Mortgage Financing Information: Take Over Mortgage

If you buy a home from another home owner you can get a take over mortgage. This means that the terms and conditions on the original loan for the original borrower is transferred to a new borrower. This is also referred to as an assumable loan.

Before you get a take over mortgage you need to get the approval of the lender. If you are approved then the interest rate and the monthly payment schedule is transferred to you. This can be advantageous because you can possibly get a great interest rate on the existing loan in comparison with the current rates for new loans. However, lenders are able to change loan terms of take over mortgages. This is something you have to be prepared for.

There are other things that you will inherit in a take over mortgage such as the liability of the mortgage. This means that if for any reason you do not make your necessary payments and the lender forecloses then you may have to pay the lender the difference if the lender makes a loss on the house.

To get a take over mortgage you need to pre-qualify. You also need to pay the necessary closing costs, get an appraisal done and pay for the title insurance. However, take over mortgages are still popular because people like the idea of getting a loan with a lower interest rates than what the current market is offering.

If you are looking to assume a loan you need to take a look at the numbers. If you want to buy a home that had a take over mortgage of $80,000 with 6.5% interest with 15 years left on the mortgage then you would have a $70,000 balance on the take over loan. This means that this property is actually worth $160,000. Then you only need to come up $90,000 plus closing costs for the take over mortgage.

In fact take over mortgages peaked in the 1970s and 1980s because interest rates were soaring. If you bought a home with a take over mortgage you could get an interest rate between 5% and 7&. This is in comparison with the interest rates between 10% and 15% for getting a new mortgage. Many buyers were more than happy to accept a take over mortgage because it was the only way that they could get a decent interest rate and afford the type of house that they needed.

However, if you are thinking about getting a take over mortgage then you need to exercise caution. Be sure that you are getting what you are paying for. Sellers will sell their houses for more money if they are doing a takeover mortgage. This means that you need to have more money to cover the difference between the asking price and the take over mortgage loan balance. On the other hand because you take assumability you are able to cash out later especially if the property you are assuming increases in value.