This article is a little bit off-topic considering that many of you are coming to this website mainly to know more about the programs of the Pag-IBIG Fund especially the Pag-IBIG Housing Loan. But please bear with us because this article could become a life saver to the other visitors who are not members of the Pag-IBIG Fund or those who are denied a Pag-IBIG Housing Loan.
We have consistently mentioned this in replies to comments from site visitors: a loan application offers no guarantee of approval. And if Pag-IBIG Financing may not be the best for you, please take note that there are other alternative home financing options that you can use.
In this article, we’ll elaborate further on the topic of In-House Financing – a Home Financing Scheme that you can use without ever becoming a member of the Pag-IBIG Fund.
(See also : What To Do If Your Pag-IBIG Housing Loan Is Denied)
The Anatomy of Conventional Home Financing
When you buy a house and take on a mortgage loan to finance it, here’s what normally happens.
- You pay a reservation fee.
- You pay the down payment or equity ( e.g. 20% of the selling price) either in one spot payment or in series of installments of up to one year or so depending on your arrangement with the seller. Note: the reservation fee could be part of the down payment also. The down payment goes to the developer’s account.
- You apply for a housing loan (e.g., 80% of the selling price) from a third-party lending institution like the Pag-IBIG Fund or a Bank.
- Your Loan is approved. Well, ideally that should be the case.
- The Lender (Pag-IBIG or Bank) takes your Title, which serves as collateral for the loan, and sends the money (or proceeds of the loan) to the developer or the seller.
- And you live happily ever after… in the house. That is, you take possession of the property and at the same time, you amortize on your loan.
( See also : How To Apply For Pag-IBIG Housing Loan)
What Is An In-House Financing?
It is a Home Financing Program offered by the real estate dealer (usually the developer) to their buyers who want to buy a house in a series of instalment payments without resorting to third-party financial institutions.
Ever noticed that we mentioned the third-party lending institution in Step #3 above? With In-House Financing, there is no more third-party involved. In other words, the transaction is just between you and the developer … no one else.
Question: Is In-House Financing good for you as a real estate buyer?
Answer: Ideally, it should make things less complicated on your part – and the seller’s side, too. But, in reality, the answer could be yes and no. We cite below the pros and cons of using the In-House Financing Scheme.
The Advantages of In-House Financing
- It’s quite simple and straight forward since you will be dealing only with one company.
- The document requirements may be minimal. Some will not even bother you with too much document details on your financial capabilities.
- This may be the only option for people who for some reasons can’t get a loan from the bank or other financial institution.
The Disadvantages of In-House Financing
- The interest rate is way up higher than what the market offers, sometimes even double market figure.
- The down payment could be bigger than would normally be required if you use bank or pag-IBIG Financing.
- Only Short-Term Financing. The developer is wise enough to minimize the risk of having you as a client.
- May be available only on property purchase with house that is still to be constructed. Some developers would not use In-House Financing on a house that is already finished and/or ready-to-occupy
Pag-IBIG Financing Insider’s Tip: The simplicity of using the In-House Financing Scheme comes with a steep price tag. The only reason you should take it is in when you are sure you will be denied a housing loan from a lending company. And, ironic as it may seem, real estate sellers would rather want that you take on a mortgage loan from a bank or Pag-IBIG than avail of the In-House Financing.
“In-House Home Financing: A Good Alternative to Pag-IBIG Housing Loan?” is written by Carlos Velasco.