Assumability is the ability to transfer an existing mortgage and all terms from the current borrower to a buyer. In many cases, this keeps the new buyer from needing to obtaining a new mortgage, though they are free to do so if they desire. While all HUD multifamily loans, including HUD 221(d)(4) loans, HUD 223(f) loans, HUD 232 loans, and HUD 223(a)(7) loans are fully assumable, the FHA requires prior approval along with a 0.05% fee of the original loan amount.

Loan assumability is the ability to transfer an existing mortgage and all terms from the current borrower to a buyer. All HUD multifamily loans, including HUD 221(d)(4) loans, HUD 223(f) loans, HUD 232 loans, and HUD 223(a)(7) loans are fully assumable, however the FHA requires prior approval along with a 0.05% fee of the original loan amount. Source 1 and Source 2.

The benefits of loan assumability for HUD 223(f) loan borrowers include the ability to make their property significantly more marketable, especially in an environment where interest rates are rising. This is because a new borrower would not be able to get loan with a comparable interest rate on the open market, and could save a significant amount of money as a result of the loan assumption.

For more information, please see Are HUD 223(f) Loans Assumable? and HUD 223(f) Loan Facts.

The risks associated with loan assumability depend on the type of loan being assumed. Generally, the buyer must meet strict borrower requirements in order to be eligible for the loan assumption — after all, lenders must ensure the new borrower has the financial means to continue repaying the loan and that they aren't a financial risk. In many cases where loan assumption is allowed, like with HUD multifamily loans, a buyer must pay a fee — typically between 0.05% and 1% of the original loan amount to assume the loan. CMBS financing sometimes allows loan assumption as a means of avoiding strict prepayment penalties associated with conduit loans, generally along with a standard 1% assumption fee as well.

In most cases, if a loan is assumable, the new borrower/owner will still have to be approved by the lender. The lender needs to ensure the borrower has the financial means to repay the loan, and that they aren't going to be a serious financial risk. For some kinds of loans, such as HUD multifamily loans, having a new buyer assume a loan requires a small fee of between 0.05% and 1% of the original loan amount. In many situations, CMBS loans are also assumable for a small fee.

Yes, there are restrictions on loan assumability. In the case of HUD 223(f) loans, they are fully assumable with lender approval and a 0.05% fee. However, the new borrower must meet the lender's credit and income requirements. Additionally, the lender may require the new borrower to pay a fee to cover the cost of processing the loan assumption. For more information, please visit Are HUD 223(f) Loans Assumable?