Tips and Traps

Top 4 Reasons Why You Should Not Buy A House

I understand that most of you are visiting this website because, in one way or the other, you are contemplating a home purchase and that you want to use Pag-IBIG Home Loan to finance your investment. Indeed, we have come a long way in explaining the essentials of Pag-IBIG Housing Loan. From home buying preparation to the housing loan process and buying foreclosure units, we have already covered the most important stuff.

This article is a little bit different from the others we have made so far. It’s about not buying a house.

Yes that’s right. This is about NOT BUYING your piece of real estate. There are cases and situations when buying a house is a wrong move. As a matter of fact, there are people who should not even dare to look at a show house on display at a subdivision development or a condominium project. That’s harsh, I know. Bu if you belong to these groups of people, you would eventually thank me for giving that kind of suggestion. I’m doing this so you can keep your sanity intact and your money where it truly belongs: in your bank account.

You should not buy a house if…

1. You are a new kid in town

People do this all the time: they move from one place to another. They relocate to a new city as a result of their work assignment. They have a new business venture from out of town and they decide to move there to live. If you are in this situation, you should not buy a house immediately. Give yourself six months to one year to become familiar with your new place, its landscape, its people, and its political climate. If you are a family man and your wife and kids will be moving with you, you have to involve them in the decision process. Get input from your family members and your friends. You should use your common sense as well as your power for “feeling” a particular place.

Home buying is not like shopping for your grocery items. It takes a keen observation and careful attention to details. In choosing a place to live, you should consider such factors are the flow of traffic, location of schools, where people are shopping, the toxic and noisy areas of town and other similar factors.

My suggestion is for you to rent a place for six months to one year, before you jump into the home buying decision.

2. You can’t personally see the house

Consider the following messages we receive from Overseas Filipino Workers:

“Please help me buy a house in the Philippines. I’m still here in Canada, but I want to have my own house when I go back home for vacation.”
“Can I apply for a housing loan even if I’m here abroad?”
“Can you send me the Form to fill up when buying a condo?”

While it’s possible to buy a property even if you are based overseas, it may not be to your advantage. In fact, it invites a lot of surprises and frustrations later on when you have already made your commitment. Can you actually rely on the map sent to you by the real estate agent? How about the sleek brochures and presentations online on the developer’s website? Do you find them attractive? Can you tell which information and defects are not being shown to you?

Nothing beats actually seeing the property yourself.

3. Your marriage is down the sink

More Home Buying Tips If your Facebook Civil Status says, “Complicated,” you should consider a second opinion, or even third, when deciding to buy a house. Well here’s my short opinion: Don’t buy. Put the reservation money back in your wallet.

There are couples who think that buying a home could somehow save their already dysfunctional relationship since it would require committed efforts from both parties. But isn’t sticking to a commitment the primary reason for the shaky relationship in the first place? While I am not a marriage counselor, I’ve seen enough marriage problems being finally brought up eventually when applying for a loan or transferring the land title to your name.

Like it or not, remember that we still don’t have divorce here in the Philippines. So, think twice before buying your dream house.

4. You are not financially fit to buy

Your home is one of the most expensive items you’ll ever buy in your lifetime. Can you buy in a single spot cash payment? For many of us, that’s unlikely to happen. That’s why we need a mortgage loan. And remember a loan will cost you money. It comes with an obligation you have to keep for a much longer time. Otherwise, the consequences would be dire and stressful.

Think about the 20% to 30% down payment. Where would you get that money? How much loan can you possibly afford to pay on a monthly basis?

(Related article: Income Requirement vs Loan Amount)

Are you aware of the other expenses that you need to prepare? We suggest that you prepare at least another 5% of the cash price for miscellaneous expenses and another 20% or so to buy your furniture and appliances.

Further Notes:

Perhaps for ethical reasons or due to the nature of their business, you probably won’t hear a real estate broker or agent give you any of the advice against buying a real estate. For them it’s always time to buy. But hopefully, after reading this article, you already know much better.

You have to know what you are doing. After all, you’re the one paying for the property.

Real Estate Location : The Good, The Bad and The Ugly

by Pag-IBIG Financing Admin

Did you know about the three most important secrets of real estate investing?

They are the following: “location, location, location.”

Now consider this: Which of the two properties would you rather buy?

A bad house in a good location
A good house in a bad location

To give you a hint, let this real estate principle guide you: “A property of higher value is negatively affected by its association with lower value properties.” That’s the Principle of Regression and is mostly applied when appraising a property. The counterpart principle is called the Principle of Progression, which implies that the lower value property tends to be positively affected if it is in close proximity to a higher value property.

Principle of Progression and Regression Explained

So needless to say, if you can afford it, you should buy a property with a good location. A bad location is like a waste of money.

But how do you determine a good location from the bad? Below are some tips.

Good Location

1. Close To The Best Schools — The presence of good schools in a community almost always determines whether it will go up in value or not. Especially if you have school-age children, you should select a house that is near the best schools in your area.

(Related Link : First-Time Home Buyer?)

2. Close Business Shopping Centers and Recreational Facilities — Many of us Filipinos would not want to stay at home, especially on holidays and non-working days. We would rather be at the malls, dinning out or in any other places. If you live in a house that is a just a few-minute commute to the business centers, that’s a good pick of a location.

3. Accessible To Public Transportation — This is quite self-explanatory. The main advantage of having access to public transportation (jeepney, bus, taxi, etc) is that you can use those if your car break down for some reasons. Also, some families would prefer not having a car, so public transportations are very useful for them.

4. Peaceful, Safe and Quite Community — It’s very important that you live in a city or town where the crime rate is very low, where you and your family can be safe and at peace with everyone in the neighborhood.

5. Community with Stable Economy — Select a place where business is booming and the unemployment rate is low. This is an indication of a progressive society.

Bad Location

1. Deteriorating Neighborhood — Have you seen a village or even town where the road networks are dilapidated and almost left unmaintained for a long time? How about a place where squatters are in abundance with no signs of being relocated? Beware of investing in those locations.

2. Dangerous and Hazardous Communities — Chemical Factories, Power Generators, Rail Roads, and High Speed Expressway. You don’t want to risk your health or life living in such places as these. And naturally, no one in his right mind would want to live there, too.

3. Economically Depressed Cities and Towns — War-torn provinces, rebel-infested places and cities where businesses are dying. These are examples of locations that you should avoid as much as possible.

4. Noisy Areas and Crime Ridden Places — Of course, you want to sleep soundly at night. And you want peace and harmony with your neighbors in your community.

5. Low Quality Facilities — Think: clean water supply, uninterruptible electrical supply, cemented road networks and all those things that allow the residents of a particular place to live in convenience. If those things are missing, maybe you should cross that location out of your real estate investment list.

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This article is written by Carlos Velasco.

The Challenge: Design A Single-Family House, Maximum Cost = P 200,000

by Pag-IBIG Financing Admin

Can you build a complete, decent house with a maximum budget of 200,000 Pesos?

Hmm… How would it look like?

This is part of the challenge set out by the Pag-IBIG Fund in its newly embarked House Design Competition for the year 2012. The competition is open to all architecture students within the Metro Manila, Cavite and Bulacan Regions and who are currently in their third year to fifth year study.

Important details of the project are outlined below.

Project Cost : P 200,000, maximum
Type Of House : Single-Family, either attached or detached
Min Floor Area : 24 sqm
Min Lot Area : 54 sqm
Living Facilities Include: living room, bedroom(s), laundry area, kitchen and dinning areas, and toilet and bathroom(s)
Must utilize AITECH materials, systems and technology. (AITECH stands for Accreditation of Indigenous Technologies for Housing)

If you know someone (must be a student of architecture) who has the knack of doing it and who is up for some prize money, please share this article to him/her.

For the other details of the competition, please visit the official website of the Pag-IBIG Fund.

House Design Blueprint

What’s In It For You, The Pag-IBIG Member?

You already know that the Pag-IBIG Fund is the premier government agency that funds low-cost housing projects, which are intended for the low- to mid-income workers in the country and who are also members of the Pag-IBIG Fund.

The winning design for this competition may serve as a prototype for Pag-IBIG Fund’s future subdivision initiative called the Pag-IBIG City, which may be implemented in certain cities and town across the country in coordination with Local Government Units and other entities.

Moreover, the winning design may also be used by Pag-IBIG in building houses for its foreclosed residential lots.

So as members of the Pag-IBIG Fund, you should ask yourselves the following:

What can I expect from a house construction project with a budget of P 200,000? The resulting design should give you an idea. Think: Low-cost.
Is this kind of house appropriate for my needs or that of my family? Do you want to have pets, cars, lawns, etc. Factor those things out when planning to buy a house for your family.
Assuming the house alone will indeed cost 200k to construct, how much would be the final price if I get a bigger lot area of, say, 200 sqm? Lot prices depend on certain locations, some are cheaper and others are more expensive. It helps if you have an idea of the going prices in the area you are interested in buying.

Well, this is exciting! Let’s wait and see who will win in this house design competition. The final judgment and announcement of winners will be on May 18, 2012.

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This article on “Pag-IBIG House Design Competition” is written by Carlos Velasco.

Loaning With No Income Tax Return

by Pag-IBIG Financing Admin

Here’s another letter that we’d like to share to every reader of this website. It’s about the use of the Income Tax Return as a requirement in applying for a Housing Loan. The letter is shown below.

“I want to become a member of [the] Pag-IBIG Fun. My question is, is it possible na maging voluntary member ako kahit wala akong ma-present na ITR [Income Tax Return]? Hindi kasi ganun kalaki ang kinikita ko eh.

“Hope you respond to this.

“Thank you so much.”

With reference to the letter presented above, we’ll limit the discussion on this article on the following points:

Membership To The Pag-IBIG Fund
Income Tax Return and Other Requirements
Income Requirement

Locally employed individuals, freelancers, practicing professional, and operators of a small business in the Philippines who are interested about the Housing Loan Program of the Pag-IBIG Fund should pay attention to this article as we elaborate on the details in the succeeding paragraphs.

Mandatory Coverage

By now, you should be aware already that under the Home Development Mutual Fund Law of 2009, the following are mandated to become members of the Pag-IBIG Fund:

Locally employed Filipinos who are compulsorily covered by the SSS and the GSIS
Self-employed Filipinos with an income of at least P 1,000 / month
Overseas Filipino Workers
Filipino Seafarers
Uniformed members of the AFP, BFP, BJMP and PNP
Household helper earning at least P 1,000 per month

For these groups of people, there is no other choice but to become members of the Pag-IBIG Fund.

Voluntary Membership To The Pag-IBIG Fund

However, for the rest who also wanted to join as members, a Voluntary Membership to the Pag-IBIG Fund is available. If you should want to take this opportunity and become a voluntary member, take note of the following.

You are self-contributing – That is, there is no employer counter-part to your membership contribution unlike the case for the locally employed members.
Salary Deduction is NOT an Option – This should be obvious from #1 above.
You may or may not be granted a housing loan. It’s important that you can demonstrate a proof that you are earning. More about this later.

Income Tax Return and Other Document Requirements

Here’s a recap of the basic document requirements for the Housing Loan Application:

Housing Loan Application
Approved membership Status Verification Slip
Transfer Certificate Title / Condominium Certificate Title – Must be a certified true copy
Tax Declaration – Photocopy of the updated one
Location plan and vicinity map

In addition to the above documents, the following are also considered as basic requirements…

Housing Loan Document Requirements For The Self-employed or Business Owner

Now, if you happen to be a practicing professional (dentist, architect, accountant, etc), an owner / operator of a small business (more specifically a business structured as a single-proprietorship), or self-employed, the Pag-IBIG Fund says you need the following when applying for a Home Loan Program:

1 year Income Tax Return (1 yr)
Audited Financial Statement
Official Receipt of Tax payment from the Bank, DTI Registration, Mayor’s Permit

As such, there’s no escaping the ITR for self-employed and voluntary members.

Housing Loan Document Requirements For The Employees?

For the locally employed, ANY of the following must be presented:

Notarized Certificate of Employment and Compensation (Pag-IBIG Format)
Notarized Certificate of Employment and Compensation (Employer’s Format) and 1 month latest Payslip/Payroll (certified by the employer)
Income Tax Return / Certificate of Tax Withheld (W2-Form 2316) and 1 month latest Payslip/Payroll (certified by the employer)

In other words, for the locally employed, the ITR is only optional. In lieu of that, you may use a Certificate of Employment and Compensation from your employer.

For a complete list of requirements, please visit this article.

Income Requirements

The letter sender above must a little bit worried about getting loan when she declared, “Hindi kasi ganun kalaki ang kinikita ko eh.”

Having a large income is certainly advantageous in almost any business dealings when you apply for a real estate loan. That is, a bigger income gives you a better chance of getting a bigger loan amount also; and therefore, a bigger house.

But take note, Pag-IBIG Fund was created to make it easier for the low- and mid-income Filipino families to own a decent home by gaining access to a housing loan program that offers a lower rate and longer payment terms compared to the other financing institutions like banks.

When buying a real property and financing it using the Pag-IBIG Home Loan program, the following tips should be helpful to you:

Determine Your Budget for the House – As much as possible, it should not exceed 30% of your combined household income.
Loan Term – How much is it going to cost you on a month to month basis if you will be paying the loan in 15 years, 20 years or 30 years?
Consider Getting a Co-Borrower – This must be avoided as much as possible. But if you really need that property, this is an option to take. (Follow this article for more options.)

“Loaning With No Income Tax Return” is written by Carlos Velasco.

When Is The Right Time To Buy?

by Pag-IBIG Financing Admin

“Please let me know the document requirements for buying a property and using Pag-IBIG Housing Loan. I want to buy my first home when I go back to the Philippines for my annual vacation leave.”

That’s taken from a letter sent to us by an OFW visitor. Most probably, you too are on the same boat. That is, you want to take advantage of your time in the Philippines to look for a property to buy – or, invest as what the real estate dealers would want you to believe.

(Quick Check : Document Requirements for Pag-IBIG Housing Loan)

December is fast approaching. Nothing beats celebrating the Christmas seasons in the Philippines. And when you come home in the country, you will definitely see a lot of offers to buy a house or condo.
Should you bite the offer?

Is December the right time to buy a piece of property?

Many savvy real estate investors believe that there is such a thing as the right time to buy real estate. We’ll discuss some of them in the following lines.

Buy At the Buyer’s Market

Lacking access to the right information, not many Filipinos are aware of the two kinds of real estate market conditions:

Seller’s Market – There are more buyers than available properties in the market. Sellers, of course, are happy with such conditions. For anyone who is into build-and-sell business, this is the time for celebration.
Buyer’s Market – There are more properties for sale than there are buyers who would take them. Rush Sale, Discounted Offer, Low Down… these signs will be all over the place. Unfortunately, the buyers are not biting the offer.

Sounds like the Law of Supply and Demand in your Economics 101?

It’s a universal law the affects real estate as well.
A good advice worth remembering: “Buy when everyone is selling. Sell when everyone is buying.”

Buy Low (Sell High?)

Most real estate investors operate with this mindset: “Buy. Hold. Sell.”

real estate market philippines It works this way: They buy a piece of property, which is usually in a form of subdivision lot that is to be developed in some future time. Hold it for a couple of years or so, while waiting for the subdivision project to be completed and properly developed. Sell high at the current market price, which is usually higher than the cost of acquiring the property.

Buying low and then selling high leads to profit, right? This technique is sometimes referred to as real estate speculation. There could be inherent dangers with this approach, but for most investors who know what they are doing, this one works.

But even if you are not into buying and selling real estate for business, there is some wisdom in buying at a low price. If one is available and you think it is a good deal, go for it. There is nothing wrong about getting more for less.

Buy When You Are Ready

Forget about real estate investment techniques and all.

Real estate brokers and agents are crazy people. In a down market, they would say, “Now is the right time to buy while the price is still low.” When prices are rising they would say, “Buy now before the price goes even higher.” For them, it’s always time to buy. Why not? That’s their job. After all, they are licensed to do it.

It’s time you tell them to shut up.

This one had to do with good old common sense… and very useful at that.

Buying when you are ready means:

Your employment or business is stable. This is very important. Don’t buy a property if your employment or business is a little shaky. That’s why we have been advocating that you forget about asking if paying 24 monthly contributions to the Pag-IBIG Fund is enough to get a loan. There’s more to the getting a Pag-IBIG Housing Loan than just your contributions. Your employment track record and salary play an even bigger role.
You have saved enough for the down payment. So you think you can afford to pay for the monthly amortization on the house you are eyeing to buy? After all, Pag-IBIG allows you up to 30 years in loan term and you are eligible for that. Wait until you see the down payment. Remember, this is one area which you should prepare too.
You can afford to pay the loan. Make sure that the scheduled monthly amortization on your loan is not too much of a drain on your budget. Remember that you have other expenses too.
You are sure about the property you are buying. Owning a home entails a lot of responsibilities. Sometimes renting is even more beneficial than just buying a home. Make sure that you know the differences. Get your priorities in order. As a general rule, ask yourself if you will be staying in the property for five years or even longer. If the answer is yes, you are better off buying.

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“When Is The Right Time To Buy?” is written by Carlos Velasco.

In-House Home Financing: A Good Alternative to Pag-IBIG Housing Loan?

by Pag-IBIG Financing Admin

This article is a little bit off-topic considering that many of you are coming to this website mainly to know more about the programs of the Pag-IBIG Fund especially the Pag-IBIG Housing Loan. But please bear with us because this article could become a life saver to the other visitors who are not members of the Pag-IBIG Fund or those who are denied a Pag-IBIG Housing Loan.

We have consistently mentioned this in replies to comments from site visitors: a loan application offers no guarantee of approval. And if Pag-IBIG Financing may not be the best for you, please take note that there are other alternative home financing options that you can use.

In this article, we’ll elaborate further on the topic of In-House Financing – a Home Financing Scheme that you can use without ever becoming a member of the Pag-IBIG Fund.

The Anatomy of Conventional Home Financing

When you buy a house and take on a mortgage loan to finance it, here’s what normally happens.

You pay a reservation fee.
You pay the down payment or equity ( e.g. 20% of the selling price) either in one spot payment or in series of installments of up to one year or so depending on your arrangement with the seller. Note: the reservation fee could be part of the down payment also. The down payment goes to the developer’s account.
You apply for a housing loan (e.g., 80% of the selling price) from a third-party lending institution like the Pag-IBIG Fund or a Bank.
Your Loan is approved. Well, ideally that should be the case.
The Lender (Pag-IBIG or Bank) takes your Title, which serves as collateral for the loan, and sends the money (or proceeds of the loan) to the developer or the seller.
And you live happily ever after… in the house. That is, you take possession of the property and at the same time, you amortize on your loan.

What Is An In-House Financing?

in-house financing as alternative to pag-ibig housing loan It is a Home Financing Program offered by the real estate dealer (usually the developer) to their buyers who want to buy a house in a series of instalment payments without resorting to third-party financial institutions.

Ever noticed that we mentioned the third-party lending institution in Step #3 above? With In-House Financing, there is no more third-party involved. In other words, the transaction is just between you and the developer … no one else.

Question: Is In-House Financing good for you as a real estate buyer?

Answer: Ideally, it should make things less complicated on your part – and the seller’s side, too. But, in reality, the answer could be yes and no. We cite below the pros and cons of using the In-House Financing Scheme.

The Advantages of In-House Financing

It’s quite simple and straight forward since you will be dealing only with one company.
The document requirements may be minimal. Some will not even bother you with too much document details on your financial capabilities.
This may be the only option for people who for some reasons can’t get a loan from the bank or other financial institution.

The Disadvantages of In-House Financing

The interest rate is way up higher than what the market offers, sometimes even double market figure.
The down payment could be bigger than would normally be required if you use bank or pag-IBIG Financing.
Only Short-Term Financing. The developer is wise enough to minimize the risk of having you as a client.
May be available only on property purchase with house that is still to be constructed. Some developers would not use In-House Financing on a house that is already finished and/or ready-to-occupy

Pag-IBIG Financing Insider’s Tip: The simplicity of using the In-House Financing Scheme comes with a steep price tag. The only reason you should take it is in when you are sure you will be denied a housing loan from a lending company. And, ironic as it may seem, real estate sellers would rather want that you take on a mortgage loan from a bank or Pag-IBIG than avail of the In-House Financing.

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“In-House Home Financing: A Good Alternative to Pag-IBIG Housing Loan?” is written by Carlos Velasco.