Tips in Applying for a Housing Loan in the Philippines

One common mistake that borrowers often commit is focusing too much on looking hard for what their dream home and the area where they want to live in that they often fail to address the question of how much they can afford now and how much monthly payment their salary can accommodate.

Add to this the fact that there are additional costs in buying a home. The truth is, securing a housing loan in the Philippines is a rather complicated process, but definitely not impossible. There are ways for an easier application.

For example, when purchasing a house, the first thing you must do is to have yourself prequalified for mortgage. Simply put, a mortgage is a loan needed to buy a house. It only makes sense that you your money ready (at least on paper) before making an offer.

Prequalification is just a step most borrowers take to get an estimate of how much they will be able to borrow.

Then you also need to familiarize yourself with how housing loans and their corresponding interest rates function. There are actually two types: fixed-rate mortgages and adjustable-rate mortgages. The former is a type of loan in which the interest rate remains constant throughout the entire term, whereas the latter (also called a variable-rate mortgage) is a loan in which the interest rate changes depending on prevailing interest rate.

Arming yourself with useful information before getting a housing loan will make a huge impact on your future finances. After all, a housing loan, like a home purchase, is a huge financial burden that will stay with you for a very, very long time.

Hence, we come up with these tips to help you get ready.

1. Get Prequalified

Knowing your financial capacity is the first step to get prequalified for a housing loan. The usual questions that your bank or lender will ask include your assets, monthly income (or combined monthly income in the case of married couples), liabilities, and your projected down payment.

Your mortgage broker or loan officer can explain to you your options and let you know if you prequalify. Being prequalified, however, doesn’t mean that you have been pre-approved for a housing loan. Prequalification is just a step most borrowers take to get an estimate of how much they will be able to borrow.

2. Get Preapproved

An important step in the house-shopping process is getting pre-approved. You will be required to submit your most recent bank statements, employment information, proof of income, your latest income tax return, and other pertinent documents that your lender needs to verify whether you have sufficient income to pay off a housing loan.

If you qualify, you will receive a good faith estimate (GFE), which indicates the terms of the loan, type of loan, interest rate, and closing costs. Knowing your exact loan amount allows you to compare rates among lenders and spot those who overcharge.

3. Weigh Your Housing Loan Options

Comparing rates between financial institutions can be a challenge, but knowing which one has the most favorable one can make a huge difference. Three of the most common home financing options in the Philippines are in-house financing (from developers), bank financing, and Pag-IBIG housing loan.

In-house financing is a straightforward program usually offered by developers to buyers who wish to buy a house through a series of installments. There are no third-party lending institutions involved, which means that buyers only deal with one company. There are minimal documents required, but expect a bigger down payment and a higher interest rate compared to what other home loan sources offer.

Commercial banks have some of the most competitive interest rates in the market. Most offer flexible housing loan options, although there are some that require somewhat more strict or rigid conditions, such as higher income and down payment.

Depending on your immediate need for a loan, you may experience a delay in approval, which can take as long as 90 days. In addition, once you get approved the loan option is valid for up to 6 months, after which you need to submit your latest documents to get approved again.

Being a Pag-IBIG Fund member allows you to avail of their Pag-IBIG housing loan. With their program, you can purchase a residential house and lot, buy a fully developed lot not exceeding 1,000 sqm, have a residential unit constructed on a lot that you own, and purchase a townhouse or condominium unit that includes a parking slot.

4. Educate Yourself About Interest Rates

Housing loan interest rates in the Philippines are highly influenced by the key rates of Banko Sentral ng Pilipinas (BSP), which is now at 6 percent. Commercial banks usually will offer a slightly higher rate. For example, if you applied for a Php4 million loan with a tenor of 10 years (or 120 monthly payments) at 8.5 percent, expect a monthly amortization of Php49,594.28. Over the course of 10 years, you would have paid a total of Php5.95 million, Php1.95 million on interest.

So if you’re applying for a housing loan, consider all other expenses and not just the cost of your house. These include taxes, title transfer fees, and other expenses that you will end up having to pay for in return for acquiring your dream home.