In today’s commercial real estate market, investors are facing the challenge of rising interest rates and tightening lending conditions. As a result, alternative financing options are gaining traction. One increasingly popular approach is the assumable loan, a strategic financing solution allowing buyers to “assume” the seller’s existing loan terms—typically at a rate more favorable than today’s market. Assumable loans are reshaping the landscape for multifamily transactions, helping sellers secure strong pricing while offering buyers a cost-effective way to enter the market. In this post, we’ll break down the benefits, requirements, and nuances of assumable loans and why they’ve become a sought-after option in the multifamily sector.

• An alternative to traditional financing in a real estate transaction can be what is called an assumable loan. An assumable loan, or “assumption” as it’s commonly referred to allows for the buyer of the transaction to take over the sellers existing loan. In other words, the buyer takes over their remaining loan balance and payment schedule, all along with the interest rate the seller received at the time they purchased the property.
• Over the last three years, we’ve seen the interest rate market drastically alter. Despite these elevated rates, there was pent up demand from investors looking to transact. The loan origination was seen as another avenue to a traditional transaction while still getting top dollar for a seller, all the while getting a more favorable interest rate compared to the current market conditions. The assumable loan option allowed for pricing to remain very strong across the multifamily asset class.
• Much like a traditional acquisition, the process to assume a loan is similar in that you must qualify for that loan. In addition to the buyer qualifying for the loan, the asset must be performing up to the standards of the original party that wrote the loan. Performing meaning hitting projected rents, expenses, etc. In addition to qualifying and performance of the building, the buyer must pay the loan servicer (Party who wrote the loan) a 1% loan acquisition fee. 
• Assumable loans have become much more common in the last few years due to the volatility and rising interest rates. If a property qualifies for an assumption, it could be a win-win scenario for both the buyer and seller in a transaction.

As the multifamily market continues to evolve under fluctuating economic conditions, assumable loans have proven to be a practical solution for both buyers and sellers. With their potential to lock in lower rates and streamline transactions, these loans offer a unique path to closing deals that might otherwise face hurdles in today’s high-rate environment. Whether you’re looking to acquire a new asset or exit a property, an assumable loan could be the key to a smooth, mutually beneficial transaction. Considering this approach can be a win-win strategy that keeps deals moving forward, even in a challenging lending climate.

Harrison Pinkus is a Director at Interra Realty where he works alongside Director Mark Dykstra. In 2023, Harrison recognized by ConnectCRE as a recipient of the 2023 Next Generation Award for the Chicago & Midwest region. Harrison graduated from the Indiana University and is a licensed real estate broker in the State of Illinois.