amortization and five years to maturity. The payment is $25,706.56 a month, or $308,479 a year, for a DSCR of 1.56.
If the buyer took out a new $5,000,000 loan at 6.25% on a 30-year schedule instead, the payment would be $30,785.86 a month, or $369,430 a year, and the DSCR would drop to 1.30. So assuming the old loan saves the buyer $60,952 a year. Discounted at 6.25% over the 60 months left, those savings are worth about $261,156 today. After a 1% transfer fee of $50,000, the net value is about $211,000.
The old loan also pays down faster. After five years the assumed loan’s balance would be $4,335,818, compared with $4,666,862 on the new loan. Many buyers won’t pay the full value of the rate in price, but cheaper debt is a real reason for them to stretch.
| Assume 3.75% loan | New 6.25% loan | |
|---|---|---|
| Loan amount | $5,000,000 | $5,000,000 |
| Amortization | 25 years remaining | 30 years |
| Annual debt service | $308,479 | $369,430 |
| DSCR at $480,000 NOI | 1.56 | 1.30 |
| Balance after 5 years | $4,335,818 | $4,666,862 |
| Lender fee | $50,000 (1%) | Origination costs |
Gap financing: covering the difference with a seller carry
The gap is the difference between the price and the assumed balance, and the buyer covers it with cash, a supplemental loan or seller financing. In the example, the gap is $3,000,000. If the buyer brings $2,200,000 and the seller carries an $800,000 note at 6% interest only, the note adds $48,000 a year and total debt service is $356,479, a combined DSCR of 1.35.
Check the loan documents before you promise a seller note. Agency and CMBS loans usually restrict second liens on the property, so a seller carry may need lender consent or may have to sit at the ownership-entity level. Fannie Mae and Freddie Mac also offer supplemental loans that can fill part of the gap. A seller note paid over time can be reported as an installment sale, which spreads the tax on your gain over the years you’re paid.
FHA and VA home loans: the residential version
FHA and VA home loans are the best-known assumable mortgages, and they work much the same way on a smaller scale. A buyer who passes the lender’s credit review can take over the loan, and HUD’s Form 92210.1 is used to approve the buyer and release the seller. VA loans can be assumed under 38 U.S.C. 3714, with a funding fee of 0.50% of the loan balance under 38 U.S.C. 3729.
These programs cover one-to-four unit homes, so they rarely matter for a 5+ unit sale. They’re still a useful reminder that releasing the original borrower is a separate step. It doesn’t happen automatically.
Assumption vs subject-to vs wraparound mortgage
Of these three, only an assumption is approved by the lender. In a subject-to sale, the buyer takes title while the loan stays in the seller’s name. In a wraparound mortgage, the seller keeps the old loan and carries a larger new note around it. Both leave the seller exposed if the lender enforces the due-on-sale clause, which is why sellers of apartment buildings with commercial debt usually go the assumption route.
| Structure | Lender consent | Seller still liable? | Typical use |
|---|---|---|---|
| Loan assumption | Yes | No, if released | Agency, HUD and CMBS apartment loans |
| Subject-to | No | Yes | Small residential deals |
| Wraparound mortgage | Usually no | Yes | Seller financing over an existing loan |
Selling a building with an assumable loan to Skyline
Skyline Capital Investments buys apartment buildings with five or more units nationwide, and we underwrite assumptions of agency, HUD and CMBS loans. We can pair an assumption with seller-carry terms where the loan documents allow it, and we work with 1031 exchange timelines if you’re trading into another property.
Send the address, unit count and your loan’s balance, rate and maturity through the form on this page or call (469) 660-2977. We typically respond within 48 hours.
