When buying your first home, there are a lot of factors you should think about. The size of the house is especially important if you’re living with family members. The location has to be both safe and near your workplace. You also need to worry about amenities like security, parks, recreational facilities like pools and courts, and more. Once you have these down, you need to worry about one more thing: financing your home.
For the average Filipino, their best bet for affording their dream house is through a home loan. This involves borrowing money from a lender to buy or renovate a house.
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It has three components:
- Principal – This is the total amount that you borrowed from your lender. For example, affordable home in a subdivision costs about Php1.8 million. That’s the principal amount you’ll ask from the bank.
- Interest rate – This is a rate that represents how much the lender charges you to use their money. There are a variety of factors that affect your interest rate, like your credit score and the Bangko Sentral ng Pilipinas’ (BSP) rates. A portion of your yearly interest is added to your payments every month.
- Term – This refers to the agreed-upon period that you’ll repay your loan. In the Philippines, a housing loan term can range from as short as 10 years to a maximum of over 25 years.
You want to get a housing loan that fits your needs and budget. The lower the interest rate, the easier it will be to pay your principal.
Consider the following so that your home loan application goes smoothly.
Your eligibility for a home loan mostly depends on your age, how much money you’re making, and your source of income. Any working or self-employed person over the age of 21 can apply for a loan. If you have a partner that you’ll live with, you should get a joint housing loan with them. The lender will more likely approve your loan this way because they’ll evaluate your partner’s income together with yours. ;
The IDs and other documents you’ll need to apply for a loan depend on what the lender actually requires. They generally need two or more valid government-issued IDs, like a Tax Identification Number (TIN), Your Social Security System Universal Multipurpose ID (UMID), postal ID, passport and driver’s license.
You also need to present your proof of income. If you’re employed, your certificate of employment. Some lenders may also ask for your monthly paychecks and salary breakdown to ensure you have enough money to pay for your monthly fees and have sufficient funds for your personal needs at the same time. As a rule of thumb, your monthly income should be at least three times the value of your monthly payment for your housing loan.
Some banks may also ask for additional proof of income like your bills, bank statements, loan statements, credit accounts, and even your credit report. These documents may seem like a lot, but they help in ensuring you get approved for your loan.
Your Credit Report
Your credit report is one of the most important documents that your lender will look at. It contains information about your bills and loan payment history. They get this information from public records and partner companies. Banks review this information to see how trustworthy you are.
If your chosen lender sees that you don’t pay your bills on time or max out your credit cards a lot, they’ll consider you a high-risk borrower. They may increase your interest rate to compensate for the possible losses they could experience if you default on your loan. If your payment history is bad, they may deny your loan application altogether.
If you want to improve your credit history, you simply have to continue paying your bills fully and on time, whether it’s for your utilities or phone bills. Stay within your credit limit during the months leading up to your loan application, too. Stop credit card churning if you can’t afford to pay all your accounts off. Request a credit report from the Credit Information Corporation as well to see if there are any fraudulent transactions that need to be resolved.
A home loan is the most viable way of financing the average Filipino’s dream property. And while most loan policies are accessible, there are a variety of factors that go into getting a loan that fits your preferences and budget. Make sure you’re eligible, have the right documents, and have a clean credit report and you’ll get approved in no time.