What does 'take over payments' mean exactly?

c9pilot

17 years ago

Does it mean that the value of the home has declined below the balance remaining on the mortgage?

Does the prospective buyer finance to pay off the owner's mortgage? And then would need a down payment anyway?

You don't literally take the payment stubs and start paying them with your own checkbook, do you?

Just trying to get educated on this.

Thanks,

Lisa A.

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Comments (8)

triciae
17 years ago
There are still a few assumable mortgages floating around out there. It sounds like you've found one.

It's easier to explain by example, I think...so here goes:

Asking Price of House: $200,000
Assumable 1st Mortgage: $150,000
Payable to Seller: $ 50,000

The advantage of the old assumable loan was that most were written so that whoever "assumed" the loan didn't have to qualify. They just starting making the payments. The advantage there is obvious...it's a way for people who have cash but can't qualify for a mortgage to purchase a home.

That said, there are also "assumable" mortgages that DO REQUIRE QUALIFYING. But, there may still be an advantage. If, for example, the original mortgage was placed mid-summer of '03...then the rate may be around 4.75% which is quite a bit lower than you could get today.

A purchaser wanting to assume a mortgage has to pay the seller the difference between the selling price & the amount remaining on the note that is secured by the mortgage.

In times of severely declining real estate markets...the seller may have NO EQUITY. Again, as example...the property may only be worth the outstanding loan amount. In this case, a buyer would apply with the lender to assume the mortgage (if there is a "qualifying" clause) and then just begin making the payments. The lender would issue new coupon books (or, most likely arrange for the mortgage payment to be automaticallly withdrawn from your checking account each month).

So, if there's equity in the property you need a down payment (that would be the cash going to the seller). If there's no equity in the property...then there's no down payment.

And, it could mean that the value of the property is BELOW THE AMOUNT STILL OUTSTANDING ON THE NOTE in answer to your question. You would need to be quite certain of the market value of the property before entering into a Purchase & Sales Agreement. However, some people who can't qualify for a loan might agree to pay a higher amount for the property because otherwise they can't buy at all. Although, I don't believe there are many "no qualifying" mortgages left out there. I might be wrong on that...but I don't think so. It's been years since any were written without the qualifying clause.

Hope that answered some of your questions.

Tricia
c9pilot
Original Author
17 years ago
Thanks, Tricia.
Exactly the information I was wondering and not even sure what to ask.
Of course, I went back online and I can't find the house anymore, so they must've sold. I just thought it was an interesting proposition that I see every once in a while.
R/
Lisa A.
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sparksals
17 years ago
One thing that you need to be aware of in an assumable mortgage, and this is the case in Canada where they are far more common than the US, is that the seller is still on the hook for they payments if the buyer defaults. It's risky.

My parents assumed the mortgage on the house when we moved from Edmonton to Calgary in 1971. It was at a 35 year fixed 4% rate, payment $160 per month. Of course, they didn't default, but had they, the lender could very well have gone after the original owner.

I don't know if that's the case here in the US.
triciae
17 years ago
sparksals, YES you are correct! Thank you. I'd forgotten that. It's been so long since I've seen a non-qualifying assumable loan through the bank.

The original borrower remains on the note and the lender retains full recourse should the assuming party default.

That's NOT true with assumable qualifying loans, however. On those, the original mortgagee receives that wonderful "Paid In Full" across their note.

Tricia
mariend
17 years ago
When we were selling in Cal our first 2 realtors tried to get us to sell like that, and we refused. I did not trust the realtors or the people. 3rd realtor agreed with us. To me a sale should be final, and not have to worry about a house coming back in who knows what condition.
gardensgirl
17 years ago
Eight years ago when I bought my 1st home, I assumed a VA loan!! I wasn't even a veteran........it was a great deal for me. I got their interest rate, which was 7%, low for that time and had only 22 years or something like that on the mortgage. Since I was a 1st time home buyer, they had to pay a bunch of fees for me (I can't remember). All total, I think I put no more than $3k at most to get into my house. The only negative I had was that when rates were really, really low a few years ago, I wasn't able to do a simple refinance because I wasn't a veteran, I had to go through the whole process.

They lost a boatload when they sold me this house. They just wanted a quick sale, it was a investment property I think.
moltenlava
17 years ago
One caveat is that these days almost all mortgages have due-on-sale clause. Assuming the mortgage to the buyer is really in violation of the mortgage contract. In practice though, the lenders don't really care if the mortgage has been assumed across the sale of the property, as long as the payments are made in time.
sylviatexas1
17 years ago
"Take over payments" may also mean that the seller retains title to the house until you've paid off the mortgage, sort of like the old "wrap" mortgages, which, as someone pointed out above, violate the terms of almost all existing mortgage notes.

Plus, many contracts of that type contain a clause that says something like "If Buyer is more than ten days late on any payment, Buyer's status automatically reverts to that of Tenant."

So you'd have to hand-carry the payment to the seller & get a receipt every single time.

& if the buyer makes payments to the seller, & the seller doesn't forward the payments to the lender, the house is foreclosed, & the "buyer" finds out about it when he/she receives the eviction notice.

If the seller declares bankruptcy, or gets a divorce, or dies, your situation is at risk.

not a very good way to buy a house.

Even an "assumeable with qualifying" loan has to be fully processed just like a new loan; the buyer has to make application & have credit, income, obligations, & available cash verified, & it usually takes longer than a new loan.

& the interest rate is very likely to be higher than it would be on a new loan, & the cash out of pocket for the equity is more than would be required for a new loan.

Assuming a loan would carry a lower balance (which you can get by putting down more money on a new loan) & a shorter term (which you can get by paying additional principal every month.)

An assumed loan will also have more of the payment going to principal, depending on how many years it's been in force & how many years remain.

Be very very careful.

What does 'take over payments' mean exactly?

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triciae

c9pilot
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What does 'take over payments' mean exactly?

Comments (8)

triciae

c9pilotOriginal Author

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sparksals

triciae

mariend

gardensgirl

moltenlava

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c9pilot
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