First time Buyer Home Loans
Buying your first home is an exciting life event but it can also be stressful for first time buyers who anxious to join the property ladder, especially if like most Filipinos you need to apply for a home loan from the banks. Home loans are long term debt which you use to purchase a property and then you pay back the debt (the principal) on a monthly basis with interest. Because you’re borrowing money from the bank they will require you to use the newly purchased house as collateral against your loan so that their money is protected in case you default.
Worrying whether your purchasing the right home for your family’s needs with the concerns over finding the best housing loans with the lowest interest rates can make that dream home purchase a daunting task that might make you hold back and continue renting for a while. You’re not alone with this fear of buying your first property, statistics show that Filipinos find this among the top 3 most stressful life events. The good news is that the process of choosing a home loan in the Philippines is not actually that bad and this guide below by the Money Monster team will show you how simple it can be to find the best home loan for your first property. Remember banks want to do business with you and they’re willing to work with you to get the deal done so don’t be shy about negotiating all of the interest rates and fees that you are first presented with and remember to compare all the housing loans to find the best deal for you.
Choosing the right home loan
When you apply for a mortgage in the Philippines you will be required by the bank to make a down payment of 30% on average of the property value, but as a first time buyer you might need to make a down payment as big as 40%. This means if you want to buy a home for 2 million pesos the bank will lend you a maximum (if 30% down payment required) of P1.4M. This is also known as Loan-to-value (LTV) and it’s a very important number to consider as if effects how much cash you will need to pay upfront when you purchase a property. Let’s say you have 400,000 pesos in your savings account (your total savings) which you will pay as a down payment and you want to buy a property for P2.0M. This means you need a P1.6M home loan from the bank. Based on these figures you will need to find a home loan that allows 80% LTV because you need to borrow 80% of the P2.0M. The higher your LTV, the riskier your loan is perceived by the bank which is why as a first time buyer you will most likely need to pay at least 30% of the property value upfront in cash to secure the home loan
How much will the banks lend me?
There are many different factors that will affect the amount of money you can borrow for a home loan but the main considerations are your current household disposable income – e.g. how much do you and your partner earn each month minus what are your current outgoings such as the costs of raising children, education, credit cards or auto loan debt etc. Just remember as a first time buyer you might not get the best interest rates compare to long term customs but banks will lend more money if you have a bigger salary and disposable income, with less debt and more assets but most first time buyers are not in this perfect situation so you might not be able to borrow as much money as you hoped so make sure you have back up properties at a lower budget.
Housing Loan Fees
When budgeting for your first home purchase it’s important to remember that you in addition to the interest payments will make to the bank each month you will likely also incur the following costs...
Pre-termination fee – By law in the Philippines banks are required to allow you to repay debts if you’re able to do so but there will be bank charges involved. Typically if you want to pay back your loan early you will pay a set fee of 500 – 6000 pesos or several percent of the loaned amount.
Processing fee – This is usually based on the amount of money you borrowed from the bank but is typically several thousand pesos.
Appraisal Fee – This is another several thousand pesos depending on the home loan and the bank.
Documentary Stamp tax – The standard rate is 1 peso for every P200 of the loan amount above P250,000.
Mortgage Redemption Insurance – The total is based on the loan amount but is calculated by charging P4.43 for every P1,000 of the loan amount.
Fire Insurance – Based on the appraised value of the property
Once you have found a housing loan that suits you, think about the needs of your family at present and for the next 5-10 years as a minimum. Purchasing a property should be a long term decision so it’s best to think about factors such as should you buy a house or condo or how many bedrooms your growing family will need and what is the ideal location of your desired property. If you have babies and toddlers at home they will soon enough start their education so consider schools, hospitals, crime rates, lifestyle, traffic, pollution and even parks that are near the property too.