House Loans: How do they Work?

Jan 15, 2023

Buying real estate properties is more complicated than purchasing a gadget, groceries, new furniture, or a vehicle. Preparation is essential when applying for loans, especially home loans, just like it is with any investment. An amount that an individual borrows from a financial institution or any preferred lender to buy a new or old home, build a new house, or modify an existing one is known as a house loan. Loans are used by both private individuals and commercial entities to purchase real estate property without paying the entire price upfront. Home loans in the Philippines may be applied for both after and during the search for a property. The money is borrowed at a given interest rate and paid back over time in a fixed sum of regularly spaced-apart smaller installments, divided into principal and interest, until they own the property fully. The property then acts as collateral to secure the loan.

When thinking about applying for a home loan in the Philippines, there are several factors to take into account. Some of these are whether you have the financial means to meet the loan's regular payments. Are you sufficiently knowledgeable about credit scores, mortgages, and payment terms? Do you possess the necessary bank financing requirements for the housing loan you are requesting? And last but not least, how to apply for a house loan? Loan applications undergo a thorough approval process to evaluate the borrower's needs and capabilities before moving to the closing stage.

Borrowers begin the process by looking for the appropriate financial institution or lender that could cater to the specific loan they are looking for. The lender then will ask for specific bank financing requirements for the housing loan that would be evidence the borrower's capability to repay the loan. Requirements usually include the following:

  • Duly accomplished housing loan application (for both primary and co-borrower, if there's any)
  • Valid ID's
  • Bank and investment statements
  • Income documents, such as latest Income Tax Returns (ITR), Certificate of Employment and Compensation (CEC) with authorized signature, and/or latest pay slip
  • For self-employed, valid DTI Registration or Mayor's Permit, latest ITR with audited financial statements, working account with the authorization letter, Commission Vouchers reflecting the issuer's name, Articles of Incorporation, and/or Certificate of Engagement issued by the owner of business 
  • For OFWs, Employment Contract between employee and employer or POEA Standard Contract, Notarized CEC written on the Employer's official letterhead or signed by the employer supported by employer's valid ID, and/or ITR filed with Host Country
  • Latest Transfer Certificate of Title (TCT)/ TCT of the land and Condominium Certificate of Title (CCT) if for a condominium unit
  • Updated Tax Declaration (House and Lot) and updated Real Estate Tax Receipt
  • Vicinity Map or Sketch of the Property
  • Loan Mortgage Documents, such as Loan and Mortgage Agreement duly registered with Registry of Deeds with original RD stamp, duly accomplished/notarized Promissory Note, and/or Disclosure Statement on Loan Transaction

Depending on the lender you plan to borrow from, the requirements specified may not be applicable or additional requirements may be added. The lender will likely also conduct a credit check. Consideration may also be given to eligibility factors, including age restrictions, financial institution membership, and other financial obligations, among many others. If the application is accepted, the lender will make a loan offer to the borrower up to a specific amount and at a specific interest rate after reviewing the supporting documentation. 

"How to apply for a house loan?" is not the only question you need to figure out when applying for a house loan. One should also know the specific type of house loan appropriate for their needs. Some of these types are:

  • Home Loans – the most common type of home loan intended for buying under construction, ready-to-move-in properties, or newly built homes, apartments, condo units, etc., from developers.
  • Home Construction Loan - this is an option if you already own a piece of land and need funds to build a house on it.
  • House Renovation Loan - you may submit an application for a house renovation loan if you already own a house and wish to renovate, repair, or enhance it.
  • Home Extension Loan - in cases when you need to expand the space in your current home and pay for the costs of adding more rooms or floors to it, a home extension loan may be helpful.
  • Purchase of Lot Loan - you can also apply for a plot loan if you want to purchase land with the purpose of building your own house on it later.

There are many other types of mortgages, but the 30-year and 15-year fixed-rate mortgages are the most common ones. There are mortgage terms as short as five years, and there are as long as forty years. Stretching out payments over a longer period of time may cut the monthly payment but raise the total amount of interest owed by the borrower over the course of the loan.

The most common and traditional type of mortgage is a fixed-rate loan, in which both the interest rate and the borrower's monthly mortgage payments remain constant during the loan's term. Another option is an adjustable-rate mortgage, where the interest rate is initially fixed before being subject to periodic changes in accordance with market interest rates. The mortgage may be cheaper in the short term if the initial interest rate is below market, but if it climbs significantly over time, it may become less so. 

It can be challenging to purchase the home of your dreams, particularly if you don't have a fortune lying around to spend, but if you handle your finances well, owning your own home may be within your grasp. Many financial institutions have also made mortgages accessible to help you with your long-term investment. Your likelihood of being approved for a house loan is fairly high if you have a strong credit standing and a spotless payment and credit history, as financial institutions and other lenders carry out extensive background checks. Late or delinquent payments can ruin the appearance of a positive relationship with your prospective lender.

For more information on Vista Residences and Vista Land, email [email protected], follow @VistaResidencesOfficial on Facebook, Twitter, Instagram, and YouTube, or call the Marketing Office at 0999 886 4262 / 0917 582 5167.

Other blog

Try our loan calculator and find your future home!