1hinking o buying a house lere are some tips in getting a mortgage.
By leinz Bulos September 2002
ow is the best time to buy a house. \hether you`re a young I1 proessional thinking out to buy a condo unit or a ast-rising middle manager looking or your irst house, things hae neer looked this good or a long time. \hateer your reasons or buying a lot, condo, or house - upgrading to a higher standard o liing or inestment purposes - or een i you just plan to make home improements, construct a house on an owned lot or reinance your existing mortgage, the time is ripe.
Interest rates on loans are the lowest or a number o years. \ou can get a mortgage as low 8.5 nowadays, a ar cry to a ew years ago when interest on consumer loans were twice or een thrice the preailing rates today. Banks are also quite aggressie in promoting their housing loan products and they are out to get your business. 1he residential real estate market is also beginning to look good, with quite a number o ertical and community projects underway.
Unless you`re mega-rich and pay spot cash, the best alternatie in inancing a home purchase is to get a bank mortgage. \our home will probably be the most expensie asset you`ll eer own and it will surely drain your resources or more than a decade. So it would be olly to rush through the process o buying and borrowing just so you could buy that dream house o yours. \hile you shouldn`t be dragging your eet during this ideal period or inancing a home, you also shouldn`t grab the next oer you get. 1ake your time, but don`t take too long.
Beore going to all those open house eents or calling up brokers to gie you a tour o Metro Manila, you should start irst with a reality check. It doesn`t make sense looking at houses or projects, then realizing much later that you can`t aord them. Start irst with estimating how much you can aord beore een deciding on your moe. \ho knows, you might accept the act that you need to stay at your parents` house or keep on paying rent a ew more years.
1hese are the things you need to ask yoursel:
How much am I earning every month? \our income leel is a key actor or banks to determine how much they can lend you. 1he rule o thumb is your monthly amortization should be less than 30 o your net income or take home pay. So i you`re making P50,000 a month - and most banks use that as a minimum - your maximum monthly amortization is P15,000. loweer, some banks nowadays are more conseratie. Len i you know you can aord the monthly payment, they will approe a much lower amount.
How much cash and other liquid assets do I have? 1his is important to know because banks will not lend 100 o the market alue o the property you`re interested in. I it`s a lot or house and lot, they`ll lend a maximum o 0, or condominiums, it`s 60. In the same way, sellers and deelopers require a 30 down payment, although others oer just 10. So i you`re buying a P1 million condo unit, you need P400 thousand as your equity because you can only borrow up to P600 thousand. Most likely, you need to pay up or the down payment yoursel, and that would come N rom your saings. Some property deelopers hae in-house inancing een or the down payment, which they spread out to six months. But to aoid paying interest, it`s best to pay this in cash outright. Keep in mind that some sellers also require a reseration ee that you can later apply to your down payment. 1here are other ees related to registration that aren`t exactly cheap either.
How much debt and expenses do I have? \ou hae to inorm your bank about your monthly expenses and current loans you hae, as those will gie them a better idea how much you can aord. Be honest about this because you don`t want to be in a tight squeeze later on. Consider also expenses in the oreseeable uture. I you`re planning or a wedding, a big acation, or college tuition, take these into account. Len i you`re sure your income will increase as the years go by, it`s better to be on the conseratie side.
Do I have a good credit record? Do you oten miss your credit card payments, or pay just the minimum all the time Did you eer deault on your car loan Banks share a negatie databank, so Bank A would know your credit record in Bank B. \our bank will also send a credit inestigator to check your credit history. Make sure you keep at least three months worth o credit card statements and deposit account statements, which you`d be required to submit.
Ater learning about the current state o your inances, you need to know what your mortgage options are. lere are some things to understand:
Loan amount. Most banks allow up to 0 o the market alue o the property ,60 or condos, as the maximum loan amount. 1hey also hae a minimum loan amount, such as P400 thousand. \ou can o course borrow less than 0 i you can aord it. \ou can also make balloon payments eery year to decrease your loan or een pre-terminate the entire loan. But make sure you don`t use too much o your cash, as you hae to consider other expenses. Don`t put all your saings into the equity o your home. \ou need to hae enough saings or daily needs and emergency expenses. \ou don`t want to be house-rich and cash-poor. laing considered that, do put in more equity as reasonable to lessen the interest payment on your loan. \ou also might need to do this i you want a more expensie property than what your banker will allow you to buy. So een i you`re sure you can aord a P3 million house and the corresponding monthly amortization based on your own calculation, but your bank lets you borrow less than that, then increase your equity so your loan amount decreases.
Interest rates. 1here are ixed rates yearly, or 2 years, 3 years, and 5 years. Some banks oer quarterly rates. Obiously, the longer the term, the higher the rate. Interest rates nowadays are at their lowest or a long time. And it seems they will stay stable or the oreseeable uture. I that`s your bet, then ix your rate or 1 year or get the quarterly repricing rate. But i you think interest rates will shoot up suddenly, hae it ixed or 2, 3 or 5 years. 1he ixed rate or 5 years is between 12 to 14.5. So i the interest rate 3 years rom now goes up more than 15, you`re better o. 1he downside is i rates will stay at the current 9 and you`re paying 14.5. 1here are also two options: straight-line declining-balance. Straight-line means your monthly payments are ixed. Declining-balance means you start o paying higher amortization in the irst ew years and much lesser as you near the end o the term. 1he latter results to lesser total interest. 1he other two things to consider about interest rates is the eect on your monthly amortization and your total cost. 1he lower the rate, the smaller your amortization and total interest at the end o the loan, and ice- ersa. Getting a lower rate ixed or a shorter period also means you can qualiy or a bigger loan, as your equialent monthly amortization would be within the bank`s lending limit, which is a percentage o your income.
1erm. Monthly amortizations can be steep, so the rule is to spread the payments as long as possible. 1he term or loans can be as short as 1 year to as long as 20 years. 1he longer the term, the smaller your monthly amortization but the higher your interest expense. I you max out your loan to 20 years, your dream house, which seemed such a bargain, can turn out to be too expensie when you include interest, which can be add a quarter to hal o your total costs. \ou also hae to consider i you want to pay o your loan as ast as possible. I you use a lot o your income, say, in the next ten years, you`d be sacriicing a lot o other things. Ater the term, on the other hand, you`ll hae lots o cash lying around. But there`s an opportunity cost o not being able to sae and inest what you spent on your amortizations early on. So you need to ind a balance. \ou don`t want to pay too much or interest and you don`t want to squeeze your monthly budget.
Irequency of payment. \ou can pay your amortization monthly, quarterly, or ortnightly, i.e. eery two weeks. 1he good thing about paying ortnightly is that you can budget it along with your payroll period. It also doesn`t seem as big compared to paying monthly or quarterly. Best o all, because you`re in eect making extra payments ,2 extra since there are 26 payments in a 365-day year, equialent to 13 months,, your term will shorten and so will your total interest. Now, remember, you can tell your banker your preerence, not just in requency, but also the loan amount, interest rate, and term. And don`t be araid o making a mistake. On your anniersary ,your loan, not your wedding, date, you can reinance your loan or a small ee and make changes to the terms o your loan. Also, you can choose how you pay your amortization. Banks let you pay by check or automatic debit to your account, a more conenient option.
Other fees. Don`t oerlook the miscellaneous ees that the property seller and your bank charge. 1he deeloper charges you or the registration ee, documentary stamps, transer tax, serice ee, lot plan, issuance o title, maintenance ee, and real property tax. \our bank charges you or Mortgage Redemption Insurance ,MRI,, ire insurance, handling ee, appraisal ee, documentary stamps, notarial ee, and mortgage registration. Ask your deeloper and bank which ees apply and i they`re willing to waie some o them. \ou can sae a little money by doing the leg work or title registration, but it`s usually not worth it.
\ou will know what kind o property you`ll be able to aord by doing your homework aboe. Keep a record o your personal inances to know how much equity you can put in and discuss with your bank how much they`re willing to lend you. O course, beore they do that, you would hae already submitted your loan application. 1o get a rough estimate o how much you can borrow, go to the banks` web sites. Some o them hae loan calculators that compute your amortization or loan amount. \hat you want to ind out is the loan amount, so you need to plug in the monthly payments you can aord. Remember that the amortization you`ll plug in should include an estimate o the monthly interest. Multiply 0 o your monthly net income. Input the igure in the loan calculator to get the loan amount. But the result is not really the loan amount, since it should incorporate interest. Remoe 25 rom the total i your term is 15 years, and you`ll hae an estimate o your loan amount. Add your equity and that`s the house or condo you should be looking or.
Now that you know what to ask loan oicers rom the banks you`re considering, it`s up to you which bank you want to apply a housing loan rom. \hat should you consider lere are some suggestions:
Mortgage options. \ou want a bank that oers lexible terms. O course, banks that oer low interest rates are strong contenders, but that`s not the only actor. \ou also want to make sure they`ll let you reinance on your anniersary date.
Service. \ou want a bank that has loan oicers who are accommodating and helpul and good in explaining and answering the dumbest questions you can ask. Len i the rate oered is attractie but oicers are rude or diicult to contact, orget it. \ou also want a bank that can process your loan in a week or less. Once you pay your deeloper a reseration ee, it won`t be reunded i your loan is disapproed. Usually, deelopers gie you 30 days ater you make a reseration to pay the entire purchase price. So you`d want time to apply to another bank i necessary.
Reputation. Certainly, you want a stable bank. \ou don`t want to borrow rom a bank that`s in trouble. \ou also want a bank that`s known or their housing loan program. 1hat means a lot o people trust them and that they`e been airly successul lending to people who buy homes. It also helps i the bank has good relations with the deeloper. I they are some sort o one o the oicial` banks or the project, so much the better. Coordination and acilitation o documents and payment are quicker and more conenient.
Convenience. \ou want a bank that oers conenience. Some banks delier and pick up documents rom your house or oice. \ou also want to track your loan balance and payments by phone and online. It would be nice i the bank`s web site has an alert eature that e-mails or texts you your balance, to make sure you don`t miss payments.
lere are the top banks that oer excellent housing loan programs:
BPI is well-known or its consumer loan programs. 1hey oer low rates, lower minimum loan amount, ast processing, and conenient payment methods. www.bpi.com.ph
Chinatrust is the most aggressie, oering BPI`s clients to transer their mortgage to them, oering a 2 cut on their interest rate. www.chinatrust.com.ph
HSBC has one o the best programs around. 1hey match BPI`s rate and oer great customer serice. 1hey hae lexible terms ,they also promote their ortnightly payment option which most banks don`t, as it means less interest income or them, and conenient ways or paying and checking your amortization. 1hey also use their Simulated Loan Calculator so clients can see on the spot their amortization and total cost using dierent combinations o rate, term, and requency o payment. www.hsbc.com.ph
Lquitable PCI Bank has an Own-a- lome program, which requires a lower monthly income to qualiy and oers competitie rates. www.equitablepcib.com
Metrobank . Its saings bank subsidiary, PSBank, has an interesting program that promises to pay your entire principal at the end o your loan. 1hat means, howeer, there`s an add-on to your interest rate. 1he extra income will be used to und their later reund o your principal. www.metrobank.com.ph
1ake adantage o the current enironment i you really plan to inance or reinance your uture or current home. 1his primer should gie you a basic understanding o home inancing. But our best adice is: go to a bank that will take the time to explain these to you. It`s a buyer`s market or residential projects and it`s a borrower`s market or housing loans as well. 1hat means you`re the boss. Don`t settle or anything less.