For many first-time buyers, the biggest stumbling block is loan approval. Many Americans get overextended with credit cards and other consumer loans, then find their credit will not allow a home purchase at the time they try to get it.

They often can find another route to ownership through creative financing.

Last week, I gave an example of a young couple with low income and weak credit. They could buy an ugly-duckling house with sweat equity and owner financing.

This week, we will look at another unconventional way to buy real estate. If a home is owned free and clear, it is a candidate for the type of "owner financing" we discussed last week.

But if that house carries any kind of mortgage loan, the property is a candidate for purchase through a technique called loan assumption. Perhaps it should be more properly labeled "payment takeover."

If the lender gives permission, any buyer can simply take over the payments currently being made by the seller. By doing so, the buyer steps into the shoes of the seller. Because the property acts as security and collateral for the loan, the lender's safety is unaffected.

Smart sellers sometimes offer a wraparound mortgage, in which the buyer makes a monthly payment of principal and interest as well as taxes and insurance directly to the seller. The seller then remits the appropriate amount to the original mortgage lender on a timely basis. That way, the seller is assured that the payment is made every month.

There can be other benefits to such a wraparound loan:

• The difference between the loan balance and the selling price is the seller's equity. If the seller chooses, he can offer the wraparound loan at a higher balance with a higher interest rate than the underlying first mortgage. The seller profits every month on the spread between the two interest rates plus the interest being paid on his equity.

• Because the seller is willing to accept a higher balance on the wrapped loan, the size of the down payment is reduced and more potential buyers may be attracted.

• Because the underlying loan may have a shorter duration than the wrap loan, the balance usually declines faster on the underlying loan. Once it is paid off, the buyer is still paying on his remaining balance, but the seller is relieved of having to make additional payments to the original lender.

Buyers and sellers considering any form of loan assumption need to understand the "due on sale" clause found in almost all conventional security deeds since about 1990. It says the seller may not sell the property to another person and allow that person to take over the loan payments unless the lender grants approval in advance of the transaction.

The document goes on to say that if a seller does allow the loan to be taken over by a new owner without the lender's permission, the lender has the right to demand payment in full within 30 days of notifying the new owner.

Some buyers, especially experienced investors, have taken the position that because they are prepared to pay off the existing lender upon demand, they are free to take over as many loans as they wish without seeking the approval of the existing lender.

The danger is that the lender might discover that a sale occurred and demand payment of the full loan amount. The new owner might not have the funds available to pay off the lender within 30 days. Under that scenario, the lender has the right to begin foreclosure proceedings against the new owner and potentially force the house to be sold at public auction to satisfy the debt.

However, many investors believe that if the lender gets monthly payment in a timely manner, the lender doesn't care who is making that payment.

I know of no conventional lender that has foreclosed on a loan for which the monthly payments were current and the property was in good condition. Lenders are primarily concerned that the correct amount to pay the principal, interest, tax and insurance is received by them by the due date.

Buying real estate by taking over payments is not a violation of the law. But it can carry serious consequences and should be undertaken only with a lawyer's advice and with a full awareness of potential problems.

Want to learn more about investing? The Georgia Real Estate Investors Association has a free "Guide to Real Estate Investing in Georgia." Call 770-988-1040 for a copy.

 John Adams is a broker and investor. He is host of the "John Adams Radio Show," a call-in program dealing with homeownership and real estate, from 1 to 3 p.m. Saturdays on NewsRadio 640 (WGST). For more real estate information or to make a comment, visit www.money99.com.