What is a commercial real estate loan assumption?

A commercial loan assumption allows a buyer to take over the existing loan on a commercial property rather than obtaining new financing. This is advantageous when the existing loan has a lower interest rate than current market rates or favorable terms. Most commercial loans require lender approval for assumption, and the buyer must meet the lender's underwriting standards. CMBS loans, agency multifamily loans, and some life company loans are assumable, while most bank portfolio loans are not. There is typically an assumption fee (0.5%–1% of the loan balance) and legal costs. If the purchase price exceeds the loan balance, the buyer must fund the difference with equity or a supplemental loan.