House-hunting has never been easier with the use of different social media. But before you decide to make a purchase on your ideal house, you should carefully evaluate what your financing options are and how they compare to one another.
Very few homebuyers have sufficient cash to purchase a property and the majority decide to apply for housing loans. These are either provided by Pag-IBIG Fund, or other commercial banks affiliated to their chosen Real Estate Developer. However in recent years, real estate developers have also begun offering financing options as alternatives.
To help you weigh your options, we have created a comparative overview of bank loans and other forms of financing:
Very few homebuyers have sufficient cash to purchase a property and the majority decide to apply for housing loans. These are either provided by Pag-IBIG Fund, or other commercial banks affiliated to their chosen Real Estate Developer. However in recent years, real estate developers have also begun offering financing options as alternatives.
To help you weigh your options, we have created a comparative overview of bank loans and other forms of financing:
Bank Financing: Stringent Application, Lower Interest
It is important to note that prior to applying for a housing loan from a lender (a bank or any financing institution), you must first pay a reservation fee and a down payment. The down payment usually ranges from 10 to 30 percent of the total property price. You can pay for this either in a single spot payment or in a series of installments.
Once the down payment is paid, you can apply for a housing loan from a lender, who then pays the remaining balance on the property. The borrower is then obliged to pay the lender back monthly amortizations, which include interest.
Although the Pag-IBIG Fund charges slightly higher interest rates, it offers mortgages for up to 30 years, thereby diluting the repayment period.
Advantages
Monthly amortizations tend to be significantly lower, compared to in-house financing since the loan duration is longer and the interest rates lower (usually ranging from 5.75–12 percent per annum).
Interest rates may decrease down the road. Some bank loans have fixed rates from one to five years, after which they are re-assessed based on the prevailing interest rates. When the economy becomes more favorable, rates may decrease.
Because of an overall favorable economic climate, competition among banks is driving down interest rates, but you should always look at the fine print of housing loan agreements, as rates are subject to repricing after a set number of years. Be sure to inquire how many years the rates are fixed, as interest rates vary depending on the length of the fixed-rate period.
More qualifications need to be met. To be eligible for a housing loan, you must be a Filipino citizen (foreigners must have a valid visa) and at least 21 years old and not older than 65 upon loan maturity. If employed, you must be a regular employee for at least two years and earning a monthly income of at least Php30,000. If self-employed, you must prove that your business has been in operation, and profitably earning, for at least two to three years.
The amount of the loan depends on the appraised value of the property and the applicant’s paying capacity. Banks may lend up to 80 percent of the property value. Generally, the higher the borrower’s income, the higher the amount the bank is willing to lend.
In-house Financing: Simpler Application, Much Higher Interest
For buyers who want to pay for their properties in a series of installments without resorting to third-party institutions, real estate developers offer in-house financing.
These are not technically loans, but are extended payment terms with above average interest rates.
Advantages
Less rigid requirements and less paperwork. Most of the time, real estate developers require nothing more than the down payment and a verifiable proof of income to grant in-house financing. Therefore individuals who fear getting rejected by banks opt for in-house financing.
Quick processing. With little or no background check, the application is simple and straightforward.
Disadvantages
High and fixed interest rates. The rates offered by local developers are way above the usual range offered by banks, with an average of 14–18 percent per annum. Longer-term loans may even reach up to 22 percent. The interest rates of in-house financing tend to also be fixed.
Loan terms are shorter. Since the payment period rarely exceeds five years, you would have to pay your balance—usually 80 percent of the total property value, plus interest—in a short period of time.
In-house financing may be available only for pre-selling projects. Many developers do not offer financing for ready-to-occupy properties.
A huge purchase such as a home might be intimidating, even with the availability of different financing options. But the obligations it entails should not scare or discourage you. The sense of fulfillment and security offered by being a homeowner more than offsets the financial obligation. As with all things, careful planning will ease your worries and simplify the process.
It is important to note that prior to applying for a housing loan from a lender (a bank or any financing institution), you must first pay a reservation fee and a down payment. The down payment usually ranges from 10 to 30 percent of the total property price. You can pay for this either in a single spot payment or in a series of installments.
Once the down payment is paid, you can apply for a housing loan from a lender, who then pays the remaining balance on the property. The borrower is then obliged to pay the lender back monthly amortizations, which include interest.
Although the Pag-IBIG Fund charges slightly higher interest rates, it offers mortgages for up to 30 years, thereby diluting the repayment period.
Advantages
Monthly amortizations tend to be significantly lower, compared to in-house financing since the loan duration is longer and the interest rates lower (usually ranging from 5.75–12 percent per annum).
Interest rates may decrease down the road. Some bank loans have fixed rates from one to five years, after which they are re-assessed based on the prevailing interest rates. When the economy becomes more favorable, rates may decrease.
Because of an overall favorable economic climate, competition among banks is driving down interest rates, but you should always look at the fine print of housing loan agreements, as rates are subject to repricing after a set number of years. Be sure to inquire how many years the rates are fixed, as interest rates vary depending on the length of the fixed-rate period.
More qualifications need to be met. To be eligible for a housing loan, you must be a Filipino citizen (foreigners must have a valid visa) and at least 21 years old and not older than 65 upon loan maturity. If employed, you must be a regular employee for at least two years and earning a monthly income of at least Php30,000. If self-employed, you must prove that your business has been in operation, and profitably earning, for at least two to three years.
The amount of the loan depends on the appraised value of the property and the applicant’s paying capacity. Banks may lend up to 80 percent of the property value. Generally, the higher the borrower’s income, the higher the amount the bank is willing to lend.
In-house Financing: Simpler Application, Much Higher Interest
For buyers who want to pay for their properties in a series of installments without resorting to third-party institutions, real estate developers offer in-house financing.
These are not technically loans, but are extended payment terms with above average interest rates.
Advantages
Less rigid requirements and less paperwork. Most of the time, real estate developers require nothing more than the down payment and a verifiable proof of income to grant in-house financing. Therefore individuals who fear getting rejected by banks opt for in-house financing.
Quick processing. With little or no background check, the application is simple and straightforward.
Disadvantages
High and fixed interest rates. The rates offered by local developers are way above the usual range offered by banks, with an average of 14–18 percent per annum. Longer-term loans may even reach up to 22 percent. The interest rates of in-house financing tend to also be fixed.
Loan terms are shorter. Since the payment period rarely exceeds five years, you would have to pay your balance—usually 80 percent of the total property value, plus interest—in a short period of time.
In-house financing may be available only for pre-selling projects. Many developers do not offer financing for ready-to-occupy properties.
A huge purchase such as a home might be intimidating, even with the availability of different financing options. But the obligations it entails should not scare or discourage you. The sense of fulfillment and security offered by being a homeowner more than offsets the financial obligation. As with all things, careful planning will ease your worries and simplify the process.