What Is a Home Over-Loan? Explanation, Advantages, and Disadvantages
The price and other costs involved in buying a home are often factors to consider before making a purchase. There are several options available to obtain a home at a lower price, one of which is an over-loan, which can significantly reduce the cost of owning your dream home. So, what is a home over-loan? What are its advantages and disadvantages? Here’s the explanation!
Understanding a Home Over-Loan
Simply put, an over-loan is a form of transferring home payments from one person to another. If you over-loan a home, you are responsible for paying off the mortgage installments from the previous owner. Typically, the previous owner is unable to meet the loan repayments and passes them on to someone else. As the person who will continue these installments, you are then responsible for the repayment. This makes prices more affordable and is increasingly becoming a popular option for some people to own a home at a lower price.
There are two ways to over-loan: through a bank or through a notary. Over-loaning through a notary tends to be more legally secure.
Over-Loan Transfer Through a Bank
If you want to over-loan through a bank, there are various documents you must prepare first. Some of these documents vary depending on the bank you choose. Over-loan transfer through a bank has several advantages, such as transferring the title to the certificate before the installment is completed. The steps for over-loan transfer through a bank are as follows:
- Prepare the required documents as specified by the bank.
- Meet with a member of the bank’s credit division and submit a loan application.
- Fill out the required forms.
- The bank will audit the loan application.
- If the application is approved, you or the borrower will sign a home over-loan agreement.
Over-Loan Transfer Through a Notary
This is similar to the steps involved at a bank, but the difference lies in the transfer of title to the certificate, which cannot be completed until the installment is completed. The steps for over-loan transfer through a notary are as follows:
- Prepare the required documents.
- Visit the nearest notary’s office with the original borrower.
- Submit the over-loan application.
- If the application is approved, the notary will draw up a deed of sale and purchase of the land and building.
- The notary will then draw up a home over-loan agreement.
- Once the deed is complete, the notary will draw up a home loan transfer agreement.
Advantages of Home Loan Transfers
There are several advantages to home loan transfers, which can be a solution for home ownership at a more affordable price. Some of these include:
- More Affordable Prices
The advantage that makes over-lending increasingly popular is the more affordable price. This occurs because the initial cost and part of the installments have already been paid by the previous owner. This means you only need to continue paying the remaining installments. Furthermore, the bank will count the over-lending home purchase as a new loan, so the mortgage interest rate you receive is likely to be lower than if you had applied for a mortgage from the start. With lower interest rates, the total amount you have to pay over the loan term is less.
- Continuing Installments in Your Personal Name
By transferring the responsibility for installment payments from the previous owner to the new owner, the installments that were previously in the previous owner’s name are transferred to you, the new owner. This not only reduces installment costs but also provides better legal protection during the sale and purchase.
- Immediate Transfer of Title on the Certificate
Although house certificates are often pledged to banks as collateral for loans, the transfer of title is still possible and legally valid. This will provide greater security for the ownership of the home you intend to purchase. Once the certificate is transferred to your name, the risks associated with ownership are minimized.
- Ready-to-Move-In House
Houses that are over-credited are usually ready to move in. The previous owner has usually equipped the house with various basic necessities, such as water, electricity, and other basic services. This means you won’t need to incur additional costs for installation or renovations. You can move in immediately and furnish it without any renovations.
Disadvantages of Home Over-Loans
Besides the advantages, there are several disadvantages to home over-loans. These are important considerations to consider before undertaking a home over-loan.
- Lengthy Process
The over-loan process, whether through a bank or a notary, is not quick. The various over-loan processes involve numerous administrative and legal steps, requiring numerous documents, from data verification to approval from the relevant bank or financial institution. Coordination between the previous owner, the buyer, and the bank is also necessary, requiring considerable time and expense to ensure a smooth process.
- Risk of Fraud
One of the biggest risks of under-loaning a home is fraud by unscrupulous lenders. Some homeowners who readily offer this method often have malicious intentions and are concealing existing credit issues. For example, if the previous loan is problematic, the interest and penalties will be higher, which will become your responsibility as the new owner. There are also fraudulent claims related to asset disputes, such as if the house you purchased has an unclear certificate or is involved in legal issues.
