In-House Financing

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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Real Estate Loan is indeed the most popular service available to the Pag-IBIG Fund Members. In terms of the interest rate, it is very competitive (in many cases even lower) compared to the other mortgage loan financing alternatives in the Philippines. (The other Real Estate Financing alternatives will be discussed in the succeeding paragraphs) Another great advantage is the longer payment term of up to 30 years.

Some Uses of the Pag-IBIG Housing Loan

If you have not yet stumbled on it from the other articles, here are some uses of the Pag-IBIG Housing Loan.

Lot-Only Property Purchase
House-And-Lot Purchase
Construction of A Residential Unit
Home Improvement
Refinancing of Existing Mortgage Loan

Looking at that, it’s hard to imagine how an eligible Pag-IBIG Member should not take advantage of this benefit. Go for it if you have the chance.

Housing Loan Eligibility

But then again, to even qualify for the loan, a member should at least meet the minimum requirements listed below.

Must be a member for at least 2 years and has contributed at least 24 months. Take note: no more one-time payment of the 24 months contribution this time.
Must not be more than 65 years old at the time of loan application.
Must not be more than 70 years old at the date of loan maturity.
Must have NO outstanding Pag-IBIG Housing Loan either as principal or as co-borrower.
Must have NO outstanding Pag-IBIG Multiple-Purpose Loan in arrears at the time of application.
And most importantly, must not have a previous Housing Loan that was foreclosed, cancelled, bought back or subjected to dacion en pago.

For some becoming a member of the Pag-IBIG Fund is already too much of a hassle. There are membership dues to remember; seminars to attend to when applying for a housing loan; the difficulty in sending the monthly dues, etc. Some members have been inactive for a number of years already. Still others are not even eligible for Pag-IBIG Housing Loan.

If this is your case, there are still home financing alternatives for you. Consider the following…

Bank Financing

The first big daddy of Real Estate Financing in the Philippines is, of course, The Bank. They offer a variety of Home Financing Products that you can choose from.

The good thing about Bank Financing is that there are a lot of competitions going on. You should shop around and decide for yourself the best one based on the following factors:

Professional Service – How cool is it if your banker treats you like a King? I can tell you don’t get that kind of professional attention in Pag-IBIG.
Interest Rate – The lower, the better for you.
Payment Method – As painless as possible especially if you are working overseas. Check for the Internet Banking feature.

Tip: When you approach a loan officer, you may want to do away with that expensive Clive Christian Perfume. It will be to your advantage if you wear something that smells like money instead. I hope you know what I mean by that.

Other Similar Financial Institutions to Consider:

Credit Cooperatives
Money Lenders

This one is very simple. There are only two parties involved: you, the buyer and the seller, which is usually the Real Estate Developer.

If you are constructing a house, the developer acts as if it were The Bank. It finances the home construction and you, in turn, pay directly to the developer.

Like the Bank Financing, In-House Financing almost always requires that you put a down payment (20% of the selling price or so) and amortize the balance for a given term. This Financing Scheme also bears an interest. The series of monthly amortizations will reflect your payment for the principal amount borrowed plus the interests.

The primary advantage of In-House Financing is its simplicity.

Bank Financing vs In-House Financing

The primary downside, however, is the stiff interest rate that goes with it. At the time of this writing, the going interest rate of many In-House Financing Schemes is in the range of 18% to 21% per annum. Compare that with the going interest rate the banks are charging, which is in the range of 8% to 12%, and you will be in for the shock of your life.

When it comes to Home Financing, simplicity can be very expensive.

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“Pag-IBIG Housing Loan Alternatives” is written by Carlos Velasco.