Can I assume a loan and Not make a down payment

[Sean Carroll]

If you assume a loan for an apartment complex. Do you have to put a down payment on that offer since the loan has already been bought? They already have the loan and it has a 15 Year Property Tax Abatement on it currently. 

[Doug Smith]

Sure, but it's not as easy as the gurus let on that it is. 

Many of the “get-rich-quick”, “no-money-down” gurus tout the use of loan assumption when purchasing a property, but is it rarely a possibility in today’s day and age. It might be harder than you think to assume a loan from a seller, particularly if your credit application is weaker than that of the seller.

There are many loans that are, indeed, assumable. Those that do have an assumption clause written into the paperwork generally require that the note holder approve the person that is assuming the loan. The new lender is first going to want to know about the stability and amount of the assumer’s income. Will they, in the lender’s opinion, be able to make the payments on time. Has the assumer paid other debts on time in the past? Will the lender be in a better, worse, or the same position that they would be in prior to the assumption.

Most loans today have a “Due on Sale” clause written into them where, if the property is transferred from the owner to another party, the lender can “call the loan”, meaning require the balance to be paid in full immediately. It’s common advice to would be assumers that what the lender doesn’t know won’t hurt them, but at some point they will typically find out. What happens when the lender gets the insurance cancellation notice from the seller’s insurance company or the owner of record changes on the tax records? Someone that simply counts on the lender not finding out might be in for a very expensive and rude awakening.

Another concern is going to pop up from the closing agent. The closing agent is honor-bound to be transparent and honest with all parties, including the lender. In order to issue title insurance to the new owner, they will likely require that the lender be paid off or at least get permission for the assumption. They don’t miss many things.

When purchasing property with little chance of getting a mortgage, a loan assumption is certainly a possibility, but it’s not the automatic approval that many of the gurus make it out to be. Honesty is always the best policy, so it is important that you follow the rules set forth in the original loan documents and follow the path of assumption that are laid out in them. Certainly you will want to be represented by a competent real estate attorney.