Loan to Own: Using Bank Home Loan to Pay for your House

As a borrower, you pay for the service of being given the money to purchase the house you like.

Getting a loan from a bank to purchase a house is not a simple matter. But, it is also not impossible.

According to the Bangko Central ng Pilipinas, the amount of Residential Real Estate Loans recorded in the Philippine banking system was over P615 billion in 2018. This data shows that a lot of people benefited from the assistance of banks.

Banks see the opportunities in the housing market, and offer home loans to those who are eager to have a place of their own.

So, what are the things that you need to know if you are considering approaching a bank?

Know the bank requirements

Each bank has their own set of requirements for home loans. Generally, they fall under three categories:

The first is the application, which includes a filled-out form with supporting documents like two valid identification cards and marriage contracts, if applicable.

These are asked to prove that the applicant is eligible for a home loan. For example, banks may specify that the borrower is within a specific age group, which is 21-65 for most banks. Citizenship may also be a requirement. However, some banks are open to giving home loans to foreigners.

The second category is for documents proving income. Examples include Income Tax Returns or pay slips. Banks have a minimum income requirement. For example, BPI has a minimum gross family income requirement of P40,000.

Finally, property documents are submitted to the bank if you are purchasing the property. Some of the paperwork you will need to prepare are Certificate Transfer of Title or the tax declaration.

Understanding Interest Rates

Home bank loans are a business transaction. As a borrower, you pay for the service of being given the money to purchase the house you like. This payment of service is what is called the interest rate.

A home loan changes the actual amount you need to pay. Instead of just paying the amount you borrowed, known as the principal, you also pay for the interest over a specified period. The length of time you have to pay back the bank for the money they lent you and the interest rate is part of the loan terms.

Banks also differ in their loan terms. Interest rates can vary, but usually fall within 5-6%. Generally, the maximum loan period is 20 years, with some outliers that allow up to 25 years.

These terms are important because they determine how much money you pay each month. Generally, shorter repayment periods mean you pay less. This is because the interest rates add to the total amount. Consequently, missing a payment exposes you to more liability. It is noteworthy that under Philippine law, interest rates are paid before the principal.

Understanding the Process

Home loans are a service offered by banks, so they are happy to have new customers. But as you’ll find differences in requirements and loan terms as you look from bank to bank, you – the borrower – must shop around to find the right bank to fit your specific needs.

Consider the bank’s reputation. Just as with any other financial transaction, you want to deal with someone who’s up front and possesses a clean track record.

On the flip side, the banks will also be assessing you – whether or not you are a safe candidate to do business with. The banks use the loan application to help determine your ability to pay the loan. It follows that your chances of being granted a home loan improves if you can show that you are financially stable.

Approval can take 15 days or more. Make sure that the requirements you submit are complete, to get a faster response.

If you are rejected, it is not necessarily a dead end. You can always clarify with the bank why you were not granted the home loan, then signify your intent to reapply once you have addressed their concerns. Or you can simply approach another bank.

In his book How to Get the Best Home Loan, W. Frazier Bell writes, “Buyer beware. That is the best advice to anyone when purchasing a home and obtaining a mortgage.” Remember that you can always ask the bank questions about the terms of their bank loans. In fact, a trustworthy bank will ensure that you thoroughly understand their terms.

People want to own homes for a variety of reasons. Some want to have one for investment purposes. Others see it as a way of keeping their families safe and happy. Whatever the reason, finding a way to fund your home is a step towards living a fulfilled life.

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