How to Afford a Home Loan

Applying for a home loan is easy and affordable with a number of lenders in the Philippines. To expedite your loan application, understanding the process and what is required should make it easy and hassle-free.

Although banks have varied requirements with some requiring more documents than others, there is a general list of requirements that has to be presented which is applicable to all lenders. The bank requires a list of borrower’s information which are as follows:

Government Issued ID

Government-issued photo-bearing Identification cards need to be presented. It can be any two–to-three of the following:

  • Passport
  • Driver’s License
  • Unified Multi-purpose ID
  • SSS/ GSIS ID
  • Professional Regulation Commission (PRC) License
  • Tax Identification Number (TIN) ID
  • Postal ID
  • NBI Clearance
  • Police Clearance
  • Consular ID
  • Home Development Mutual Fund (HDMF) ID
  • Armed Forces of the Philippines (AFP) ID
  • Permit to Carry Firearms
  • Seaman’s Book
  • Alien Certificate of Registration
  • Senior Citizen’s ID Card
  • Philippine Overseas Employment Association (POEA) ID
  • OFW ID

Proof of Income and Tax Records

For employees or professionals:

  • Minimum of 3 months original payslip and/or Latest Income Tax Return with BIR or Bank stamp (BIR Form 2316)
  • Certification of employment and compensation – to ensure faster processing, the certificate should include your annual gross income and the date of employment. It should also specifically state that the reason for the request is for a home loan application.

For self-employed individuals. The above plus the below is required:

  • Audited Financial Statement for the last three (3) years
  • Latest Income Tax Return (BIR Form 1700 / 1701)
  • DTI Business Permit or SEC Registration

For overseas workers, the Philippine Government issued I.Ds from above are required plus:

  • Agency based: POEA contract or Employment contract with boarding date
    Direct hire: POEA OFW Information Sheet or POEA Overseas Employment Certificate
  • Work Contract

Salary Requirements

Most banks require around PhP 30,000 to PhP 50,000 monthly income to be eligible for a housing loan.  Metrobank requires a minimum income of PhP 30,000 for the gross monthly income. BPI on the other hand requires a minimum gross monthly income of PhP 50,000. This applies both to employees and self-employed applicants. However, businesses should have been operating continuously for generally three or more years, before becoming eligible.

Legal Status Requirements

Married individuals should provide a copy of the marriage contract. If annulled, a copy of the court decision annulment and the certificate of finality of decision and if legally separated, a copy of the court decision on legal separation and the certificate of finality of decision.

Collateral Requirements

Collateral requirements are generally required upon approval of the loan and pertain to property documents. Depending on the reason for the loan (purchase, refinancing, construction), different collateral requirements should be provided. This may differ from lender to lender, and additional documents may have to be provided.

  • Lot Plan or Vicinity Map
  • Endorsement letter or computation sheet or contract to sell
  • Photocopies of tax documents like receipts, clearances and declarations
  • Floor and Building Plan and Building Specification
  • Building Permit
  • Bill of Materials and Estimate of Construction and Labor Costs
  • Proof of Amortization payment – the number of months may vary but is at least for 3 months
  • Statement of Account from Home Loan Lender

Upon inquiry for a home loan application, you should be provided with the specific documents that you should submit to your chosen lender. It would also be good to shop around and compare the different offerings available in the market. Making an informed decision especially regarding your finances makes the process quick and easy. You can also ask for opinion from previous borrowers for referral especially if they had a good experience.

Home Loan Fees Explained

Purchasing your dream home or renovating your current one is one of the many goals that you may have. However, understanding the fees that come with it keeps you from committing to a loan amount that is beyond your targeted budget. To keep surprises at bay, here are the common home loan fees that you can expect:

Appraisal Fee

Upon application, identifying the amount of loan that can be granted to you by the lender and the interest rate that will be applied to the loan is important. This requires the services of an appraising officer that will survey the neighborhood, land valuation and foresee the property’s resale potential in case of remortgage or foreclosure. BDO’s appraisal fee for example is at PhP 3,500 and PhP 4,000 for Metro Manila and outside, respectively. PNB on the other hand has its appraisal fee at a non-refundable minimum of PhP 3,500.

Mortgage Registration Fees

Once the loan is granted, the Land Registration Authority requires Mortgage Registration Fees to be settled upon transfer or purchase of the parcel of land. The rate varies depending on the appraised value of the property.

Handling/Processing and Notarial Fees

BDO’s Handling Fee is at PhP 5,000 while Notarial Fees are at PhP 500. As the name suggests, Handling and Notarial Fees cover fees to process the requirements, legal and otherwise. Handling fees would usually cover only those required by the bank – anything else outside of their jurisdiction may have to be accomplished by the borrower.

Interest Rate

The applicable interest rate differs depending on the fixing period or tenor set upon application. This will of course be determined by your financial status and lifestyle. PNB has a minimum term of one (1) year up to a maximum term of twenty (20) years, same as BDO. BDO’s rate ranges from 7.75% to 11.50% while PNB’s welcome interest rates range from 5.25% to 11.00%.

Documentary Stamp Tax

As defined by the Bureau of Internal Revenue, Documentary Stamp Tax is “a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.” Tax Rates vary depending on the sold or transferred property. Check out the BIR website for the full schedule of fees and conditions.

Mortgage Redemption Insurance

In case of the borrower’s death within the mortgage payment period, the Mortgage Redemption Insurance covers for the unpaid mortgage payments.

The amount varies depending on the appraised value of the property. The amount for borrowers aged 50 and above are usually a bit higher than those from 49 and younger.

Fire Insurance

Fire insurance covers for expenses in case of fire and other calamities. For BDO, it is purely labeled as Fire Insurance while PNB includes other calamities such as earthquakes and other natural disasters. For construction projects, BDO also has the Contractor’s All Risk Insurance which is automatically converted to Fire Insurance upon project completion. They also have Master Fire Policy available for condominiums.

Once you have put these fees into consideration, ensure that all the information that you have gathered is correct and complete. Exact information about taxes and fees may be identified by the bank as soon as an appraised amount is determined. It would also be advisable to request for  a complete and updated schedule of fees from your bank representative to avoid loan processing delays and unwanted surprises. While the details discussed in this article are checked and researched at the time of writing this article, you as the borrower need to complete your own research and check the details of contract you are entering into.

Buying a New Condo Off the Plan

In recent years, the condo development industry is absolutely booming in Manila. We have the biggest names in business competing to build the next beautiful village of apartments. From SM Residences to Ayala, add in DCMI to the mix and we have three biggest players in the market place. With the speed these condo towers and blocks are constructed, the interest in buying new homes ‘off the plan’ is growing and being fulfilled increasingly each year.

Buying off the plan means that you are buying a new condo/townhouse/home that has not yet been constructed. The ‘plans’ for the construction has been completed and (hopefully) approved by the local government department, but there is no physical building yet. You are therefore buying the home after seeing the plans and maybe a display unit only.

Like and real estate transaction, there are always positives and negatives to every situation when buying a new home or investment property. Is buying a condo off the plan the right thing for your situation? Here are some questions to consider and help you with the process.

  • Is the builder you are buying the property from a reputable one? Have they built and delivered the same size projects in the past? In other words; “are you confident that they will deliver the final product?”.
  • Are you able to wait until the completion date for your new home? Please note, consider if the project is delayed by 6 months, will you still be able to wait? If any delay in the construction cause you stress or other problems, maybe buying an existing property is a better idea. Delays may not be the fault even of the builder, consider the possibility of typhoon damage, flooding, or material delays from a supplier.
  • Is buying a complete building going to stress your finances and budget? Often, buying a condo off the plan is cheaper in the short term.
  • Do you meet the finance providers requirements for buying off the plan? This may be the developer or the partner bank who is lending the money to finance the purchase.

One of the biggest advantages to buying a condo off the plan is this; assuming that the real estate market in Manila remains stable and continues to grow in value (no guarantees of this anywhere in the world!), you are likely playing ‘this years prices’ for ‘next years condos’. As we know generally, the value of a property increases overtime. Therefore, purchasing a condo off the plan allows you to secure a property at the current market value. When the project is complete maybe in 1-3 years time, the average price for a similar condo in the same area should have increased.

There is no guarantee that can be made with property prices and investment advice. Always remember, if there was a guaranteed way to increase the value of your investment and become rich…. everyone would be rich today.

To view some condos that are available for ‘off the plan’ purchase visit these links of major developers in the Philippines:

http://www.dmcihomes.com/projects.php

http://www.ayalaland.com.ph/

Want to Read More About Availing a Home Loan?

Read these recent articles below..

Applying for a home loan is easy and affordable with a number of lenders in the Philippines. To expedite your loan application, understanding the process and what is required should make it easy a...