Whether to reside in or as an investment, many OFWs purchase their house through a loan. These are some of the things you need to know about housing loans in the Philippines if you are an OFW.
When overseas Filipino workers (OFWs) are asked why they choose to make a living abroad, most, if not all, say it is in the hopes of building a better life for their loved ones in the Philippines. Not surprisingly, “building” is an apt word of choice, as many OFWs invest in real estate to provide that better life. However, while they earn significantly more while working overseas, not all OFWs have enough cash to spare to make a big purchase, such as a home. So like local homebuyers, they turn to housing loans for their property acquisition.
Bank loans make the most sense as compared to in-house financing due to their favorable interest rates and payment terms. However, with so many local banks offering housing loans, it can be challenging to find the right one to apply for. Being based overseas does not help either, but unlike the tedious aspects and limitations of buying a home while overseas (oculars, processing documents), keeping these key considerations in mind can make it easier:
- The amount of money needed and the amount of money the bank can offer.
The maximum loanable amount most banks offer is about 70 to 80 percent of the property’s value. This may however; change depending on what type of property is being bought. For example, the loan-to-collateral value (defined as the ratio of a loan to the value of an asset purchased) of a house and lot may range from 70 to 80 percent. However, as the appraised value is generally lower than the property’s actual selling price, housing loan applicants should expect to set aside at least 30 percent equity (in the form of a down-payment) for the property.
In addition, how much a bank can lend will depend on the loan applicant’s income. A useful rule of thumb is the 2.5 rule: Determine your annual income and multiply it by 2.5. The product will be the property’s selling price that person can afford. For example, if a person earns PHP 900,000 annually, the property he or she can afford costs approximately PHP 2.25 million. Then, by deducting a 30 percent down-payment, the amount of the housing loan a bank can extend to this person is approximately Php1.575 million.
In the Philippines, most banks have tie-ups with real estate developers to make home purchasing easier for Filipinos, especially for OFWs. Metrobank, for instance, can offer higher amounts to housing loan applicants if they are purchasing a property from one of their partner developers.
Just like how banks vary, so do the terms of the housing loans that they offer. Luckily, this information is available in most banks’ websites. Some even having loan calculators, allowing homebuyers to compare which one would best meet their home buying needs and estimate their monthly payments.
- Amount of time for making house payments
Most banks offer a loan tenor of maximum ten years for the purchase of residential lots and for personal investment, and 15 years for all other property types. In addition, the loan term will also depend on the applicant’s age. However, it is still best to do your research and consult with banks’ loan officers as banks can have different terms for different property types. Furthermore, your current income, expenses, and finances for the foreseeable future are the main consideration when discussing payments for a home loan, and the length and flexibility of terms is paramount to being able to work the loan payments within the home buyer’s aforementioned finances.
- Amount of interest being incurred
While most major banks offering home loans are capable of covering 70–80 percent of the appraised property values and offering a loan tenor for as long as 15 years, it is in the interest rates that loans can differ. You should take note that it is not just the home loan with the lowest interest rate that is ideal, but also the one where the borrower’s investment is protected.
Financial institutions like Metrobank also make sure borrowers are protected from shifts in the real estate market by offering fixed-interest periods. This is when the homebuyer selects a period of between 1 to 15 years where their interest remains fixed regardless of the movements in the market. Each particular period has a specific fixed interest or bookings rate, which is only re-reviewed upon the period’s expiration.