Do you have enough savings to fully pay the balance of the property you purchased? Are you thinking of getting a bank loan? Are you familiar with the process of securing bank financing?
Unfortunately, many first-timers perceive that availing loans is difficult and tedious. On the contrary, banks have made it easy, simple and quick to secure financing.
Easy access
Banks have hastened their digitalization and made lending accessible online. Forms can be downloaded, filled out electronically, and conveniently submitted with other requirements by email or uploaded to their websites.
Loan programs are tailored for varying needs. Borrowers buying land or building a house can avail of land acquisition loan or construction loan. Borrowers upgrading units can apply for renovation loans while real estates are used as collateral to get property equity loans. Borrowers can avail of reimbursement loans intended to lend back the equivalent amount spent on a recent property purchase, or refinancing loan where an existing loan is transferred from one bank to another to get better terms.
The most common home loan is end-user financing wherein borrowers who have pre-purchased a house or condominium unit but do not have enough funds can get bank financing for their outstanding balance.
Simple requirements
Banks ask for identity documents to ascertain borrower’s information, income documents to know borrower’s capacity to pay, and collateral documents to understand the property being financed.
Banks require clients to have an investment stake before being allowed to borrow. As a result, banks prescribe a “Loan-to-Value Ratio” limit of between 60 to 90 percent of Total Contract Price (TCP), i.e. borrower needs to pay their developers upfront of at least 10 to 40 percent of TCP. Banks normally charge fees to cover the processing, registration, notarial fees, and insurance premiums. A few allow these fees to be incorporated into the TCP.
Banks impose a monthly amortization limit of a third of the applicant’s monthly income, while aggressive banks allow up to half of their borrower’s monthly income.
Quick processing
Banks review the borrower’s age, nationality, place of residence, employment and government-issued ID, PSA-certified marriage contract or certificate of no marriage submitted. For foreign-based borrowers, he may be asked to issue a consularized Special Power of Attorney designating a local attorney-in-fact who shall act as loan administrator in-charge of transacting on his behalf.
Philippine-employed borrowers are asked for a certificate of employment, latest pay slips and Income Tax Return (ITR) copies while self-employed applicants need to submit their business registration documents, audited financial documents, bank statements, ITR, etc. OFWs may be asked for their latest contract or certificate of employment.
Collateral documents include developer’s endorsement letter, applicant’s updated statement of account, and contract to sell or reservation agreement. These documents are reviewed to determine the appropriateness of the requested loan amount.
Surprisingly, credit decisions can be released within five days, with the bank’s letter of guarantee to pay the developer valid for a year. After the borrower is notified of the approval, he will be asked to sign the loan agreement. During this pandemic, one bank allows “video conference signing” wherein signing is made before a bank officer through zoom.
After the bank forwards their guarantee letter to the developer to signify intention to finance the balance of the buyer’s purchase, the developer is required to return to the bank the confirmed letter of guarantee, whereafter the bank releases their payment to the developer.
Amortization payment usually starts after a month. At least one bank allows lite options such as 60-days amortization deferment or require only the interest be paid during the first six-months. Yet another bank launched a “step up pay plan” that gives client’s control on how much is paid yearly instead of being required a fixed amortization.
Some banks also allow no cash out, all-in financing while other banks are known to waive appraisal fees for developers’ projects that they have a tie-up.
As shown above, the processes and requirements are not tricky nor difficult. However, banks have different programs, interest rates and promotions. Consult your banks and take advantage of their best offers.
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Henry L. Yap is an Architect, Environmental Planner, Real Estate Practitioner and former Professorial Lecturer.