Loan Assumption: A transaction where the property buyer takes over the seller's existing Freddie Mac loan—same rate, same terms, same maturity date. The buyer pays an assumption fee and undergoes full underwriting. The seller is released from liability upon approval.
Why Are Loan Assumptions Suddenly Valuable?
In a rising rate environment, your old loan becomes an asset. That 4.5% rate you locked in 2021? Today's buyer would pay 7%+ for the same loan. The spread is worth hundreds of thousands in present value.
Freddie Mac SBL loans are assumable—but not automatically. The buyer must qualify, the process takes months, and fees add up. Here's how it actually works.
What Is the Value of an Assumable Loan?
The assumption value is the present value of debt service savings over the remaining loan term.
Assumption Value Example
Scenario: $2,000,000 loan balance, 5 years remaining, seller's rate 4.5%, current market rate 7.0%
| Metric | Assumed Loan (4.5%) | New Loan (7.0%) | Difference |
|---|---|---|---|
| Annual Debt Service | $121,500 | $171,500 | $50,000/year saved |
| 5-Year Savings | — | $250,000 total | |
| Present Value (6% discount) | — | ~$210,000 | |
The Seller's Leverage: That $210,000 present value is real money. Smart sellers price it into the deal—either as a higher sale price or as a negotiating chip. Buyers get lower debt service; sellers get premium pricing.
What's the Assumption Process?
Don't confuse "assumable" with "easy." The buyer undergoes full underwriting as if applying for a new loan.
| Step | Timeline | What Happens |
|---|---|---|
| 1. Request Assumption Package | Week 1 | Seller contacts servicer, requests assumption application |
| 2. Buyer Application | Week 2-3 | Buyer submits full loan application with financials |
| 3. Buyer Underwriting | Week 4-8 | Credit review, Form 1115 (GCF), experience verification |
| 4. Property Re-Evaluation | Week 4-8 | Updated appraisal, property inspection, title update |
| 5. Freddie Mac Approval | Week 8-10 | Final approval from Freddie Mac |
| 6. Closing | Week 10-12 | Document execution, assumption fee payment, transfer |
The Timeline Trap: Sellers often promise buyers "we'll assume the loan" without understanding the 60-90 day timeline. A buyer expecting to close in 30 days will be disappointed. Set expectations early.
What Does the Buyer Need to Qualify?
The buyer must meet Freddie Mac's standard borrower requirements—same as a new loan:
Buyer Qualification Requirements
- Key Borrower Principal: Identified individual with decision-making control and equity interest
- Form 1115 (Borrower Certificate): Full financial disclosure—assets, liabilities, REO schedule
- Global Cash Flow: 9-month liquidity requirement, positive GCF across portfolio
- Experience: Prior multifamily ownership or property management experience
- Credit: Clean credit history, no recent bankruptcies or foreclosures
- Form 6025 Guaranty: Buyer signs new "bad boy" carve-out guaranty
First-Time Buyer Warning: If the buyer has no Freddie Mac history, expect additional scrutiny—potentially a Sponsor Meeting (interview) and stricter terms. Factor this into your timeline.
What Are the Assumption Fees?
| Fee | Typical Amount | Paid By |
|---|---|---|
| Assumption Fee | 1% of loan balance | Buyer (negotiable) |
| Legal/Processing | $3,000 - $7,500 | Buyer |
| Updated Appraisal | $2,500 - $5,000 | Buyer |
| Title Update/Endorsement | $1,500 - $3,000 | Buyer |
| Property Inspection | $500 - $1,500 | Buyer |
Total typical cost: $25,000 - $40,000 on a $2M loan assumption.
The Fee Negotiation: While the 1% assumption fee is "standard," it's negotiable in the purchase contract. Sellers with highly valuable low-rate loans may ask buyers to cover 100% of fees. Buyers in competitive situations may offer to split.
What Happens to the Seller's Liability?
Upon assumption approval, the seller is fully released from:
| Form 6025 Guaranty | Bad boy carve-outs (fraud, misrepresentation, environmental) |
| Recourse Obligations | Any personal liability under loan documents |
| Ongoing Covenants | All loan covenants transfer to buyer |
Clean Break: Unlike some loan modifications where sellers retain liability, a Freddie Mac assumption provides complete release. Once the buyer is approved and closes, the seller has no further obligations.
When Does Assumption NOT Make Sense?
Assumption isn't always the right choice:
| Situation | Why Assumption Fails | Alternative |
|---|---|---|
| Short Remaining Term | 1-2 years left = minimal rate savings | New loan with fresh term |
| Buyer Needs More Proceeds | Can't increase loan amount on assumption | New loan at higher LTV |
| Buyer Has Credit Issues | Won't pass Freddie Mac underwriting | Non-agency or bank loan |
| Rate Differential is Small | <1% spread doesn't justify fees/timeline | New loan, simpler process |
| Buyer Needs Speed | 60-90 day timeline is too long | Bridge loan or cash purchase |
How Do I Structure an Assumption Deal?
The purchase contract should address assumption-specific terms:
Contract Provisions for Assumption
- Assumption Contingency: Deal is contingent on servicer/Freddie Mac approval of assumption
- Fee Allocation: Who pays the 1% fee, appraisal, legal costs
- Timeline: Extended closing period (90+ days) to accommodate assumption process
- Failure Remedy: What happens if assumption is denied—does buyer still close with new financing?
- Cooperation Clause: Seller agrees to cooperate with all servicer requests
The Denial Risk: If the buyer fails underwriting, the assumption is denied. Your contract should specify whether the buyer must then obtain new financing or can walk away. Don't leave this ambiguous.
What Does the Servicer Need from the Seller?
Sellers have their own requirements during the assumption process:
| Payoff Quote | Current loan balance and any accrued amounts |
| Escrow Statement | Current escrow balances (transferred to buyer at closing) |
| Compliance Confirmation | Seller is current on payments, no defaults |
| Property Access | For updated appraisal and inspections |
| Document Execution | Release documents, transfer of escrows |
What's the Assumption Checklist?
Assumption Process Checklist
- Week 1: Seller requests assumption package from servicer
- Week 2: Buyer completes application, provides financials
- Week 3: Servicer orders appraisal and property inspection
- Week 4-6: Buyer underwriting in progress
- Week 6-8: Freddie Mac review and approval
- Week 8-10: Document preparation and title work
- Week 10-12: Closing, fee payment, liability release
The Bottom Line: In a high-rate environment, your low-rate Freddie Mac loan is a valuable asset. But "assumable" doesn't mean "automatic." Budget 60-90 days, $25,000+ in fees, and full buyer underwriting. The rate savings can be substantial—but only if both parties understand the process.