Loan Assumptions: What are they and why do they matter?
As interest rates remain high one option for investors is to seek deals that offer a loan assumption. This occurs when a buyer takes over the existing commercial mortgage when the purchase the property. Although there are different types of assumable loans most often they are agency product through Fannie or Freddie or in some cases HUD loans.
We are currently on the look out for loan assumption deals. This allows us to potentially acquire at a much lower basis then then we could have a few years ago but still benefit from the lower interest rates that were common then. We would prefer as long a term as is possible on these assumptions but they would top out at about 7 or 8 years since most loans are 10 years fixed rate on the longer side.
Although these deals are rare they offer great value and reduce risk associated with any real estate deal.