Collateral

Home Construction Loan — Should You Get One From Pag-IBIG?

As you probably know already, a Pag-IBIG Housing Loan can be used to finance for the following projects:

House and Lot Purchase
Purchase of Lot-Only Property
Purchase of a Condominium Unit
Refinancing an Existing Mortgage
Home Improvement, Renovation, Construction Loan

The first three items listed above are easy to understand and they are the most common types of housing loans that members of Pag-IBIG avail.

The focus of this article is in the last item, which we can simply refer to as Home Construction Loan, but bear in mind the same concepts also apply to Home Improvement or the so called Renovation Loan.

A Tricky Loan?

This type of loan is a bit tricky as you will see later. It’s also something you need to understand very well before even attempting to submit an application. Like the other type of housing loan under the Pag-IBIG Fund, you still need to undergo the same pre-qualification criteria when you apply for such loan. But it is quite different than getting a Housing Loan for the purpose of buying a house, a condo or a vacant lot in. For the Home Construction Loan, you need some more additional documents:

Building Plans
Specifications and Bill of Materials duly signed by the Licensed Civil Engineer or Architect
Real Estate Tax Receipt
Building, Electrical, and Sanitary Permits
Occupancy Permit.

For a review on the complete list of document required when applying for a Pag-IBIG Housing Loan, please refer to this link: Pag-IBIG Housing Loan Document Requirements.

Home Construction Loan From Pag-IBIG Fund — Should you get a Home Construction Loan from Pag-IBIG?

Why did I say in a prior paragraph that Home Construction Loan is a bit tricky? Well, consider these words submitted to use by one Pag-IBIG Fund Member who availed of this loan. There are a lot of lessons to be learned here and we will discuss some of them after.

Learning From Experience

Good day! I am in a dilemma right now and i hope you could answer my query. I applied for a housing loan some 3 years ago for lot purchase thru pag ibig. Early this year we decided to apply for house construction loan as an additional loan to pag ibig. We decided to use our personal money at first and while construction is on going, we processed the loan. It took a while to process our documents and when assessment time came, the assessor informed us that his assessment for our structure would reach 1.9M, while we applied for 1.1M loan only.

However, i was informed that our approved loan amount is only around 600,000 since pag ibig’s basis in on the itr submitted, to be deducted with the existing loan so we will only be able to receive less than 300,000.

Our house is completed this time using our personal money and we spent around 1.5M already. I find it quite unfair that the loan that will be released is only that much while the value of the property would reach around 2.5M including the lot. In case of default of our payment, the value of our property is too big in consideration for the loan that we will get. Is there any way we can ask for reconsideration on this?

I’d like to highlight some important points that we can learn here. Think of the following as Tips and Traps of Pag-IBIG Home Construction Loan.

1. Prepare some money to fund the construction.

You will be needing that money for funding the initial and the succeeding phases of the construction project. It is also important to note that:

Pag-IBIG wants to see that the construction project has been started before releasing some money.
Pag-IBIG will release money on staggered basis, depending on the progress of the project.
Pag-IBIG wants to make sure you don’t use the money for something else.

But come to think of it. The reason why you are getting a loan is so that you won’t have to use your own money, right?

2. Get pre-approved before jumping in.

The amount of loan you will get is not necessarily equal to the estimated cost of the project. Most of the time, far lower than that amount.

Some factors that affect your approved loan include:

Your Salary / Income
You Age
The nature of your job or business
The value of the collateral

Knowing how much you loan money you will be granted definitely equips you from future surprises.

3. Think of the collateral and how much is at stake.

Here comes the part that you should think about very carefully. When you purchase a house and lot package, you will be shelling out for the down payment which is roughly 20% of the total selling price and you use a loan to finance the 80% balance. Normally, the purchase price is also the current market value of the property. Thus, you are essentially just using 20% money to take possession of 100% value. This is called leverage.

( See also : Loan Collateral )

On the flip-side, when you get a Home Construction Loan, you only get a small fraction of the total cost of the construction project in exchange of a much bigger collateral value – the land where the house stand plus the new and improved house on top of it. Not only that, you don’t even get the loan money up-front.

Questions is, does it make sense to you?

In conclusion, as a Pag-IBIG Member, getting a housing loan is one of the best things you can do about your membership. But getting a Home Construction Loan is something you should really spend time thinking through. The whole point of buying a house and perhaps using a mortgage loan to finance the purchase is to enjoy the property. If the type of loan you are getting will only cause some headaches, it’s best to avoid it in the first place.

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

by Pag-IBIG Financing Admin

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.

~~~

“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?

~~~

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

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

On Collateral And The Pag-IBIG Housing Loan

by Pag-IBIG Financing Admin

Can you imagine life without mortgage loans?

To say the least, only a very few families would be living in their own homes. The reality is, most people can’t really afford to pay Spot Cash on a piece of property. Even a 2-year interest-free, installment payment is still hard on the average family’s budget.

But thanks to financing programs like mortgage loans (or housing loans), many families now enjoy having a roof over their heads while still paying the property over a series of monthly payments on a longer term.

The concept is actually very simple. Given the appraised value of the property, a lending institution can assist the buyer in purchasing the property by financing part of the price. Normally, the lending company may shoulder up to 80% of the property’s price and the borrower should be able to raise the 20% cash down payment.

See also :

Fundamentals of Mortgage Loans

The Pag-IBIG Housing Loan Process

Pag-IBIG Member Benefits and Responsibilities

As a member of the Pag-IBIG Fund, one of the benefits you can enjoy as member is becoming eligible for Pag-IBIG Housing Loan and paying it in longer periods of up to 30 years.

One of the most important things you need to understand about Pag-IBIG Housing Loan, or any mortgage loan for that matter, is that, it is a secured form of financing. This means that when you sign a housing loan with Pag-IBIG, there are two points that you need to keep in mind:

You promise to repay loan on time as set in the agreement.
You put the property as collateral to backup your pledge.

The moment you fail to pay on the scheduled monthly amortization, that’s when the Foreclosure clock starts to tick.

It’s a very stressful event and you should do everything in your capacity to contact the Pag-IBIG Fund branch where you applied for the housing loan before it’s too late.

Collateral Requirement of Pag-IBIG Housing Loan

You should already know that Pag-IBIG Housing Loan is only applicable to residential types of properties; not commercial properties.

The collateral requirement of Pag-IBIG Home Loan is very simple: A clean Title (TCT/CCT) issued by the Registry of Deeds.

Important points to remember:

The tax on the real property must be updated.
The borrower is required to submit a copy of tax receipts.

Furthermore, the following properties / Titles are not acceptable as collateral:

Free / Homestead / Miscellaneous Sales Patent Titles
Properties with Encumbrances
Properties with Liens

See the following related articles:

Income and Pag-IBIG Housing Loan Entitlement

Pag-IBIG Housing Loans And Foreclosures

Buyer, Beware

Take note of the above-mentioned list of “unacceptable collateral” because they are very important especially if you are buying from individual sellers; that is, not from developer corporations.

When buying a property, insist on getting a copy of the Title — (TCT for Lot, or CCT for condominium unit). Once you have it, verify its status at your local Registry of Deeds. Always avoid buying properties that belong to any of the three categories mentioned above.

Foreclosure properties are another type of properties you should avoid at all costs until you have educated yourself already on the whole idea. However, if you are not that confident yet, forget about all those money-making schemes they preach in Foreclosure Seminars. These properties are much more complicated and a much more painful investment than seminar experts would want to believe.

~~~

“On Collateral And The Pag-IBIG Housing Loan” is written by Carlos Velasco.

Learn The 5Cs of Credit To Improve Your Chances Of Getting A Loan

by Pag-IBIG Financing Admin

One of the funniest definitions of a bank comes from Bob Hope. According to him, “A bank is a place that will lend you money if you can prove that you don’t need it.”

How true! It simply means that as a lending institution, the bank will consider a number of factors before granting you a loan. Just because you need a loan doesn’t mean you will get it.

Well, more or less, the same can be said of Pag-IBIG Fund. Just because you are a member of Pag-IBIG doesn’t automatically mean that you will get a loan anytime you want to.

However, your chances of success will be greater once you are aware of the most important factors they are considering when you apply for a loan, whether personal loan or housing loan.

Remember these so called 5 Cs of Credit and see how you can apply it in your respective situations.

1. Character

What sort of person are you from the point of view of the Loan Officer? Are you someone who can be trusted with the loan? Are you most likely to pay it on time or are you the one who will most likely be a candidate of loan defaults?

How long have you been a member of the Pag-IBIG Fund? How long have you been in your work or profession? Your employment record is one of the factors they consider in the evaluation process.

2. Capacity

How much is your salary or income? This will determine how much you can set aside to pay for the monthly amortization.

In general, the bigger the income, the better your chances of being approved. But don’t fool yourself. A lot of high-income professionals also maintain a high-maintenance lifestyle. But it all really boils down to how much is left before the next payroll takes it toll.

How much can you safely borrow? Pag-IBIG has a maximum limit of PhP 3M for the housing loan. Unfortunately, the maximum limit is not for everyone to enjoy. Your loan amount will most likely depend on your capacity to pay for it.