Home Loans in the Philippines
Owning a home can be costly. If you save money to purchase the house, its future value will almost certainly be greater than its current value. Obtaining a housing loan is one of the more practical methods of home ownership. Numerous banks and funding institutions assist you in achieving your dream home.
As a result, it would be beneficial to gain a general understanding of the housing loan process. Additionally, we want to assist you in determining which type of mortgage best fits your financial situation and preparing the necessary documents.
What is a Housing Loan or Home Loan?
A housing loan is an amount borrowed by a person from a financial institution for them to be able to buy a new house. It can also be used for house renovations. There is a specific interest rate agreed upon by the borrower and the lender, and the loan should be repaid within a certain time frame.
Securing a new housing loan often involves a comprehensive assessment of various financial factors. Financial institutions carefully evaluate the combined gross family income, ensuring that it meets the minimum requirements for loan eligibility.
For individuals with an existing housing loan, lenders consider the outstanding loan balance as part of the overall financial picture. Additionally, housing loans come with specific terms and conditions, including a minimum loan amount that borrowers must adhere to when applying for financing.
These considerations underscore the importance of a thorough financial review by both borrowers and financial institutions to ensure that the loan terms align with the borrower’s capacity to repay and the lender’s risk assessment criteria.
Common Housing Loan Application Requirements
- Recent Individual Income Tax Return
- Bank Statement
- Latest Payslip or Proof of Income
- Proof of Billing
- Employment Certificate
- Service Duration and Salary
Lenders, including banks, set funding limits based on age and income brackets. Higher income correlates with larger loan amounts. Property type and location are considered, but the critical factor is the property’s current market value or fair market value.
Why does income matter in loan applications? Unlike banks, which require extensive documentation, income verification is the primary focus. Financial advisors recommend securing a loan within your monthly income limits.
To visualize this, calculate your annual salary, deduct taxes and other expenses, and multiply the result by 2.5 or 3—the maximum loan amount you should aim for.
Housing Loan under the PAG-IBIG Program
Most Filipinos are PAG-IBIG members, a government agency qualifying them to apply for loans through PAG-IBIG. They have three major loan programs available: PAG-IBIG Calamity Loan Program, PAG-IBIG Multi-Purpose Loans, and PAG-IBIG Housing Loan.
Their housing loan is divided into two categories: the End-user Financing Program and the Affordable Housing Program. In the former, PAG-IBIG offers a loan amount of up to Php 6 million, while the latter allows up to Php 750,000 with monthly payments that can go as low as Php 2,445.30.
They facilitate the purchase of residential units such as townhouses and condominiums by their members. Additionally, they provide house construction and renovation services.
PAG-IBIG Housing Loan Requirements
Not all PAG-IBIG members are eligible to apply for a housing loan. The member must have at least two years’ worth of savings. However, they can also make a one-time payment. The member’s age cannot exceed 65 when applying for a home loan.
Additionally, they must be under the age of 70 on the maturity date. The other home loan requirements are as follow:
- They should have the legal capacity to purchase and own a property.
- The member must pass PAG-IBIG’s background or credential checks.
- They must not have a current PAG-IBIG Fund Short-Term Loan.
- They should not have any prior canceled or foreclosed loans.
You may borrow up to six million pesos to purchase real estate. However, it is still contingent upon the developer’s actual or estimated payments and your ability to pay.
To be approved by PAG-IBIG, the following requirements must be met:
- Completed Housing Loan application form with 1×1 ID picture
- Proof of income
– For locally employed applicants, they can pass any of the following: Certificate of Employment, Latest Income Tax Return, or one-month payslip.
– For self-employed applicants, they can pass any of the following: ITR, audited financial statements, and official receipt of tax payment from bank supported with DTI Registration and Mayor’s Permit/Business Permit, Commission Vouchers (for the last 12 months), bank statements or passbook (for the last 12 months), Copy of Lease Contract and Tax Declaration, Certified True Copy of Transport Franchise, Certificate of Engagement issued by owner of business, or any other document that can validate the source of income.
– For OFW members, They can either submit their Employee contract or Notarized Certificate of Employment and Compensation.
- One valid ID of each: principal borrower and spouse, Co-Borrower and Spouse, Seller and Spouse and Developer’s Authorized Representative and Attorney-In-Fact (if applicable)
Suggested Read: Now is the Best Time to Buy Your House and Lot
Housing Loan via Bank
Is your chosen developer not accredited by PAG-IBIG? Not every developer is accredited for PAG-IBIG housing loans . Most of the accredited developers of PAG-IBIG provide low-cost and affordable housing, so if you’re planning to buy a luxury house and lot, there is a low chance that PAG-IBIG will approve your application. When this happens, there is always a second option for you, which is a bank loan.
Like PAG-IBIG, banks have stringent criteria and qualifications when it comes to their application process. How is it different from a PAG-IBIG housing loan?
- Interest rates
Each financial institution has its own unique terms and conditions. Although some say that PAG-IBIG offers a much lower interest rate than banks, there are certain banks that provide lower interest rates compared to those offered by PAG-IBIG.
Therefore, it is essential to explore and compare loan options from different banks to identify the most favorable terms that align with your financial goals.
- Maximum loan amount
When it comes to the maximum loan amount, both PAG-IBIG and the banks have their ways of identifying the right amount to loan a borrower. For PAG-IBIG, they depend on the member’s contribution, income, and existing debts. While in banks, they base it on account income and credit history.
- Repayment terms
While PAG-IBIG offers up to 30 years of repayment period, banks usually offer just up to 20 years or less. But when it comes to the frequency of payments, banks provide a more flexible schedule for the borrowers, unlike PAG-IBIG that requires monthly payments.
Typically, the homebuyer is responsible for the equity or TCP payment. However, some developers may offer you a limited number of units and bank financing. Therefore, exercise caution and thoroughly inspect everything before making a purchase.
It is always best to do your research on the following factors like loan maturity or loan term and maximum term, tax mapping, financing scheme, appraised value, loan documents required, identification of low interest rates before committing to a loan, as there may be deals out there that suit your needs better.
In-House Financing
The nature of in-house financing and bank lending is almost identical. If you are not approved for any of the previous funding options discussed, consider in-house financing.
There are some instances where borrowers are unable to obtain bank financing; developers will gladly provide in-house financing in these instances.
It refers to the seller’s and buyer’s payment flexibility. In other words, the client financed the acquisition of assets or property directly from the developers or company.
It is more convenient because purchasers do not have to wait for their loan funds to be processed. Additionally, the buyer is not required to pay the entire amount. Rather than that, they can reach an agreement in which payment is deferred for several months.
Suggested Read: Terms you need to know before buying your house and lot
Residential tower developers often provide in-house financing with terms stipulating higher-than-average interest rates and extended payment periods, typically ranging from five to ten years for 80% of the contract price.
The remaining 20% serves as a down payment. Loans with fixed interest rates up to Php 5 million are available, subject to a rate review after five years.
Some Advantages of In-House Financing
Installment Payment Options
This option provides the client with a more convenient method of repaying their loan. It is more convenient than a bank loan because it can be divided equally over several months.
Rapid Transaction
With the advancement of current technology, businesses and clients can now inquire and resolve issues online. With a simple tap of your phone’s screen, you can secure instant funding for your dream home.
Fixed Interest Rates
It will not fluctuate in an unpredictable manner. Political and economic factors will have no bearing on the loan. Borrowers will always be aware of the exact monthly payment due.
With a TCP of 20% to 30%, in-house financing can virtually guarantee loan approval. While banks require borrowers to submit additional documentation and are more stringent in their approval process.
It is the most convenient method of acquiring property in the Philippines for non-resident citizens and foreigners. The bank imposes restrictions on loan approval, including a minimum number of years of residency and endorsement of the loan agreement. Ascertain that you are dealing with a legitimate realtor who can assist you with loan approval.
Consider These Factors Before Taking Out a Housing Loan
Numerous factors can influence the approval of your home loan. With that in mind, here are the first two considerations you should make:
Finances vs. Housing Loan
This is the primary premise upon which the primary criteria are built, as well as the premise upon which lenders operate. Assess your financial capabilities and spending habits prior to taking out a loan. A mortgage is a significant commitment that may require you to live below your means.
Additional Financial Obligations or Debts
In addition to your housing loan, it is crucial to take into account any existing financial commitments. It is advisable to refrain from acquiring additional financial obligations that could potentially hinder your ability to meet the monthly amortization.
Assess Prior to Taking a Risk
The majority of lenders and organizations, such as PAG-IBIG, penalize borrowers who default on monthly amortizations. They even went so far as to foreclose on the properties. To avoid this occurrence, you must conduct a financial assessment.
Prior to committing, ensure that you have a stable job or business to serve as collateral for the loan. Apart from that, you must have no outstanding liabilities to avoid complications. Additionally, you must prepare primary and supporting documents for submission.
Always conduct research and ensure that you understand the terms of the agreements between you and the lender. With that said, careful assessment can help you realize your dream home.
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