HOME LOAN FINANCING OF A PROPERTY PURCHASED
People usually have a Home Loan, but the question is, what does Home Loan mean? According to Home Loan FAQs: Home loan is a loan disbursed by a bank or financial institution (lender) to an individual specifically for buying a residential property. Here, the lender holds the title of the property until the loan is paid back in full along with interest.
I know some of us are dreaming to have a perfect house, but we usually think that we don’t have enough money to pay. Well, maybe it is now the time to turn that dream into reality. We have now the good news which is, the bank can help us to be more convenient in applying for a housing loan.
You as a Filipino are given more opportunities to own their homes with an option of financing packages by the developers itself or the financing institutions. More and more home buyers taking a serious look at the financial institutions as a better option as home loan rates improve.
Nowadays, home loans have a bigger scope and banks offer these loans even for small needs of your home. To understand this concept better, let us have a look at the different types of home loans available.
TYPES OF LOANS
- Unsecured Loans
– are loans that do not require collateral. The approval of this loan is usually more difficult (except for credit cards). These loans have a higher fixed interest rate. It is granted based on borrower’s ability to repay. Unsecured loans rely on your credit history and income.
- Secured Loans
–opposite of unsecured loans, these loans require a collateral. It has higher borrowing limits with longer repayments terms and usually lower interest rates than Unsecured loans.
- Conventional Loans
–is a loan that is not part of a specific government program, such as Federal Housing Administration (FHA), Department of Agriculture (USDA) or the Department of Veterans’ Affairs (VA) loan programs. Conventional loans can be either conforming or non-conforming. It can be used to purchase a primary residence or investment property.
- Conforming Loans
–A conforming loan is a mortgage that is equal to or less than the dollar amount established by the conforming loan limit set by The Federal Housing Finance Agency (FHFA) and meets the funding criteria of Freddie Mac and Fannie Mae. It is usually described in terms of loan amounts, they’re also by debt-to-income, credit score and loan to value ratio.
- Non-Conforming Loans
– are loans that don’t meet the Freddie Mac and Fannie Mae criteria. The reason is typically higher loan limits and the major investors don’t purchase these bigger loans.
- Open-Ended Loans
– are a loan that can be borrowed again after they have been repaid.
- Close-Ended Loans
– this loan is just an opposite in Open-Ended Loan in which this loan cannot be borrowed again. If you need more credit, you must apply first a new loan.
- Unsecured Loans
1. Home Purchase Loan
If you are planning to buy a house or a condo, Home Purchase Loan is suitable for you, in this type of home loan, most of the bank will offer you about seventy or eighty percent appraised value.
2. Home Construction Loan
For those people who consider building their own home according to their needs and specification, Home Construction Loan is the solution. The only thing to reach this goal is, simply you need first some money to buy a land or either you can use your earnings to purchase the land and then more money for all the construction costs like materials to be used, manpower, architects, permits and so much more. If you own an ancestral house and want to renovate it but you lack a fund, You don’t have to worry because Home Improvement Loan is perfect solution of your problem, it is still under in the Home Construction Loan. These are meant for persons like you only who already own a home but want to repair it.
3. Home Extension Loan
Need for bigger space is realized when children grow up, when parent’s or in-laws come in to live in the same house, so a growing family requires additional space, If you want to build an extra space or another part of the house that needs redoing like additional room for a new family member, new guest house, add a balcony in your house, Well Home Extension Loan is the best for you. Suitable for all the people who want to add extensions in their house.
4. Home equity
With a home equity loan, you can borrow money against your property’s value. The funds can be used for other major expenses such as home repairs, medical bills, or college education, and more. A home equity loan creates a lien against the borrower’s house and reduces actual home equity.
3 TYPES OF HOUSING LOAN BASED ON FINANCING SCHEME
1. In-house financing
If you will purchase a house through in-house financing it involves paying monthly amortizations directly to the property developer. It is a type of seller financing in which they allow the customer to purchase its goods or services.
Pros of in-housing financing:
- Discounts. If you pay in cash immediately or during the turnover of the unit, the developer may offer you a discount.
- Little or no background check or credit investigation. Homebuyers with less-than-ideal credit history are less likely to be rejected.
- Quickest and most straightforward option. No third party (bank or government) is needed for processing and funding the loan, so you don’t have to be worry because the developer handles everything.
- Less rigid requirements and less paperwork. Real estate developers only requirements are to qualify for in-house financing are a down payment and a verifiable proof of income.
Cons of in-housing financing:
- Shorter loan terms. You only have 5 years or less to pay off your loan, usually, the total of the property is 80 percent plus interest in a short period of time.
- Higher interest rates. Developers charge is way above the usual range offered by banks with an average of 14% to 18% interest rates, which are higher than the 5.25% to 11% range of bank loans.
- Limited property choices. Not all properties by a developer can be purchased through in-house financing. Many developers do not offer to finance for ready-to-occupy properties.
This type is ideal for:
- People who can afford the high mortgages and can pay the loan off in a short period
- People with no or poor credit history, including those with denied loan application from banks
- Government lenders and
- Buyers who want to move to a new home quickly
2. Bank loans
In Bank loans, you as homebuyers can borrow at least Php 300,000 up to 80% of the property value from banks that will provide you a housing loan in the Philippines. Bank loans require a collateral, which is the home to be purchased. The down payment usually ranges from 10 to 30 percent of the total property price. You can pay for this either in a single spot payment or in a series of installments.
This type is ideal for:
- Borrowers with good credit history and a stable, high-paying job
- Homebuyers who want flexibility in terms of loan repayment period, interest rates, and monthly amortizations
3. Government loans
The Philippine government provides affordable housing loans to low-income to middle-income Filipinos who want to buy a home. The Pag-IBIG Fund and Social Security System (SSS) are the two most popular agencies for government home loans.
Pros of government loans:
- Longest loan terms. Homebuyers who want to reduce their monthly amortization can choose to repay their Pag-IBIG or SSS loan for up to 30 years.
- Lower interest rates. Government agencies charge interest rates that are comparable to those of bank loans. Pag-IBIG housing loan interest rates range from 5.5% (1-year fixed period) to 10% (30 years). Interest rates for SSS housing loans range from 8% to 11%.
- Affordable home financing. The long repayment periods and low-interest rates make government loans a great choice for Filipinos with modest income.
Cons of government loans:
- Exclusive for active members. To qualify, a homebuyer who considers getting a government housing loan needs to be a Pag-IBIG or SSS member.
- Monthly contribution requirement. For Pag-IBIG housing loan, members need to have paid 24 consecutive monthly contributions. SSS housing loan requires payment of 24 consecutive or 36 non-consecutive monthly contributions.
This type is ideal for:
- Pag-IBIG and SSS members who are up-to-date with their monthly contributions
- Minimum wage earners
- Overseas Filipino workers (for SSS housing loan)
- Homebuyers who are looking for low monthly amortizations
The Home Development Mutual Fund, more commonly known as PAG-IBIG, has been one of the usual options of Filipinos when looking for an affordable home loan. One of there objective is to provide low-cost and socialized house and lot packages/condominium units either for rent or for sale to low-income Pag-IBIG members who cannot afford the housing packages available in the market.
(2018) UPDATED: How to Apply for PAG-IBIG Housing Loan
Here’s everything you need to know about the PAG-IBIG housing loan in the Philippines, from the list of documents you must submit to the application process that you need to undergo.
ABOUT SSS :
Before applying, individuals must first meet the following eligibility and document requirements:
Each bank has its own processes in getting a home loan. Here are some lists of Eligibility Requirement must a home loan borrower should do.
Generally, most banks require that home loan borrowers be at least 21 years old, but not exceeding 65 years old upon loan maturity.
If you are interested in purchasing a property through loan financing you must be at least 2 years duly employed. If you are self-employed, at least 2 consecutive successful and profitable years of operation and submit more information regarding your taxes, income, and profits, as well as business permits and other related documents.
Banks also require borrowers to earn a specified minimum monthly income to ensure their borrowers’ capacity to pay. Depending on which bank you borrow from, this could be your individual earnings, but is often the gross monthly income of your household.
All Filipino citizens are eligible to borrow housing loans from banks in the Philippines, but foreign borrowers, or Filipinos who are no longer citizens of the country, would have to look into financial institutions that can lead to an international clientele.
Types of Documents that Home Loan Applicants must Prepare:
1. Completed application form
Make sure that the form given by the bank is properly filled out. Be careful in writing names, be sure to double check the spelling of your name, contact number, address, and other personal details. Avoid necessary erasures, and most especially write the words properly. For more convenience, some local banks allow you to accomplish an application form online or download a copy and submit it to the branch near you.
2. Proof of income documents
To be able to properly assess your loan application and to approve the loan amount you’re asking for, Income Verification is the basis for that you as the borrower has the capacity to make a long-term financial commitment.
This means establishing your current employment status (whether you’re employed by a company or a self-employed individual) and determining the regularity of your cash flow based on your income.
Here are some of the typical proofs of income asked by lenders:
If you are locally employed, you should submit the following:
- Latest Income Tax Return (ITR)
- Latest 3 months pay slips
- Certificate of Employment (COE) with salary breakdown
- Latest 3-6 months bank statements
- If you are an Overseas Filipino Worker (OFW), you should submit:
- Latest 3 months proof of remittance/pay slips
- Latest 3 months bank statement
- COE with compensation
- Latest Crew Contract (for seafarer/seaman) or Employment Contract (for land-based OFWs)
- Copy of Special Power of Attorney (SPA)
For self-employed, you should submit the following:
- Certificate of Business Registration with Department of Trade and Industry (DTI) or Securities and Exchange Commission (SEC)
- Two-year Audited Financial Statements
- Latest 1701 ITR
- Latest 3 months bank statements
- At least three trade references: List of suppliers and customers or affiliated hospitals/clinics with addresses/schedules (for doctors)
- Latest 6 months bank statements
- Lease Contracts and a copy of the title (TCT/CCT) for rental income
For foreigners with a Filipino spouse, you may submit:
- Photocopy of either the Alien Certificate Registration (ACR), Alien Employment Permit (AEP), or VISA ID
3. Identification cards
When providing identification cards (ID), two valid government-issued IDs are required with photocopies. The IDs must not be expired and one must have a photo of the applicant and your signature.
Listed below are the general list of acceptable IDs in the Philippines as per Bangko Sentral ng Pilipinas (BSP) for financial transactions:
- Driver’s License
- Professional Regulation Commission (PRC) ID
- Postal ID
- National Bureau of Investigation (NBI) Clearance
- Police Clearance
- Government Service Insurance System (GSIS) e-Card
- Digitalized Social Security System (SSS) Card
- Senior Citizen Card
- Digitalized Bureau of Internal Revenue ID
For those employed abroad, they can submit the following:
- Overseas Workers Welfare Administration (OWWA) ID
- OFW ID
Seaman’s Book Other types of acceptable IDs:
- Alien Certification of Registration/Immigrant Certificate of Registration
- Government Office and GOCC ID, e.g. Armed forces of the Philippines (AFP ID), Home Development Mutual Fund (HDMF ID)
- Certification from the National Council for the Welfare of Disabled Persons (NCWDP)
- Department of Social Welfare and Development (DSWD) Certification
- Integrated Bar of the Philippines (IBP) ID
- Other company IDs registered with or supervised or regulated either by the BSP, SEC Or IC
Collateral requirements differ if you’re getting a loan from your lender to buy a home with an accredited project developer or not.
If you are searching for a home loan to buy a property from an accredited developer, you need to submit the following documents. The documents should state the condominium for sale’s description and purchase price. Some of the most commonly required documents have been detailed below.
- Contract to Sell
- Reservation Agreement
- Endorsement letter
For those who are purchasing a real estate property from a developer who is not accredited by your lender, you should provide the copy of the following:
- Collateral title (Transfer Certificate Title for the house)
- and Lot or Certificate Condominium Title for the condominium.
5. Supplementary documents
These are additional documents you need to submit, depending on your circumstances.
For married applicants:
- Clear copy of your National Statistics Office-issued marriage certificate
- If you are just newly married, you can go to the office of the city hall where your marriage contract has been registered and filed to ask for a civil registrar copy.
For housing loans with a co-borrower:
- Submit your co borrower’s proof of income, identification, and other required documents.
Here are the rates from the respective banks’ websites as 2018
BPI Housing Loan
BDO Housing Loan
PNB Housing Loan
PS Bank Home Loan
PAGIBIG Housing Loan Rate
CHINA BANK Housing Loan
HSBC Housing Loan
Security Bank Home Loan
EastWest Bank Home Loan
RCBC Savings Bank Housing Loan