Understanding bank home loans: How do they work?

Owning a house needs a lot of funding. Usually, people do not enough money to pay the lump-sum amount of the house value. With this, many people avail different financing methods like Pag-IBIG housing loan, or a bank home loan. But home loan in banks is perceived as the last resort to make by potential real estate owners because Pag-IBIG housing loan have a cost-friendly terms. Still, if you have the means, loaning from a bank is a good option. It may not be an exactly the same offer with what Pag-IBIG gives to its contributors but it is still similar and not intimidating like the notion of the masses. With this, if you plan to purchase a house through a bank home loan or considers availing one, there are several requirements and considerations to account for its approval. If you are a newbie on bank home loans, here is a simple guide for you.

What is a Bank Home Loan?

               From the name itself, a bank home loan is a debt which is acquired by a potential real estate purchaser to buy a residential home. This may also be known as home mortgage because the property being acquired serves as a security in case of default in paying installments in the loan.  When a property is purchased under a loan financing, the said property is not yet fully owned by the purchaser until he or she finished paying the installments required to settle the loaned amount by the lender, which is the bank.

               While most banks offer a fixed interest rate for this type of loan, there are others who offer an adjustable interest rate in which you may enjoy a lower interest rate. However, this is highly volatile because there is also a risk of paying higher interests because it adjusts based on the market. Still, these choices will help you in deciding which alternative will benefit you the most. The more alternatives the better especially if you have an extra amount to risk for better benefits.

Why Should I Consider Bank Home Loan for My Real Estate Purchase?

               For people coming from the average income class, availing a housing loan for your residential home purchase gives you a lot of benefits especially in terms of your cashflow. Banks recognizes the limited amount of funds of the people despite the job stability of the working population. With this, to convince you more on considering a home loan, here are the benefits it offers.

1. More Flexible Payment Term

Payment terms of bank loans are not abusive as it may seem. The loaned amount can usually be paid between 15 to 20 years depending on your decision after considering your monthly inflow of cash. Why wait to save for the lump-sum amount of the property you are eyeing to purchase if you can buy it right now through a housing loan, right? Remember, properties appreciate value over time so there might be a chance that the amount you are saving for will not be the selling price of the property you want to obtain. With this, a home loan gives you an option to not miss the chance on acquiring the property you desire to obtain especially if you have enough money for installment payments.

• Lower Interest Rate than Other Alternatives

This is often overlooked by people. Instead of availing a personal loan or a mortgage loan, a home loan offers a smaller interest rate. Home loans have a smaller interest rate because it uses the property you will purchase as a security in case of default in loan payment. So, if you are confident with your cash inflows and wants to seize the opportunity of buying residential property in installments, home loan is the best choice among other loan types because lower interest rate means lower costs to pay.

• Higher Credit Rating

If you are consistent in paying your debt in financial institutions especially on big amounts, you will be building a good credit rating. A good credit rating opens you to more investment opportunities because the perception of the lending institution is that you are a good payor regardless of the amounts loaned. If you have this kind of option, you can easily secure investment opportunities that opens at a limited time.

• Key for Obtaining a Profitable Investment

This benefit might not be for everyone but if you have a stable job with good monthly cash inflows yet you do not have any investment, this is a good way to start being smart with your money. Instead of just saving or filling up your bank account, why not invest it into something more profitable. Real estate purchase is a good investment as the values appreciate in most cases rather than depreciate. However, the amounts to invest are not a joke because of its enormous values. Hence, if you have a good income and you feel like you want to invest in a less risky products, obtaining a loan for this investment is a good choice. Real property with good value is not available most of the time so availing a loan secures the gap to seize this opportunity for financially literate individuals.

What are the Requirements in Applying for the Loan?

               Before preparing for the basic requirements for a home loan, you should check your eligibility. Here are the qualifications for the loan application:

• The borrower should be at least 21 years old but not exceeding 70 years old at the end of the loan term
• Should be Filipino Citizen or Foreign National with an international document.
• Should have a minimum monthly gross income of thirty to fifty thousand pesos (Php 30,000 – 50,000) or its equivalent in US Dollars
• Should have a stable source of income from employment or business
• For locally employed applicant/ borrower, she/he should be working at least 2 years with his/her current company
• For self-employed applicant/ borrower, he/she should have at least 2 consecutive years of profitable business operations
• For Overseas Filipino Workers (OFWs), he/she must be employed for 2-3 consecutive years
• OFWs should also assign a beneficiary for Loan Administrator

If you have these qualifications, there is a high chance that you will be eligible for application and it will be approved right away. However, along with your application, banks demand different requirements as proof of evidence of your eligibility. But the documents required differ from each bank. However, there are basic documents that you should have when preparing for a bank housing loan application to make your application smoother and faster. Here are those:

• Duly accomplished application form
• Photocopy of one (2) valid IDs with matching application details
• The borrower should have at least 2-3 IDs presented: Passport, Driver’s License, SSS, PRC, OWWA ID, and Seaman’s Book. The IDs should have a photo and signature
• Marriage contract if applicable

For Basic Income Documents:

• Certificate of Employment indicating salary, position, and length of service
• Latest Income Tax Return for the last 2 years

For Self-Employed: 

• He or she must present the Articles of Incorporation and By-Laws with SEC Registration Certificate
• Audited Financial Statement for the last 2 years
• DTI Registration
• Income Tax Return with Statement of Assets and Liabilities for the last 2 years
• Audited Financial Statements
• Bank Statements for the past 6 months
• List of Trade References (at least 3 names with phone numbers of major suppliers/ customers)

For OFWs: 

• Authenticated Special Power of Attorney
• Contract/ Certificate of Employment authenticated by Philippine Consulate
• Crew Contract and Exit Pass validated by POEA (Seaman)
• Proof of Monthly remittances

For Collateral Documents:

• Authorization letter template for Property Collateral Verification and tax mapping
• Clear copy of owner’s duplicate copy of TCT/CCT
• Photocopy of Tax declaration / tax receipts/ tax clearance
• Lot plan with location/ Vicinity Map certified by licensed Geodetic Engineer
• Endorsement Letter/ Computation Sheet/ Contract to sell from the developer stating the contract price.

Where to Get a Home Loan?

               Going to different banks may be taxing job just especially if you just wish to inquire for their home loans. With this, here are the common banks in the Philippines and their home loan offers to simplify this query of yours.

1. BDO
2. Minimum loan amount: PHP 300,000 for lot only and PHP 500,000 for house and lot
3. Maximum loan amount: Up to 80% of the property’s appraised value
4. Interest rate:
   1. as low as 6.25% fixed for one to two years
   1. as low as 6.75% fixed for three years
   1. as low as 7.25%% fixed for four to five years
5. Loan term: Up to 20 years

• BPI Family Savings Bank
• Minimum loan amount: PHP 400,000
• Maximum loan amount
  • 70% of the appraised value of house and lot
  • 60% of the appraised value of a vacant lot or residential condominium
  • Max of 80% of the appraised value of house and lot (as long as the value doesn’t exceed PHP 5 million)
• Interest rate
  • 6.25% fixed for one or two year/s
  • 6.75% fixed for three years
  • 7.25% fixed for four or five years
  • 9.50% fixed for 10 years
  • 10.50% fixed for 15 years
  • 12% fixed for 20 years
• Loan terms
  • Max of 25 years for house and lot
  • Max of 10 years for the following: vacant lot, residential condominium, business loan, refinancing, or multi-purpose loans

• Metrobank
• Minimum loan amount: PHP 500,000
• Maximum loan amount: Up to 90% of the property’s net selling price from Metrobank-accredited real estate developers
• Interest rate:
  • 5.75% fixed for 1-3 years
  • 6.75% fixed for 4-5 years
• Loan term: Max of 25 years

• China Bank
• Minimum loan amount: PHP 500,000
• Home loan interest rates: 5.75%
• Maximum loan term:
  • Max of 10 years for condominium units
  • Max of 15 years for vacant lots
  • Max of 25 years for a house and lot

• Unionbank
• Minimum loan amount: PHP 500,000
• Maximum loan amount: Up to 80% of the property’s contract price
• Interest rates: 8% to 11%
• Loan term: Up to 20 years
• Allows 10% to 99% down payment

If you are still deciding on which real estate developer to invest on, you should try considering Bria Homes. It offers a lot of deals depending on your budget and your needs. It has house and lot for sale and even condominiums. It continuously innovates the owners experience by providing their needs especially for their well-being. One of the best features of availing a home in Bria is their importance on the well-being of its owners. It launched a community center, called Sentro, with the goal of letting its owners to socialize and engage in recreational activities. For more information, you may visit their website.