Beginner’s Guide to Housing Loans

by Katrina Guevarra, on category "Loans"

January 26, 2018


Beginner's Guide to Housing Loan | MoneyMax.ph

Many dream about owning their own home. However, buying a house/property in the Philippines can be quite expensive. In fact Bangko Sentral ng Pilipinas reported that property prices increased by 1.8 percent in the third quarter of 2017. With property prices rising, it is good that one can easily file for a housing loan which allow people to fund their new home.

But first, what is a housing loan and what does it cover? Basically a housing loan is a financing facility that provides funding for the following:

Types of Housing Loans

There are two types of housing loans in the Philippines: conventional and flexible. Borrowers can choose from either of the two depending on the terms they prefer:

  • Conventional – Under this type of loan, one is expected to make fixed payment over a particular duration. This type of housing loan is ideal for someone who’s looking for a predictable payment scheme that he can plan ahead for.
  • Flexible – this type of loan on the other hand, are often available in banks. Through this repayment scheme, one can control the interest rate depending on how much he/she will deposit. The borrower can also start principal repayment anytime.

Who are eligible to apply for a housing loan? 

If you intend to apply for a housing loan in the Philippines, you must observe the following:

  • You must be between 21 to 65 years old upon loan maturity.
  • You must be a resident of the Philippines.
  • If you are an OFW, you must provide a special power of attorney and possibly, your contract or certificate of employment (COE), approved by the POEA (Philippine Overseas Employment Administration).
  • If you are a foreigner, there are banks who may allow you to avail of a housing loan, but you must meet VISA requirement and would have to submit Alien Certificate of Registration.

How will my housing loan eligibility be evaluated?

There are two ways you can apply for a housing loan in the Philippines: either with banks or with Pag-IBIG. Keep in mind though that you have to be a member of Pag-IBIG to apply for a home loan with them. When you apply for a housing loan, your chosen lender will evaluate your ability to pay off the amount you borrow based on the following:

Income

One’s loan entitlement is dependent to his or her income. Banks are more inclined to look into the borrower’s credit standing and income stability before granting him/her a loan.

Pag-IBIG on the other hand considers how large your contribution is and the net disposable income.

Age

Lenders will typically base the maximum length of term of the borrower’s housing loan on his or her age. For instance, if you’re already 45, you will not be allowed to get a 30-year Pag-IBIG loan because one is required to complete paying off the amortization before turning the age of 65. However, an exception can be made if the borrower can find a company to insure him beyond 65.

Spouse’s income

If you’re applying for a housing loan jointly with your husband, then your spouse’s income will be evaluated as well.

Number of dependents

Lenders can also base your ability to pay off a loan on the number of dependents you have.

Stability and continuity of occupation

Typically, a borrower must be employed for at least 2 years when applying for a housing loan. If you’re a business owner or self-employed, your housing loan can still get approved. The lenders might just ask you to submit more requirements like information about your taxes, profits, income, business permits, and other important documents.

Loan amount

On average, banks allow a minimum loan of P800,000. However, this can vary depending on the location of the property you are looking into buying with projects outside Metro Manila resulting to a lesser loan amount.

Pag-IBIG grants a loan amount of Php 100,000-Php 3,000,00. However, certain conditions like capacity to pay, actual need for funds, and capacity to pay allows other to make multiple loans.

Credit history

Your credit history will also be a basis of evaluating your eligibility. This serves as a record of responsible repayment of debts. It is created through collating data from various sources like government agencies, banks, collection agencies, and credit card companies. Banks consider it as a crucial criteria in approving your housing loan.

If you don’t have any credit history yet, you can build yours by getting a credit card from the same bank you intend to borrow from. Then use the card regularly and pay your bills on time. As you build good credit history, you’ll get to prove that you have a stable source of income, know how to manage expenses, and can pay dues on time.

How can one apply for a joint housing loan? 

Yes. If you are married, you and your spouse can apply for a housing loan together. They will evaluate both of you according to your combined gross family income.  This will allow you to borrow more.

If you are single, you can also apply jointly with a co-borrower who will be equally responsible for repaying the loan. Note that you and whoever your chosen co-borrower will be would have to undergo the standard loan application evaluation process.

Important aspects of a housing loan

  • Monthly Payment – You must have sufficient income to get the loan approval. You should have a monthly income that is three times more your monthly payment. 
  • Down Payment – It is the amount of money you pay upfront when purchasing a home. Your down payment influences the home price you can afford, as generally the banks in the Philippines require at least 20% of the appraisal value of the property as a down payment.
  • Types of interest rate – You can choose between fixed-rate and variable-rate terms. The former is a good option for those who prefer consistent monthly payments, enjoy its predictability, and have a personal budget to follow. While the latter has interest rates that varies as market interest rates change.
  • Loan Tenure – The total interest paid is directly proportional to the loan tenure. The higher the tenure, the higher the total interest paid, and vice-versa.

Reasons for Being Denied for a Housing Loan

Your housing loan application can get rejected due to several factors such as:

  • Lenders/banks not being convinced you have the ability to pay off the amount you borrow. This is usually based on your income, number of dependents, stability and continuity of occupation, and credit standing.
  • Not meeting the qualification criteria such as the age requirement of being between 21 to 65 year old.
  • Failing to provide the necessary documentation
  • Issues regarding the amount you applied for

Banks typically provide details to borrowers as to why a loan was rejected. Depending on the reason why, you could consider the following options: applying for a different or more affordable property, considering a lender who is little  less stringent in terms of approving applications, or getting a PAG-Ibig loan instead. Alternatively, you can consider borrowing with a co-signer or a co-borrower.

Housing Loan Terms and Interest Rates

Different banks have different loan terms, and these terms can vary based on the location and nature of the house or property being bought. Unionbank for example has a different maximum loan term for OFWs compared to that for Philippine residents.  For your reference, here are the terms and interest rates NCR’s most popular banks offer:

Banco de Oro (BDO)

  • Php500,000 minimum loan
  • Maximum of  20 years to repay
  • 5.50 percent interest rate.

Metrobank

  • Php500,000 minimum loan
  • Maximum of 25 years to repay
  • Depending on the prevailing market rates at the time the loan is released

Bank of the Philippine Islands (BPI)

  • Php400,000 minimum loan
  • Maximum of 25 years to repay for house and lot
  • Up to 10 years to repay for vacant lot, residential condominium, business loan, refinancing,or multi-purpose loans
  • 5.25 percent interest rate.

Philippine National Bank (PNB)

  • Php750,000 minimum loan
  • Maximum of 10 years to repay for lot purchase/home improvement
  • Maximum of 20 years for purchase of house & lot, townhouse, condominium unit & house construction
  • 5.75 percent interest rate.

Security Bank

  • Php1 million minimum loan
  • Maximum of 20 years to repay
  • 5.25 percent interest rate

Rizal Commercial Banking Corp. (RCBC)

  • Php1,000,000 for acquisition of property, Php300,000 for other purposes
  • Maximum of 20 years to repay
  • Prevailing rate at the time of the loan release

Chinabank

  • Php500,000 minimum loan
  • Maximum of 25 years to repay for a house and lot
  • 15 years to repay for vacant lots
  • 10 years to pay for condominium units
  • 7.5 percent interest rate

Unionbank

  • Php500,000 minimum loan
  • Maximum of 20 years to repay for locally employed
  • Maximum of 15 years to repay for OFWs
  • 6.50 percent interest rate.

As of January 25 2018

As for Pag-IBIG, they have an interest rate of 5.500%. For more details, check out the Pag-IBIG website.

Identification Requirements

Generally, all banks require that you submit a completed application for along with two valid IDs. After which each bank have different requirements you’ll have to comply with.

For home loans under Pag-IBIG, you will have to submit a Pag-IBIG Housing Loan Application Form (PHLAF) and a Membership Status Verification Slip (MSVS). You’ll also have pay a processing fee of Php 1,000 along with your requirements. Here are the other identification requirements you’ll need to submit:

  • Authorization to conduct background check
  • Photocopy of valid photo-bearing ID (principal, co-borrower, and spouses of borrowers)
  • Proof of income (payslip, income tax return, POEA employment contract, etc.)

For more details, check out How to Apply for a Pag-IBIG Housing Loan.

Housing Loan Processing Periods

Different banks have different loan processing periods. Some banks like BDO process loans as fast as 5 working days. While others, like Metrobank, take as long as 15 days. Below is the list of loan processing periods of major banks:

  • Security Bank – 5 working days
  • BDO – 5 working days
  • Chinabank – 7-10 days
  • RCBC – 10 days
  • PNB – 10 days
  • Unionbank – 10 days
  • Landbank – 15 working days
  • Metrobank – up to 15 working days

Pag-IBIG on the other hand can approve loans in 17 days. The borrower can claim the proceeds of the loan, three days after post-approval compliance.