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Buying a home is both a dream and a struggle, especially when it comes to financing it. In this article, we list down four financing options for you to get closer to your dream house.
So you’ve decided what type of property would make your perfect family home—a roof that will give your children both comfort and security. What’s next? Financing it. But buying a house or condo is not easy, especially with limited financial circumstances. Fortunately, with the right information and careful planning, it is never impossible.
When buying your dream house, it is important to know how you want to finance it.
Probably the most common way to finance a house is through a housing loan. Housing loans, referred to as mortgages, is the most common financing option for families who don’t have enough savings to purchase their desired property. There are multiple ways to obtain housing loans.
Housing loan terms
To better understand housing loans, here are some words that you will most likely encounter when approaching a potential lender:
- Principal: This refers to the total amount that your lender has loaned you.
- Interest rate: This is the rate that the lender charges you borrowing money, and is usually charged annually (annual percentage rate).
- Loan tenure: This is the length of time that is expected for you to repay the entire loan. It could be in “months” or “years”.
- Down payment: This refers to the initial amount or upfront payment that you make for the house. In the Philippines, down payment is usually around 10–20% of the actual selling price.
- Prepayment: This is when you pay off the loan partially or fully before the agreed due date. If you plan for prepayment, make sure to read the contract first because some banks may charge penalty fees.
- Refinancing: Mortgage refinancing happens when you pay off the loan with a new loan that has lower interest rates.
- Foreclosure: When you fail to pay your mortgages, probably due to loss of a job or medical confinement, your house may be taken away by the bank and sold to another homebuyer in order to pay your remaining balance.
How do housing loans work?
Getting a housing loan means entering into a legal contract with a lender (financial institution) who will lend you money with the promise of payment within a specified period of time.
In the Philippines, there are two ways to obtain a housing loan: public and private. Public loans are obtained mainly through PAG-IBIG Fund, while private loans are usually provided by banks, cooperatives, and other private organizations. The interest rates vary per organization.
To repay the loan, you will pay a monthly amortization that you and the lender have agreed on until you have fully paid both the principal and interest. The interest rate is often calculated based on your monthly balance. This means that your interest charges gradually decrease as time passes.
To help you decide which financing scheme would best suit your goals and purpose, Lamudi has listed three housing loan options for you to consider.
Banks offer housing loans to borrowers for the purpose of constructing, purchasing, refinancing or improving a house. Banks offer varying interest rates. They also have very strict requirements and conduct thorough investigations, which can make the process a little more complicated. Since large sums of money are provided in housing loans, banks usually hold the house as a form of collateral until the loan is paid off.
As mentioned, housing loan requirements vary per bank. But in general, the following are included:
- duly accomplished application form
- photocopy of 2 valid government IDs
- proof of income (pay slip, ITR, POEA employment contract, etc.).
The minimum loan amount also varies from one bank to another. Some banks offer a minimum loan of Php 400,000 with an interest rate of 5.25% for a maximum of 25 years to repay, while others may offer a minimum loan of Php 1 million with an interest rate of 5.25% for a maximum of 20 years to repay. The time to process housing loans may take up to 5 to 15 business days. You may contact your nearest bank to inquire about their housing loan programs.
Among the banks that offer home, financing are BPI, BDO, Metrobank, Security Bank, PNB, RCBC, Chinabank, and Unionbank.
PAG-IBIG offers housing loan grants to their Fund members who wish to finance a residential property. The loan can be used for the purpose of (1) purchasing a residential lot not exceeding 1,000 square meters or residential properties such as a house and lot, townhouse, and condominium unit; (2) constructing or completing a residential property; or (3) improving or renovating your home. Loanable amounts vary based on your income and the loan program you wish to avail. It could be as low as Php 750,000 or Php 6 million.
PAG-IBIG offers lower rates compared to bank loans. Low-income earners may be charged with as low as 3% interest rate, while regular income earners can be charged with a 5.375% interest rate. Compared to banks, which don’t have any ceiling on interest rates, PAG-IBIG is not allowed by law to increase the interest to more than 2% per year.
With regards to loan term, PAG-IBIG offers a maximum loan period of 30 years, compared to banks which offer up to 20 to 25 years.
General requirements for PAG-IBIG loans are as follows:
- processing fee and appraisal fee
- duly accomplished application form
- proof of income
- photocopy of one valid ID
- latest Certified True Copy of the Transfer Certificate of Title (TCT)
- photocopies of the updated Tax Declaration (house and lot) and Real Estate Tax Receipt
- vicinity map or sketch of the residential unit.
If you don’t want to have a bank or public loans, you may want to consider in-house financing. In this type of financing, the real estate developer allows the homebuyer to acquire one of their residential units on a loan, with flexible payment schemes. Unlike bank loans, in-house financing does not involve third-party financial sectors, which is more convenient for the homebuyer. To be eligible for in-house financing, you only need to pay a down payment of around 10–30% of the selling price and provide proof of income.
However, compared to bank financing, in-house financing has a shorter loan term of five years or less. This means a higher monthly amortization. Another disadvantage of in-house financing is that you will have a limited option of residential units, depending on your income and the developer’s discretion.
Spot cash payment
If you don’t want to go through the uncertainty and anxiety of being in debt, the best way for you to purchase your home is through spot cash payment. Spot cash payment lets you pay the seller in cash within a short amount of time from the date of reservation (usually one month). There are various benefits in paying through spot cash, like discounts, fewer requirements, and the luxury of not worrying about debt and amortization payments.
This may be an impossible feat if you earn a very limited income. That is why, for newlyweds, it is best to plan your dream house first and start saving as early as possible.
Torn whether to get a condo or a house? Read our previous newlywed journal to get you started.