Housing Loan Guide in the Philippines

Owning a home is every Filipino’s dream. It is the ultimate security blanket. However, not all Filipinos are capable of a one-off payment. Most people resort to obtaining a housing loan since it is the only way to get hold of their dream home. A housing loan is 100% okay, but you need to understand the process before you dive right into it. This housing loan guide in the Philippines tackles what every future homeowner needs to know.

What is a housing loan?

A housing loan is a financial instrument used to fund any or a combination of the following purposes:

• Purchase of a residential house and lot or townhouse
• Purchase of a condominium unit
• Purchase of a fully developed lot
• Home improvement
• Renovation of an existing residential property
• Refinancing of an existing home loan

Who are eligible to apply?

Several factors affect the eligibility of a borrower including qualifications, income, age, credit standing, and employment. The financing institution needs to establish the stability and continuity of the borrower’s occupation. Other factors to consider are spouse’s income, number of dependents and assets and liabilities.

At its most basic, working or self-employed Filipino residents aged between 21 and 65 years old are eligible to apply for a housing loan.

Overseas Filipino workers (OFWs) may also apply for a loan with special documentary requirements such as a special power of attorney and POEA-approved (Philippine Overseas Employment Administration) contract and certificate of employment (COE).

What are the required documents?

Based on the above, the institutions shall seek the following documents:

• Basic documents such as valid government IDs (passport, driver’s license, SSS, postal, etc.)
• Income documents such as COE with salary breakdown, income tax return (ITR) or W2 and latest payslips (three months)
• Collateral documents such as transfer certificate of title (TCT), lot plan and Geodetic Engineer-certified vicinity map; condominium certificate of title (CCT) and Master Deed of Declaration of Restrictions for condominiums
• Supplementary documents such as bank statements (last three months), credit accounts or loan statements, court-ordered payments if there are any and credit report

How much can be borrowed?

It varies from bank to bank as well as the appraised value of the property. However, banks can provide up to 95% of the property’s assessed value; it’s the loan-to-value (LTV) ratio. Banks offer a minimum amount of Php500,000 although 5% down payment is required to minimize the risk of non-payments.

Pag-IBIG lends borrowers between Php600,000 and Php6,000,000 depending on the qualifications of the member.

What are the applicable interest rates?

In the Philippines, financial institutions offer conventional housing loans to the borrowers. These are home loans with a fixed interest rate so that the repayments will be predictable. It can be anywhere from 6.5 to 12%. It is fixed in the first year, first two or five years depending on the agreed period. After that period is exhausted, the interest rate will be repriced based on the prevailing market rate.

The interest rate is paid along with the equated monthly installment (EMI).

Housing loan options in the Philippines

Several factors may affect your decision to avail a housing loan. Regardless though, you have two options: Pag-IBIGor banking institutions

Pag-IBIG housing loan

Home Development Mutual Fund (HDMF) or simply Pag-IBIG provides a housing loan instrument for all its qualified members. Availing a Pag-IBIG housing loan is already discussed here wherein few prerequisites and processes are involved.

The PAG-IBIG housing loan is open for all salaried, self-employed and OFWs up to the age of 65 years old.

Banks housing loan

Majority of the banking institutions in the Philippines offer a housing loan. Other purposes may include the purchase of the lot or condo and construction of the physical property or renovation of an existing house.

How to apply for a housing loan

Before you may apply for a home loan in the Philippines, there are certain aspects to look at first.

Credit score

Applying for a loan with a low or poor credit score is a bad idea. If you learn that your credit score needs a cleanup, do it. Secure a copy of bank statements and credit card statements to determine if there are any late payments, defaults, etc. Scrutinize the reports to find opportunities to rebuild your credit score.

Do this before you even apply for a housing loan especially from a bank. Banks look into this detail. In fact, this is a critical determinant of the approval or rejection of the housing loan application.

While at it, it is not advisable to apply with multiple banks. It would be best to apply to the banks accredited by the developer. In some cases, the bank offers home loans to long-standing clients first. The loans often have exclusive benefits that you may take advantage of.

Loanable amount

Financing of the property is up to 95% of the TCP. Consider several factors including your qualifications. Determine first if this amount would suffice or you need a higher amount. In some cases, if it exceeds, bargain for a lower loanable amount for easier payback.

Ask what fees and charges will be deducted upfront to the amount to be loaned to you.

Interest rate

Low-interest rate must not be your primary measure in securing a home loan. Instead, check online comparison websites to determine you are getting the deal that you can truly afford. Remember that interest rate goes hand in hand with the loan term, which should be on top of your considerations too.

The most proactive thing to do is go for a housing loan with the longest fixed-rate period that you can treat as a threshold. This minimizes the risks of subjecting the mortgage to interest rate fluctuations. It also means a more positive cash flow for you for at least within that period because you know how much to pay for the equated monthly installments (EMIs).

Loan tenor

As mentioned above, housing loan term (or tenor) is the entire period wherein you need to pay the loan, interest charges applied. Pag-IBIG offers up to 30 years loan tenor.

For banking institutions, it generally varies although you have sole control over this area.You get to decide between 3 and 25 years.

There are pros and cons to both short and long-term housing loans. Monthly repayments are higher for short-term loans but with lower interest charges. With a long-term home loan, you get to spread the monthly payments, but you need to bear the higher interest charges.

Capacity to pay

The last statement brings us to this aspect – one’s ability to pay. Even Pag-IBIG advocates a loan entitlement that is limited to an amount not exceeding 40% of the net disposable income of the member. It means you are capable of paying an amount that is only 40% of your net monthly income.

To avoid defaulting on monthly amortizations, you may want to determine the amount you are capable of paying on a monthly basis. Work backward by calculating the 40% of your net disposable income before scouting a property that you want to avail under a housing loan. That’s the amount that you can comfortably pay throughout the loan term.

Mortgage insurance

For security, some banks require a mortgage redemption insurance (MRI) to cover the amount payable in case of disablement or death. Lenders provide this at the time of signing the loan contract, payable one time or on an annual basis.