Multi-Family Loan Assumptions

[Matthew Barnett]

Hello!

I have a 35 unit deal I am underwriting, but it is a loan assumption. First about the deal, 30 units are apartments there is a separate building attached to the land that is 5 retail spaces. Anyways, I know the loan term, rate and remaining balance. I know to look out for things like a balloon, assumption fee, prepayment penalty, etc.. Are there any other things I need to be aware of when underwriting a loan assumption deal? 

Thank you!

[Jonathan Barr]

just what kind loan is bank? Agency?   Depending that they have different approval requirements.   For agency is very strict on experience so if this is one of your first deals they may not approve you.   I would look into what approval requirements are, liquidity/networth requirements. Hope that helps!

[Arn Cenedella]

@Matthew Barnett

No, nothing unusual about underwriting. It is actually easier because you know the exact terms of the note / rate payment remaining term. There are probably reserve accounts associated with the loan, you will need to pay or reimburse seller for those impound amounts at close. 

[Bobby Larsen]

@Matthew Barnett

Factor in the assumption approval taking 90+ days. This will depend on the type of loan and it very well might be quicker but you have to go through multiple approvals... lender, services, etc. and it’s usually not the quickest of processes.

Not much different in terms of terms. Just make sure you meet all the high level requirements upfront in terms of NW and liquidity so you don’t waste everyone’s time.

[John Lenhart]

What do fees look like traditionally? I have seen a lump sum like $25k flat fee and additional 1%. Seems like it would run close to 50-70k in costs to do the assumption when you factor in legal costs? Is this what others have seen?

[Bobby Larsen]

@John Lenhart

I would verify with the loan docs but most loans, Fannie and Freddie, will have a 1% assumption fee plus legal/processing costs.

[John Lenhart]

@Bobby Larsen. Thank you for your reply, approximately how much are you seeing on legal fees on the assumption?

[Bobby Larsen]

@John Lenhart - that depends entirely on your legal and how much they are involved, the lenders legal, size of the loan, etc.

[Matthew Barnett]

Thank you all for your responses! 

[Karen Schimpf]

Hi @Matthew Barnett,  When you do your calculations, do not forget 5% to 8% vacancy rate and management fee also around 5% to 8%.  Also when you do your calculations, the typical bank loan is a 5 year fix with a 20 year amortization.  If the loan amount is above $1MM and you meet the requirements for Fannie or Freddie, the terms could be 5-year fix, 7-year fix, 10-year fix with a 30-year amortization.  Fannie and Freddie does offer a 30 year fix but it has a nasty yield maintenance prepayment penalty which can become very costly if you want to sell the property in less than 30 years.

[Matthew Barnett]

Originally posted by @Karen Schimpf:

Hi @Matthew Barnett,  When you do your calculations, do not forget 5% to 8% vacancy rate and management fee also around 5% to 8%.  Also when you do your calculations, the typical bank loan is a 5 year fix with a 20 year amortization.  If the loan amount is above $1MM and you meet the requirements for Fannie or Freddie, the terms could be 5-year fix, 7-year fix, 10-year fix with a 30-year amortization.  Fannie and Freddie does offer a 30 year fix but it has a nasty yield maintenance prepayment penalty which can become very costly if you want to sell the property in less than 30 years.

 Very helpful! Thank you! Sounds like we need to get in touch soon as well.

[Greg Dickerson]

Make sure to read the loan docs carefully and have your attorney review them swell. You need to make certain you understand the covenants.