Choosing a lending institution

Financing is available from different institutions.

Company-sponsored housing programs

Some companies provide their employees with housing programs. I have a friend who purchased a lot and built a house this way. She applied for a loan with the company she worked for, the interest was very low at 7% per annum, and the monthly amortizations were simply deducted from her salary. Every time the company declared a bonus, she applied her bonus to the loan. The loan was restructured with every balloon payment, diminishing the principal, and she was able to pay off the housing loan in five years.

If you work for a company with a similar benefit for employees, take advantage of it. Just don’t resign or get yourself fired before the loan is paid off because the entire balance will become due and payable should your employment be terminated.

In-house financing

This refers to financing offered by real estate developers. Interest rates are higher than commercial bank rates and vary from 18% to 21%. Some people prefer in-house financing because it entails less work for them and the waiting time for the approval of the loan is quite short. This is also the ideal solution for those with difficulty providing the tons of documentation that banks and other lending institutions normally require.

Commercial bank housing loans

Interest rates of commercial bank housing loans may be fixed or floating depending on the package. Rates follow commercial interest rates. During seasons when there is a slump in real estate, interest rates normally go down.

Banks compete with each other as each advertises the best housing loan. What “best” means depends on your priorities. For some, a fixed interest rate is a must. For others, it is the number of years over which the amortizations are spread.

Government housing assistance

In the Philippines, there is the Social Security System (SSS), the Government Service Insurance System (GSIS) and the Home Development Mutuan Fund or the PAG-IBIG Fund.

Based on the information on a page of the SSS web site, the maximum loanable amount is P1 million at 14% interest per annum subject to review every five years.

The GSIS has two housing programs: Bahay Ko and SAIS. Bahay Ko offers two schemes, regular and expanded. Under the regular scheme, for loans above P300,000 the interest rate is 12% per annum. Under the expanded scheme, there is a 12% interest fixed rate, regardless of the amount. View the details.

SAIS has a fixed interest rate of 6% per annum. Details here.

The maximum loanable amount with PAG-IBIG is P2 million. The interest rates vary from 6% to 12.5% depending on the amount.

Shop and compare

The smart thing to do is to shop around first — check what the different banks and other lending institutions have to offer. Compare the interest rates, over how many years the amortizations are spread and the terms for balloon payments are only some of the things worth considering.

Note too that it is possible to apply with more than one bank or institution at the same time. Of course, you will have to pay as many appraisal fees but there are advantages — you get a chance to compare.

For instance, you found this beautiful house worth 5 million and you have the cash to pay the 20% downpayment. The loan you need is for the balance of 4 million. You applied with banks A and B. The Bank A is willing to give you a loan of 3.8 million while that of Bank B’s offer is exactly 4 million. Bank A’s figure won’t be enough, obviously. But Bank A also offers a low fixed interest rate of 8% during the first year while it’s a floating interest rate all the way with Bank B. Is it worth coughing up the 200 thousand peso difference?

No two lending institutions offer the exact same terms so consider what’s most financially comfortable for you.

Once you have applied for a loan, be prepared to wait. Banks take around a month to do the documentation, appraise the property and do everything they have to do.

The documents you will need before applying for a loan

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