A property worth $4million has pre-existing loan for $3.5million,does that mean I pay $500,000 to take over?

I am new to investing, on thing I was thinking about is that there is a building for 4 million, owner has pre-existing loan at 3.5 million, does that mean I can pay $500,00 to take over? saving me all the hassle of applying for new loan from scratch?
In Buying Property - Asked by faisal a. - Jul 14, 2009
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Thomas B.
Property/Asset Manager
Oceanside, CA

Almost. In addition to the $500,000 you would have assumption fees and closing costs, so you would need approximately another $150,000 - $200,000. However, that does not eliminate all of the "hassle" of applying for a loan. Most lenders will require you to qualify for the assumption very much like qualifying for a new loan. The primary benefits of assuming existing loans are: (1) you may be able to get a more favorable loan term than you would get on a new loan; and, (2) as in the case you described, you can get a higher loan to value ratio than on a new loan.
The bigger question to ask is: with $3.5 Million loan on a $4 Million property, is there sufficient cash flow to cover the debt? Since the value of commercial properties is based on income, there is a reason the total value has decreased (I assume it has decreased because I can't imaging any lender allowing an 88% LTV) - that would be that the income has decreased. Look closely at the income/expenses before jumping into buying a deal like this.

Jul 15, 2009
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Paul S.
Glendora, CA

In order to take the loan over the lender would have to allow an assumption (you could take it over "subject to" the existing loan but that gives rise to the lender exercising their "due on sale" clause and you could lose your down payment and the property). There may be costs involved with an assumption, although usually less cost than getting a new loan. An assumption can be much less hassle than a new loan but not necessarily. It will depend on the lender. Some lenders look primarily at the property and how it performs while some will look at you more closely. If the loan to value (LTV) has decreased from the original LTV the lender may look at how you qualify more closely since the current LTV may not fit their lending criteria.

Jul 15, 2009
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