Pagibig Financing

Pag-IBIG Fund, Housing Loans, Mortgage, Membership, Foreclosures, etc

Mortgage

On Collateral And The Pag-IBIG Housing Loan

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Can you imagine life without mortgage loans?

To say the least, only a very few families would be living in their own homes. The reality is, most people can’t really afford to pay Spot Cash on a piece of property. Even a 2-year interest-free, installment payment is still hard on the average family’s budget.

But thanks to financing programs like mortgage loans (or housing loans), many families now enjoy having a roof over their heads while still paying the property over a series of monthly payments on a longer term.

The concept is actually very simple. Given the appraised value of the property, a lending institution can assist the buyer in purchasing the property by financing part of the price. Normally, the lending company may shoulder up to 80% of the property’s price and the borrower should be able to raise the 20% cash down payment.

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Pag-IBIG Member Benefits and Responsibilities

As a member of the Pag-IBIG Fund, one of the benefits you can enjoy as member is becoming eligible for Pag-IBIG Housing Loan and paying it in longer periods of up to 30 years.

One of the most important things you need to understand about Pag-IBIG Housing Loan, or any mortgage loan for that matter, is that, it is a secured form of financing. This means that when you sign a housing loan with Pag-IBIG, there are two points that you need to keep in mind:

  • You promise to repay loan on time as set in the agreement.
  • You put the property as collateral to backup your pledge.

The moment you fail to pay on the scheduled monthly amortization, that’s when the Foreclosure clock starts to tick.

It’s a very stressful event and you should do everything in your capacity to contact the Pag-IBIG Fund branch where you applied for the housing loan before it’s too late.

Collateral Requirement of Pag-IBIG Housing Loan

You should already know that Pag-IBIG Housing Loan is only applicable to residential types of properties; not commercial properties.

The collateral requirement of Pag-IBIG Home Loan is very simple: A clean Title (TCT/CCT) issued by the Registry of Deeds.

Important points to remember:

  • The tax on the real property must be updated.
  • The borrower is required to submit a copy of tax receipts.

Furthermore, the following properties / Titles are not acceptable as collateral:

  1. Free / Homestead / Miscellaneous Sales Patent Titles
  2. Properties with Encumbrances
  3. Properties with Liens

See the following related articles:

Buyer, Beware

Take note of the above-mentioned list of “unacceptable collateral” because they are very important especially if you are buying from individual sellers; that is, not from developer corporations.

When buying a property, insist on getting a copy of the Title — (TCT for Lot, or CCT for condominium unit). Once you have it, verify its status at your local Registry of Deeds. Always avoid buying properties that belong to any of the three categories mentioned above.

Foreclosure properties are another type of properties you should avoid at all costs until you have educated yourself already on the whole idea. However, if you are not that confident yet, forget about all those money-making schemes they preach in Foreclosure Seminars. These properties are much more complicated and a much more painful investment than seminar experts would want to believe.

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“On Collateral And The Pag-IBIG Housing Loan” is written by Carlos Velasco.

Pag-IBIG Housing Loan Alternatives

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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

In-House Financing

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.

Can You Afford That House?

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“The ending is everything. Plan all the way to it, taking into account all the possible consequences, obstacles, and twists of fortune that might reverse your hard work and give the glory to others…” –Robert Greene, The 48 Laws of Power

This is very much applicable for first–time home buyers.

How much can you afford to spend?

That is the first question that you have to ask yourself. And once you get the answer, you’d most probably realize that you’ll have to borrow money to finance your dream home. This is what we call a mortgage.

For home buyers, taking out a mortgage is a big problem. And why is that? It’s because financial institutions, such as your local bank, might not want to lend you the exact amount that you need. It has a lot to do about the risk involved in lending you the money.

When you get pre-qualified for a mortgage loan, financial institutions are basically looking for answers to the following questions:

  1. Do you make enough money to pay back your loan?
  2. What is your credit rating?
  3. Do you have assets that you can use as collateral?

With these questions, you are related to concepts of Income, Credit Worthiness and Collateral. Let’s tackle each one of these.

Do you make enough money to pay back your loan?

Banks would not only want to know how much money you currently have; they also would want to know how much you would likely be making over the next thirty or so years. They would also want to know your assets and liabilities, current and non–current. Your other properties, like your car and home, are also considered by the banks before they lend you anything.

Generally, banks would require you put 20% equity of the value of your property before they grant your mortgage. But some banks offer special financing arrangements that minimize the equity requirement.

What is your credit rating?

Credit rating is among the most important factors considered by the banks or lending institutions to determine the risk of lending you the money. What happens is they take a look at your financial history, your ability to pay your credit card bills, how much is your income and your expenses. A poor credit rating adversely affects your chance of getting a loan.

Do you have assets that you can use as collateral?

A collateral is simply a form of security usually an asset that you pledge to the lender should you default on your loan. It is a way for banks and financial institutions to shield them against the risks of lending you the money.

Collateral can be in any of the following forms:

  • Real Estate (home, land, farm, etc)
  • Cash Accounts
  • Shares of Stock
  • Insurance
  • Future Collectibles

What happens is you are giving them the right to take over the collateral should a loan default happen.

Don’t let this happen to you.

Now that you’ve understood the bank’s point of view, it’s time to look at your point of view.

Your Timeline

How long do you plan to stay in your new home? Make economic sense in your investment by not just buying and then selling it after three or so years of staying in the house. You do know that there are costs of buying and selling the property, which will be a lot if your property does not appreciate in value quickly enough to cover these costs. Weigh the pros and cons of buying and selling so quickly.

Your Comfort Zone

So the bank loaned you Php 8,000,000 to finance your new home, eh? That’s good. But how do you plan to repay this loan? Do you plan to repay this for the rest of your life?

The point here is, know your limits. Can you really afford to loan this amount when you have other obligations? Remember: your house payment is just a piece of your financial puzzle. Ask yourself what you’re ready to sacrifice in order to make that dream house a reality.

So if you’re planning to buy a home, look at the end. Can you afford it? If you see yourself eventually becoming homeless in the streets, then you have to reconsider. Maybe it’s not yet time to take that first step.

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Can You Afford That House is written by Kyro Jo as a guide for first-time home buyers. Kyro considers this to be the first step any home buyer should take when thinking about buying a home.

Mortgage Loan Fundamentals

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Real estate properties are seldom bought on spot cash. The vast majority are purchased with a little down payment and mortgage loans on the balance.

A mortgage loan is a form of secured financing; that is, the lender gives you the needed financing and in return you pledge the property as collateral.

In a mortgage loan, there are two very important documents that you will be committed to:

  • Note – is a promise to repay the loan on a timely basis
  • Mortgage or Deed of Trust – is a pledge to secure the loan with the real estate in question in case the borrower fails on his loan obligations.

A mortgage creates a lien on the property, which gives the lender the right to foreclose the property in question.

A loan default happens when you fail to repay the loan “on time” as stipulated on the contract. If that happens, the lender can foreclose the mortgage and take on the property.

Interest Rate and Loan Term

A mortgage loan has two very important components that you need to be aware of.

  • Interest rate – is the price of using the lender’s money and is applied to the principal balance. A lower interest rate means a cheaper use of the lender’s money and should be good for you.
  • Loan term – the time it takes to pay off the whole amount borrowed. Loan term usually spans a number of years.

These two factors primarily affect the installment payments, which is usually on a monthly basis.

The amount shown on the monthly installment schedule always remains constant. When you pay off a loan, a portion goes to the interest payment and another portion goes to pay off the principal amount. In other words, the principal balance is reduced with each payment that you make. And as a consequence, the interest is also reduced as the loan matures. Early installments mostly go to the interest payments while later installments mostly cover the principal.

Down Payment and Mortgage

Most lenders will not grant you a loan that is equivalent to the selling price of the property. In many cases, they will have to appraise the property and you will be asked to put a down payment and loan the remaining balance of the appraised value.

The down payment is sometimes referred to as equity on the property.

The standard down payment is 20% of the appraised value of the property; 80% being your loan or the financed amount.

The more money you put as down payment, the lower your loan will be. And always remember that the loan bears an interest.

Now comes the question: Which is better of the two?

  1. A low down payment and large loan.
  2. A large down payment and small loan.

There are arguments favoring one over the other. It’s all up to you and your circumstances. But sometimes, the lender will force you to take on lower loan (with large down payment) to lower their risk of loaning you the money to finance your real estate purchase. That’s just pure business.

Pag-IBIG Mortgage Loan

Depending on the property and where you are buying it, Pag-IBIG Fund may give you a large amount of loan which is almost equal to the selling price of the property. But always bear in mind the maximum loan amount the Pag-IBIG Fund can grant you. If you find the amount too small for the property you are considering, you may need to come up with a large down payment or you may use an alternative financial institution.

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Mortgage Loan Fundamentals is written by Carlos Velasco.

Pag-IBIG Housing Loan 101

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One of the main concerns of Pag-IBIG Members is getting a Housing Loan. And why not? That is one of the privileges they can get as members of the Fund Company.

This article will address a number of those basic concerns about Housing Loan.

Who can avail of Pag-IBIG Housing Loan?

Pag-IBIG Loans are allowed only to Pag-IBIG Members who are at least two years already and who have contributed at least 24 months. Of course, there are other requirements, before the loan is finally granted, but the point is Loans from Pag-IBIG is only open to its members.

How much can I loan from Pag-IBIG?

The maximum housing loan amount that can be granted to any member is only PhP 3,000,000. So that means if the property you are considering is priced more than PhP 3M, you need to come up with some form of up-front payment (or equity) to settle the price difference virus the loan amount. Or, you may opt for another financial institution. Please refer to the Mortgage Loan Fundamentals.

What type of Real Estate or Real Estate Projects can be financed with Pag-IBIG?

Pag-IBIG Housing Loans can be used to financed any of the following:

  • Lot-Only Property — It could be a raw land or parcel of land in a subdivision development.
  • House Construction or Improvement — The residential unit should be constructed on a lot owned by the member.
  • House and Lot Purchase — New or old house with lot. If you are buying from a developer, please check with your broker/agent if Pag-IBIG can be used to finance the property you wanted to buy.
  • Refinancing Of An Existing Mortgage Loan

Always bear in mind that you can only get a maximum of PhP 3M loan and you are limited to residential projects only.

How much is the interest rate of Pag-IBIG Housing Loan?

Good question! Most buyers of real estate in the Philippines have no idea of the interest rate that comes with the loan. As a buyer, you should make it a top priority to know about the interest rate and be able to compare it to competing lenders.

(Interest rates are also discussed in Mortgage Fundamentals article.)

Luckily for Pag-IBIG Members, the interest rates are among the lowest in the market! Depending on the amount of loan, the interest runs from 6% to 11.5% per annum.