Home Loans in the Philippines – The Complete Guide to Property Loans
Are you ready for a huge financial commitment this year?
This guide will help you navigate the process of acquiring a home loan in the Philippines.
The type of property, location, income, principal amount, and tenure of your loan are significant factors to consider. There are also questions you need to ask yourself – for example, are you considering a two-storey duplex in the province or a condo unit in Metro Manila? How much is your gross annual income? Are you willing to pay your mortgage for 10 to 25 years? Do you have savings and emergency funds to cover unexpected expenses and delays?
These questions are worth pondering before committing to anything. If you have an idea of what you want and you’re relatively secure in your financial position, let’s get started!
Types of Home Loans in the Philippines
It’s a dream of every Filipino family to buy a home. The great news is that you can apply for home loans depending on your ability to pay and the amount you need.
Your quest to fulfill your family’s dream should start from being a wise financial steward through assessment of your priorities in finances and reviewing the types of loans that you think you can commit to in the long-term.
#1 Bank financing (lower interest rates, but stringent on requirements)
Borrowing money from commercial banks is one of the most popular home loans among Filipinos. Bank financing in the Philippines offers lower interest rates than third-party financing companies and more flexible terms. Banks offer about 4.99 to 8 percent with fixed rate terms of 1,2,3,5,10 years which are payable from 5 to 25 years.
However, the downside is that most banks have stringent requirements for applicants. So, it’s important you’re qualified as a principal borrower. Having a good credit history is a plus and you often need collateral in order to borrow between 60 to 80 percent of the principal amount. Therefore you need to prove you have a stable income, a job, or a thriving business.
#2 In-house financing (higher interest rates, lenient on requirements)
You can also take a look at in-house financing, depending on the terms and rates of the property developer from which you want to buy your home. In this option, you can pay in installments and you have flexible terms that can fit your financial status and ability to pay.
An in-house financing scheme has more lenient requirements compared with banks. You’re likely to get approved and the processing of paperwork is less of a nuisance when it comes to background checks. The downside is that you’d be paying higher interest rates (up to 18 percent).
You’re likely to get approved but just be careful on the terms, as you’re in it for the long haul.
#3 PAG-IBIG Fund (slightly higher than banks’ rates, suitable for employed and active members with monthly contributions)
If you’re employed and an active contributor at PAG-IBIG, you can apply for the government’s home fund program whether you want to buy a brand new house, condo unit, or pre-owned house.
The maximum amount of loan you can borrow as a PAG-IBIG member is up to P6M, but also subject to terms and conditions. The amount you can borrow also depends on the actual principal amount you need, financial capacity, and your monthly contribution.
The interest rates are slightly higher than banks but lower than the in-house financing, ranging from 5.5 to 10 percent as of the time of this writing. The terms of the loan can be up to 30 years.
#4 SSS (higher than banks’ rates, suitable for employed and active members with monthly contributions)
The government’s social insurance program, Social Security System (SSS) for employed Filipinos also offers home loans but specifically for overseas Filipino workers. SSS aims to provide low-cost housing and also loans for home construction.
The interest rates are almost the same as PAG-IBIG, but ranging from 8 to 11 percent. As a member, you can loan up to P2 million at a maximum of 30 years.
Home Loan Terms That You Should Know
If you have decided which of the home loans above to avail, there are some key terms you need to know to understand how things work.
Principal – the total amount you want to borrow on any home loan mentioned above. If you make monthly payments based on a fixed rate loan at a bank, you can reduce the principal amount.
Down payment – the upfront payment that a buyer (you) pays to buy a home. Typical down payment is around 20 to 30 percent.
Loan tenure – the length of time, which could be months or years, to pay the home loan. If the approved mortgage has a tenure of 15 years, it means it will take you 15 years to fully pay your home. Generally, home loans are available up to 20 years. The longer the tenure, the higher you pay interest rates.
Interest rate – the rate charged by the lender for your loan, which is displayed on a yearly basis. It’s also known as the APR or annual percentage rate.
Refinancing – you pay-off your existing loan in full and avail a new loan that has lower interest rates.
Fixed rate – for fixed rate loans, the rate remains constant during the entire tenure of the loan. Banks offer fixed-rate loans where you are locked-in for low rates and you are spared from the fluctuating rates depending on the years agreed. You can have a fixed rate of 3 to 5 years, but it also varies depending on the banks’ discretion and assessment of the home loan application.
Pre-payment – you pay off your loan, whether partially or fully before the tenure ends. Partial payments can lower your monthly amortisation but some banks have fees or penalty for pre-payments, so better read the contract first.
Foreclosure – when you are inconsistent in paying your loan, the bank can repossess your property and this will happen. The bank then will try to sell your home so you can settle the outstanding balance of your loan.
Collateral – an asset which you can pledge to the lender as a security for your home loan. The banks, for example, can ask for collateral of your land title if you’re borrowing money for home improvement. In case of a foreclosure, the bank has the right to sell the land and claim a legal right.
How to Qualify for a Home Loan in the Philippines?
The chances of getting a home loan application approved in the Philippines is based on the above-mentioned factors. Your income bracket and your financial capability and stability will always be the top qualifications of banks and lending institutions.
Generally, to acquire a home or housing loan in the Philippines, you should have completed or organised:
For commercial banks
Home loan application form
2 valid IDs (confirm with your banks the list of acceptable IDs)
If married, both spouses must fill out the form
If single, with a co-borrower or co-mortgagor – fill out the separate application forms
At least 21 years old but not older than 65 years old upon the loan’s maturity
Requirements for employed and self-employed
A regular employee of a company of at least two years
For self-employed, the business must be legally operating for at least two years
Requirements on financial documents
Certificate of Employment (COE) from the company
Latest ITRs (Income Tax Return) for the last two years
Proof of remittance for the past 3-6 months for OFWs
Audited Financial Statements for the last two years
DTI Registration (for Single Proprietorship and Partnership)
Articles of Incorporation and By-Laws with SEC Registration Certificate (for Corporations)
Income Tax Returns with Statement of Assets and Liabilities (SAL) for the last two years
Trade List References (at least 3 major clients or suppliers with telephone numbers)
Bank Statements for the past 6 months
TCT (Transfer Certificate of Title)/Condominium Certificate of Title CCT)
Vicinity Maps/House Plans/Bill of Materials
Marriage contract if borrowers are married
In-house financing requirements are a bit lenient for housing loan applicants. The typical requirements are almost the same as employed and self-employed listed above. On the other hand, you may also visit SSS and PAG-IBIG for home loans requirements.
Government subsidized housing loans may require more documents to validate your qualifications.