Wespark Realty|Philippines Real Estate

MARIKINA CITY, Philippines - Only one out of 10 of our clients resort to bank financing in buying subdivision properties.

Most of them choose in-house financing or take a loan to buy the house directly from the developer of the subdivision. Despite the higher interest rate compared to banks, they prefer this arrangement with the developer because loan processing is faster and easier.

No background checks of the applicant are required. Most developers who offer in-house financing do not strictly require submission of proof of income of the buyer. Loan approval is practically as fast as one’s ability to pay the reservation, fill out the forms, and submit the usual documentary requirements.

Another reason is the fixed rates of interest of in-house financing system for the duration of the loan period. This means the loans are not affected by economic and political developments which usually make bank interest rates fluctuate.

But the interest rates of in-house financing may be prohibitive. Most developers offer straight interest as opposed to diminishing interest in bank financing schemes.

Straight interest, which is the practice for car loans, pegs a fixed interest per annum which one has to pay for the property. If one decides later to pay the bulk of the principal loan, that amount would still incur interest.

Bank Financing

Banks offer greater flexibility and lower interest rates than in-house financing. The going rate is about 9 percent per annum for a one- to three-year loan. This is usually adjusted upwards to around 12 percent for a 15-year loan. Since most banks offer payment periods of up to 15 years, monthly amortizations can be significantly lower than in-house financing.

But many home buyers refuse to apply for housing loans in banks because of stringent requirements, charges, the time required for approval and the many details one has to be aware of in getting a bank loan.

Some buyers who see the significant savings of taking out a bank loan, make the extra effort to apply with the bank after understanding what to prepare.

One requirement is documentary proof of one's income. This is the reason small players in the informal sector or underground economy need to formalize their businesses to be able to get a loan.

There are also those who have formal documentary evidence but won't qualify for a loan because they don’t have a fixed salary. Commission-based income earners are often rejected by banks for this reason.

There are banks, however, that are more open to these nuances. A loan applicant only needs to prove that he or she has a consistent income over a long period of time.

Ask the bank how many years the published interest rates are fixed. It's important for the buyer to know this because banks usually re-price the loans after a few years. They offer various interest rates depending on the length of the fixed rate period.

For example, one gets a 10-year loan. Some banks offer the option of a one-year to five-year fixed interest period, after which they will reassess the interest rates based on economic conditions current to that period. If conditions are favorable, the interest rates may be lowered. However, the opposite may also occur.

Fees

Buyers should also be ready to pay the bank fees in processing their application. These are necessary to cover the cost of having an expert visit and appraise the value of the property. The rates differ from P3,000 to P7,000. Banks usually appraise a property within a week.

The buyer also needs to pay fees for the legal annotation of the title. Every time one gets a mortgage from the bank, the mortgage is inscribed in eans that if a buyer secures a loan from a bank but does not have the money yet, the buyer will still be required to continue paying the monthly amortization until the bank releases the money.

Therefore, a buyer should ask the developers if they would honor a bank guaranty when buying property. This is important if the buyer plans to get a bank housing loan.