Housing Loans

In-House Home Financing: A Good Alternative to Pag-IBIG Housing Loan?

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.

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.

What Is An In-House Financing?

in-house financing as alternative to pag-ibig housing loan 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.

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“In-House Home Financing: A Good Alternative to Pag-IBIG Housing Loan?” is written by Carlos Velasco.

Bigger Loan Amount, Smaller Contribution

by Pag-IBIG Financing Admin

This article is inspired by a letter sent by one of the site visitors who was planning to apply for a Pag-IBIG Housing Loan. He was doubtful whether he qualifies for certain amount of loan which is equivalent to the selling price of the a particular lot-only piece of real estate considering that the amount of contributions he is giving to the Pag-IBIG Fund is very minimal — the required minimum, in fact. The letter reads in part:

“I’m applying for a Pag-Ibig housing loan for a Php 640,000 worth of LOT. I’m employed in a private company and having a monthly net of Php 60,000 but my Pag-Ibig contribution is only Php 200 and is equivalent to Php 500,000 maximum loanable amount. How can I avail a much higher loanable amount to cover Php 640,000?”

This is the kind of letter that every Pag-IBIG Member deserves to be aware of. There are so many fine points raised by the letter sender and we will tackle three of them in the succeeding lines.

Point #1: Lot-Only Purchase

When thinking about Pag-IBIG Housing Loan, most Pag-IBIG members normally associate it with a house and lot purchase. Well, that’s not necessarily the case. Just like the letter sender, you can use it to finance a lot-only property just as well. As a matter of fact, a Pag-IBIG Housing Loan can be used in any of the following:

Lot-Only Property. Normally, this means a piece of lot in a subdivision. That property has to be assessed by the Pag-IBIG Fund whether its title qualifies as valid collateral for the loan.
House Construction. The project has to be a residential unit that is to be constructed on a lot owned by the member-borrower.
House and Lot Purchase. This is the most common one. If the subdivision project is accredited by Pag-IBIG, please take advantage of the assistance from your broker/agent when processing your housing loan.
Home Improvement. Again, the land title has to be in the name of the borrower. A Home Improvement Loan may be availed by a member with an on-going mortgage.

Point #2: Minimum Required Contribution

Looking back at the letter, you may notice that he mentioned about contributing only P 200 per month, just like most every other member of the Pag-IBIG Fund — and rightly so. With regards to the rate of contributions, the Home Development Mutual Fund Law of 2009 stated the following :

Employees earning more than One Thousand five hundred pesos (P 1,500.00) per month – two percent (2%).
All employers – two percent (2%) of the monthly compensation of all covered employees.

Further more, the Pag-IBIG Fund stated that, “The maximum monthly compensation to be used in computing employee and employer contributions shall not be more than Five thousand pesos (P 5,000.000)….”

That means, whether you are earning below the minimum wage or you are in a high-income bracket, you are required to contribute only P 200 month (including the employer’s share already).

The reasoning behind this figure is to simplify the accounting process. A rounded-off figure like P 200 is easier to manipulate than, say P 836.42. Add to the fact that some members have varying incomes month after month, this method is indeed much simpler.

Point #3: Contribution vs Loan Amount Entitlement

pag-ibig housing loan -- contribution vs loan amount entitlement Previously, we have discussed the fact that a borrower’s loan amount entitlement is affected primarily by two factors: his income and his contributions. Please refer to that very important article on Income, Contribution and Loan Entitlement.

Well, actually this is how it works: When you apply for a Pag-IBIG Housing Loan, you will be assessed based primarily on your capacity to pay — there is a table for that which is also shown in the article mentioned above. Since almost everyone is contributing only P 200, once you qualify for a loan amount that is bigger than P 500,000, you will be asked to upgrade your monthly contribution based on that loan amount also.

So to recap: First, you apply for a particular loan amount first and then you may have to upgrade your membership contribution to a higher amount.

Other Points Of Interest:

This part is for you to answer. On the letter, he said his salary is P 60,000 per month and he wants to take on a Pag-IBIG Housing Loan amounting to P 640,000 to purchase a lot-only property. Here are some questions that you may want to unravel for yourself:

Assuming the Pag-IBIG Fund has assessed the property to be P 640,000 and he is allowed a loan of only 70% of that appraised value, how much equity payment will be required of him by the seller?
Based on Q #1, is there a need for him to upgrade his membership contribution?

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“Bigger Loan Amount, Smaller Contribution” is written by Carlos Velasco

Pag-IBIG Financing vs Bank Financing — A Mortgage Loan Comparison

by Pag-IBIG Financing Admin

Do you have any idea how much is the going rate of the Home Loan Program offered by your favorite bank?

As a home buyer, one of the first steps you should take before starting the legwork of searching for your home is to get to know the interest rates currently available in the market. That is, shop for the best home loan first, and then shop for the house.

If you have been visiting this website for quite a while, you should already know the interest rates of a Pag-IBIG Housing Loan.

Did you make any comparison of Pag-IBIG Housing Loan versus the competing Bank Housing Loan? You should. Just because you are a member of the Pag-IBIG Fund doesn’t always mean that it’s the only option you have when financing your home purchase. The banks may offer an even better alternative mortgage loan that really fits your needs.

When it comes to Housing Loans at larger amounts, most banks in the Philippines offer almost the same interest rates as those of the Pag-IBIG Fund. As a matter of fact, banks are even more competitive that most high-end buyers are using them to save on a lot of hassle involved with getting a Pag-IBIG Housing Loan. If that’s the case, why should you even bother getting a Housing Loan from Pag-IBIG?

One site visitor has a keen observation on this matter and she dropped a message that read in part:

Pag-IBIG Financing versus Bank Financing

“What is the advantage of choosing PAGIBIG over banks? I’m looking at the interest and they are almost identical. Your answer might help me choose the lender for my property.”

In this article, we’ll compare the two financing options citing the advantages and the disadvantages of each.

Membership

A Pag-IBIG Housing Loan is only available to Pag-IBIG Fund members. That’s the basic requirement and yet that’s also one of the main reasons most Filipinos can’t get access to the housing loan with the Pag-IBIG Fund. If your membership record with the Pag-IBIG Fund is not very impressive, your loan application may also be affected.

Getting a mortgage loan from a bank, however, doesn’t require any membership at all. You don’t even have to be a depositor at the bank to be considered a housing loan applicant. You can be a depositor at any bank and then apply for the competing bank and you are free to choose which one you think offers the best loan.

Income Requirements

You are probably aware that a member’s loan amount entitlement has a lot to do with his level of income. Luckily, you don’t have to guess anymore to see which loan amount you can possibly get given your current income. Please check our article that discusses the Income and Loan Entitlement and see which loan bracket you are at.

(See: What to do if you are denied a Pag-IBIG Housing Loan?)

Loan Amount

The minimum loan amount that you may be granted with a Pag-IBIG Housing Loan is P 100k. The maximum is only P 3M – so if your project costs more than that and you are to finance it with Pag-IBIG Housing Loan, don’t even bother getting a Pag-IBIG Housing Loan.

Unlike the Pag-IBIG Fund, a lot of banks will only entertain you if you are loaning at least P 800k for a housing loan. At the flip side, a bank will also not give you a ceiling on the amount of loan that you can take as long as you are capable of paying for the loan and you are not really a risky borrower based on their assessment of your financial documents.

Banks have their qualifying parameters too that they use when evaluating a loan application. And it varies from one bank to another. As a general rule, your gross income should be at least three times greater than your monthly amortization for you to have a good chance of getting the money. You’ll be asked to fill up a detailed Financial Information Sheet and always expect them to verify the accuracy of whatever you put there.

Loan Term

This is perhaps the biggest reason why Pag-IBIG Financing is so popular. A Pag-IBIG Housing Loan is noted for offering a long term loan of 20 to 30 years!

On the average, a bank can offer between 5 to 10 years on their housing loan clients. A 20-year loan is very rare with them.

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“Bank Financing Vs Pag-Ibig Financing — A Mortgage Loan Comparison” is written by Carlos Velasco.

Long Term Mortgage Loan — How To Retire It Early, Part 2 of 2

by Pag-IBIG Financing Admin

In Part 1 of this series, you’ve learned that long term home financing could be very expensive in the long run while at the same time it also makes an expensive property look more affordable on a monthly basis.

For many, getting a home loan is the only way to ever achieve their dreams of owning a home.

However, for those who are into real estate investing and know what they are doing, a long term loan could just be another form of leverage that should be taken advantage of.

As pointed out in the previous series, here we’ll touch on the factors to consider when retiring a long term housing loan earlier than its maturity period such that it becomes advantageous on your part as a borrower or investor. Each one of those factors is cited elaborated in the succeeding paragraphs.

Factor #1: Second Property Investment

In one of our conversations, I mentioned to a friend how lucky he was for inheriting a nice home from his parents. It turns out that each one of his siblings (there are four of them) also inherited a property in another place in the same city. He said he was very thankful to his father for all of these. When his father was still younger, he planned about investing exactly four properties and intended to give them to his children. I was really laughing when he said his father made sure these properties are located in the North-, South-, East- and Western parts of the city!

Did you know that Pag-IBIG allows you to have up to two housing loans? Of course, you have to do it one at a time. In other words, you can take on another housing loan provided your previous loan is already paid off completely. And for the second and third housing loan, you still have to undergo the qualification process just like you did when you got your first housing loan.

Is this something you have thought about already?

Ask yourself, “Am I willing to pay off this loan to get another property?”

Factor #2: Liquidity

real estate liquidity Do you know someone whose hobby involves collecting some stuff? You know…old coins, postage stamps, vintage cars, and others.

I’ve met someone whom a lot of brokers would consider a real estate investor. And his hobby? Collecting vacant real estate properties!

Now if you would want to be in this kind of hobby, I would suggest that you get to know what you are getting into. Always have an exit plan in place, just in case something wrong happens that you can’t take it anymore.

The funny thing about real estate brokers is that they are selling properties which they themselves would not even invest. The common reason they say is that a real estate is a dead investment! (Now you know.)

Is there such a thing as a dead investment?

Let me explain it this way: Suppose you have purchased a property a year ago and then suddenly something happened that puts you in an awkward position to want some money – very, very badly. And then you think, one of the ways to raise that amount of money you needed is to sell a piece of real estate that you own. Finally, here’s the catch: “How can you sell the property at the price that you wanted without incurring a loss?”

In an emergency sale, the seller is usually willing to negotiate down the price in exchange for the much more liquid equivalent: CASH.

A dead investment is really just a fancy word for an investment in illiquid asset, such as real estate. It could also mean an investment that does not generate a passive income to the owner.

Ask yourself, “Do I have enough cash in reserve such that I won’t resort to selling my real estate at a loss when an emergency happens?”

Factor #3: Savings

When you retire a loan earlier, you most likely need to you slash your cash reserve to do that. Now that money in some way of another could be earning an interest. Once you use it to pay off the remaining loan balance, you also kill the chance for it to earn the intended interest.

When paying off your loan early, see to it that the money you use to pay off the remaining balance is earning much lower than the interest rate of your mortgage.

Say you have P 700k loan balance and you have that much cash in reserve. Now, compare the interest it will earn if you invest that money versus the interest rate of the loan. If that money is earning you 15% annually — a good rate, by the way – and your mortgage is currently at 10.5% per annum, you are better off not paying the whole balance yet.

However, if your money is giving you a mere 2.5% per annum, plus some more headaches here and there, it would be wise to use that money to pay off your loan balance.

Ask yourself, “How does the interest rate of my mortgage compare with my interest if I would invest the money I’m planning to pay it off with?”

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“Long Term Mortgage Loan — How To Retire It Early” is written by Carlos Velasco. This is the second part of a two-part series. Read the first part here.

Long Term Mortgage Loan — How To Retire It Early, Part 1 of 2

by Pag-IBIG Financing Admin

Some of you may have already thought about, or even calculated, the real cost of getting a mortgage loan to finance your home purchase. If you did, that’s a good sign that you are savvy when it comes to your money. Keep that good habit alive.

The calculation is actually very simple and straight-forward. All you have to do is multiply the amount of monthly amortization by the total number of months – say, by 360 for a 30-year loan term – and that’s it. It’s no brainer, actually.

However, if you want to find out the total amount of money that goes to paying the interest, you need to use the Online Calculator which you can find at the Right Panel of this website or by following this link. With the help of that calculator, it’s easier to figure out how much of you payment is being swallowed by the interest payments.

(See also: Mortgage Loan Calculator.)

Long Term Home Financing and Its Effects

Did you notice that a long term loan of 20 to 30 years could literally cost three times, or even more, than the original amount that you borrowed? That is, if you borrowed P 1M and plan to pay it off in 30 years at 10% per annum interest rate, it will actually cost you roughly P 3M in combined interest and principal payments alone!

pag-ibig long term housing loan For some people, that is enough to spin their heads around and decide against ever using a long term loan. One site visitor was thinking along this line and left a comment this way:

“wow! now I see it’s better to buy a property in cash than finance through PAG-IBIG. The interest almost exceed the principal, you can even buy another house with that interest!”

Do you agree?

Well, actually he was right about the enormous amount of money at stake in the long term. But, let’s get real and think along this line:

“At your current level of income and lifestyle, how many years do you think it will take you to raise the amount of money equivalent to the selling price of the house that you wanted to buy?”

Let’s put a real figure this time, “How many years will it take you to save P 2M?” I’m assuming you are eyeing a house with a P 2M price tag. When answering that, you should consider the following:

Your Income. Or your combined income if you are married
Your Lifestyle. Is it high- or low-maintenance?
Your Priorities. Make a list: your wedding, advanced education, job placement fee, etc – anything that costs money and that is important to you.
Your Foundation. Think: the people who depended on you for financial support.
Your Debts. Don’t ever forget this part before taking on another debt, your house.

How many years, then?

1 year? This is not impossible at all. But for most Filipinos, no matter how hard they work, are just not on that level yet.
3 years? Congratulations! You probably should aim for a higher priced home.
5 years? Congrats even more! Have you ever heard of the term inflation? Well, that’s a nasty word which means that the P 2M house you originally thought about buying should have already increased in price by that time.
10 years? Sigh… finally! But hey, are you still motivated about buying a home after the long wait?

You may want to disagree here, but if we get REALLY real, the sad answer to that question is FOREVER. Many people will reach their prime age without ever accumulating that amount in liquid asset – that is, in cold CASH. Hard to believe? Well, if the dead could only speak, they would all nod their heads in agreement. 🙂

Long Term Home Financing — The Beauty And The Beast, 2-In-1

The beauty of long term home financing is that it makes a financially-out-of-reach real estate appear light on the budget on a month-by-month basis.

Recently, I came across a real estate ad that says something like, “Own a home. Only 249 per day!”

That’s a brilliant Marketing Strategy and I bet it works. Thanks to Long Term Home Financing, owing a home gets even more affordable. That is, if you have the discipline to say goodbye to Starbucks.

But of course, a long term loan doesn’t always mean you have to pay off the loan to its last payment schedule. You can always retire it earlier than that. There are advantages and disadvantages in doing so.

In part two of this series, we’ll touch on the reasons for retiring your loan earlier than its maximum term. Plus, some tips on how to do it.

UPDATE: The second part of this article was already posted. Please check it now.

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“Long Term Mortgage Loan — How To Retire It Early” is written by Carlos Velasco. This is part one of a two-part series.

5 Tips To Take If Your Housing Loan Application Is Denied

by Pag-IBIG Financing Admin

In an ideal world, you should never be turned down whenever you apply for a Pag-IBIG Housing Loan. You can simply go to the office of the Pag-IBIG Fund, the staff would be excited to serve you, you smile as you submit all the requirements and wait the next day for the approval. What wonderful world it would be!

Unfortunately, that will never happen in a real world setting. Like all other financial institutions, the Pag-IBIG Fund has to consider a number of factors before granting you the loan. In the past articles we have discussed some of those factors they use to evaluate a loan application, among those are the following:

Your Records with the Pag-IBIG Fund
Employment or Business Status / History Capacity To Pay
Appraised Value of the Property
The Property Itself

By now, you should already realize that just because you are a member of the Pag-IB IG Fund doesn’t mean that getting a housing loan is going to be easy.

In case you are thinking of applying for a housing loan, bear in mind that it could be possible that your loan application could be denied, or you will get an amount that is much lower than you expected. In other words, you don’t get what you want.

This article is meant to guide you on what to do next if the result of your loan application will be negative. To this end, take note of the following tips on what you can do.

Tip #1: Check if The Problem Related To The Property

Obviously, not all properties are equal. Some are good investments, others are just plain crap. Some places are safe to live; others are camping grounds of criminals. Indeed, some are more problematic than others.

You may not know it, but Pag-IBIG is very strict in evaluating a property that you consider buying. It has to undergo a series of rigorous evaluations to see if the property is worth the risk. Remember: the land title will be used as collateral so eventually if it is really a lot of risk, Pag-IBIG will not even consider that property.

Bear in mind that the Pag-IBIG Fund is in the business of real estate loans, not on selling problematic properties.

Tip #2: Get Your Finances In Order

housing loan denied Until now, I’m still shocked to receive comments like, “If I pay the 24 months upfront, can I apply for a housing loan immediately?” It is as if paying the 24 months contribution is the only factor that hinders them from being granted the loan. In reality, paying 24 months is not at all the problem. That’s just a total of P 4,800; even kids can do that.

Instead of putting too much focus on the 24 months contributions, what you should do, if you are really serious about buying a home, is to work on your cash flow. The following should be helpful:

Save enough money for the equity or down payment. This is roughly 20% of the selling price of developer-owned property.
See to it that you can pay for the monthly amortization. That means, work on improving your level of income, which is one of the most important factor affects your loan entitlement.
See to it that you will pay your money dues. Assuming that you can pay, the question is WILL you pay? Once you take on a loan, you better be serious about paying it.

Tip #3: Consider A Cheaper Property

Of course, who doesn’t want to live in a mansion close to the downtown area with all the amenities just close by? That would be very sweet, after all.

But when reality bites as it should, it is best to settle on the one that you can afford to pay. The positive side effect of that decision is that you can sleep soundly at night.

Tip #4: Get A Co-Borrower

If you have some good relatives who are willing to help you out, that would be nice. You can talk to them about becoming your co-borrower. Pag-IBIG allows a maximum of three (3) qualified Pag-IBIG Members to tack in a single loan secured by the same collateral, provided they are related within the second civil degree of consanguinity.

That means they can be your:

Parents
Siblings
Children
Aunts and uncles
Cousins
Grandparents
Grand children

See? That’s a lot of help. But please proceed carefully. This is one of those itchy options that you want to avoid as much as possible.

Tip #5: Try Other Housing Loan Alternatives

Denied a Pag-IBIG Housing Loan?

Relax! Please realize that the world doesn’t stop spinning if you are denied a Pag-IBIG housing loan. There are other alternatives that you may consider such as the following:

Bank Financing
Mortgage Loans From Credit Cooperatives
In-House Financing if the seller itself is also a developer.

For a detailed explanation on this topic, please read the “Pag-IBIG Housing Loan Alternatives” article.

If any of the above still doesn’t work, don’t lose hope. You can always try again next time.

“5 Tips To Take If Your Housing Loan Application Is Denied” is written by Carlos Velasco