Everything You Need to Know About Home Loans

Applying for a home loan is the most convenient way to secure the money you need to purchase your first house. The idea of getting a property loan may seem intimidating, but it’s actually quite simple. Here’s a quick and easy overview that should give you the information you need to get the home you and your family deserve.

First of all, what is a home loan?

A home loan is obtained by someone who is interested in buying land or property. This is acquired from a certified and legitimate lender, which is usually a bank. Through a predetermined payment schedule, the borrower pays back the lender until the full amount is returned.

Home loans rarely pay for the full amount of the house. Most lenders in the Philippines offer a 70% to 80% loan with an average interest rate of 5 to 8%. During these cases, the homeowner would have to take care of the remaining balance in order to fully purchase the house.

Since we’re already on the subject, do home loans always come with interest rates?

Interest rates are predetermined before the beginning of the loan.
Don’t forget to take into account interest rates when getting a home loan.

Yes. But don’t worry. Interest rates are provided and are agreed upon before the beginning of the transaction, so there’s no chance that it will suddenly change and catch you off guard after the loan has been secured. At the same time, this will give you enough information on how to handle the succeeding monthly payments.

Now we got that out of the way, where do people apply for home loans?

There are numerous lenders that home buyers can choose from. The most common ones are:

  • Banks
  • Government financing units, such as the Pag-IBIG fund
  • Credit unions
  • Insurance companies
  • Savings and loans companies

In the Philippines, the Home Development Mutual Fund (formerly known as Pag-IBIG Fund) is one of the most popular loaning option for Filipinos. Several banks, including Banco de Oro (BDO), Bank of the Philippine Islands (BPI) and Allied Bank, also offer loans.

Take note that there are usually various loan options that lenders can offer. The most common ones will be discussed in the next section.

So what are the different home loan options available to prospective home buyers?

Some lenders offer a variety of loan options that fit your needs.
Explore the various loan options available and choose the one that benefits you the most.

There are three common options:

  • Fixed Rate Home Loan: For this type, the interest remains the same during the duration of loan and the monthly payment is split equally. The payment usually has a 10, 15, 20 or 30-year life span.
  • Adjustable Rate Home Loan: For this, the interest rate may change annually. But don’t worry. Those changes don’t come unannounced. They’re usually determined and agreed upon during the beginning of the transaction, providing the borrower ample time to prepare for the coming interest changes.
  • Interest-Only Jumbo Loan: For rich lenders with irregular incomes, this loan allows the borrower to pay off the interest during the first years of the transaction. This is used for large loans.

There are also other variations. It really depends on the operations of the lender. Our suggestion, do a little bit of ‘window shopping.’ Browse the internet, look at reviews, see what other lenders are saying and ask friends and relatives. Make sure you have multiple options and you have explored each before making a decision. Choose the one that you are the most comfortable with.

What do I have to prepare for my home loan application?

Personal financial statements are a prerequisite submission to any home loan.
Preparing all your financial documents can fast-track your application.

Borrowers need to prepare several documents. The most usual ones asked for are photocopies of government IDs, a photocopy of the latest Income Tax Return, proofs of income, salary slips, an updated list of expenditures, as well as documentations about personal expenses.

For borrowers who are residing outside of the country, such as Overseas Filipino Workers (OFWs), lenders also ask for photocopies of the passport, certificates of employment and proofs of remittance.

There’s a lot of paperwork involved, but lenders usually have associates that explain why each one is necessary. They even guide you through the process, making your loan application as swift and stress-free as possible.

Getting a home loan is one of the easiest and quickest way to purchase one’s dream home. By knowing the process and by exploring the options available, anyone can find a loan that will not only get them the home that they want, but also give them ample breathing room to complete the payments.

Visit the Nurtura Land and Home Newsroom to get more guides and tips on the world of real estate and home living.

Photo Credits

Photo 1 by the Mark Moz via Flickr. CC BY 2.0

Photo 2 by Emilian Robert Vicol via Flickr CC BY 2.0

Photo 3 by Images Money by Flickr CC BY 2.0

Photo 4 by BasicGov via Flickr. CC BY SA 2.0.

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