Buying a property for cash vs assuming a loan

Multi-Family and Apartment Investing
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Buying a property for cash vs assuming a loan

Grant Wieczorek
New York, NY · Member since 2016 · 9 posts · 0 votes

I have come across a few properties where one would assume a loan as opposed to buying the property outright for cash and putting new debt on it.  My attorney said this is a much easier process.  Are there significant differences?  You still would have a due diligence period and have an inspection I would assume?  Are there additional considerations with loan assumptions or is it as clean cut as it appears?

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  • Joel OwensBusiness Member
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    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    You have to find out WHO owns the loan and what are the requirements to assume it. You have to read the loan covenants and see what you are possibly agreeing to. 

    The downside is the loan might be coming due in a few years versus getting 10 year fixed rate debt today at favorable terms.

    Example you come across a loan minted 5 years ago and rate is 6% fixed with 5 years left and a 20 year amortization. You search current rates and find out you can get a 30 year amort. with rate in the 4's fixed for 10 years with a new loan. Additionally the equity requirement to assume the sellers loan based on what price they want could be 35 to 50% down versus a new lender might do a loan at 75% loan to value with 25% down.

    The existing lender does have a history with the property over time so they might alter the original loan or not want to let a buyer assume it as they are ramping down loaning to those type of assets. 

    There are just tons and tons of variables like if the loan is non-recourse,partial, or full recourse? Any prepayment penalty? What constitutes a default under the loan? Can lender change underwriting and stress test property mid loan to require more money down to reduce LTV and makes DSCR numbers better?

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