Getting a home loan approval can be such a nerve-wracking wait-and-see game. There’s a lot at stake and not getting a home loan approval could very well mean that the realization of a longtime real estate dream is facing a huge financial roadblock.
If this would be your first time to apply for a home loan, we’ve got your back. Pursuit of Passion takes out the guesswork by studying how lenders assess your loan applications and what they look for in getting a home loan approved, and fast:
1. Establish CHARACTER of an ideal borrower.
Believe it or not, a lender looks to a borrower as a potential investment. As such, a lender would want to know if you have the character of a borrower who can religiously pay amortization payments on time (or earlier) without needing to chase you.
To do so, it’s best to prepare the usual requirements in advance. At the very least, prepare at least two photo-bearing, government-issued IDs, proof of income, and other documents relevant to your home loan application.
If you are a foreigner, self-employed or a freelancer, lenders will require additional evidence that you would not default on your payments. These documents might include your latest annual income tax return, Special Resident Retiree’s Visa (SRRV), your business license, among other things.
2. Your COLLATERAL should be liquid enough to convert into cash quickly and easy to collect.
A collateral is an asset (or two that you fully own) that can act as some sort of security, at least for the lender, that there’s something to claim if you default on your loan.
Usually, lenders will ask for your CCT Condominium Certificate of Transfer (CCT) or Transfer Certificate of Title (TCT) as an additional required document for collateral. But in reality, these documents are only issued upon full payment of the property.
In the absence of these documents, you can ask your lender what other types of assets you can put up for collateral. Some of these easy-to-value and liquid assets that you can put up as collateral include:
- A cash or deposit account, or liquid financial instrument with a balance that can cover your home loan (or higher)
- Insurance policies
- Other real estate properties
3. Demonstrate your intention to buy a home with your CAPITAL.
For home loans, having the capital (deposit or other funds toward your home purchase) is proof that you have the intention to buy a home. Moreover, having significant money in your bank account shows that you can manage and save your money.
Requirements for getting a home loan differ per lender, and if you are indeed applying for one, make sure that you’re ready to cough up serious cash. Applying for a home loan with zero cash on you is the quickest way to get your application rejected.
Aside from the 20% downpayment, make sure you have an emergency fund that can cover application or processing fees, closing costs and other expenses that you’ll spend in securing your home loan.
ALSO READ: How Do I Get Enough Money for a Home DownPayment?
4. Apply for a home loan with CONDITIONS favorable to you and your lender.
Majority of lenders approve home loans of people who purposely borrow money to buy a home. As such, lenders rarely give a line-of-credit or an unsecured loan for real estate purchases.
In some cases, lenders approve a home loan if you have a family member or partner co-sign or guarantee the loan. Having someone to co-sign or guarantee a home loan reduces the bank’s risk of loan nonpayment, as they can go after the co-signer or guarantor to pay the balance, even if the latter did not receive any benefits from the loan.
5. CAPACITY cannot be proven with a promise.
Known as a borrower’s ability to repay his home loan, your capacity is vital to securing home loan approval.
At the moment, the Philippines does not have a centralized credit reporting system. However, some major banks in the Philippines partner up and build an internal database where they can access information to access a potential borrower’s capacity to pay. Otherwise, lenders will do a background check based on your documents and provided information in your home loan application.
The two signs lenders also look out for to determine a potential borrower’s capacity to pay is his employment history, and previous or outstanding loans. If you really want to get your home loan approved, avoid quitting or switching jobs. Some lenders actually include a certificate of employment in their list of loan application requirements.
And if you have outstanding loans, settle the smaller ones first or have an emergency fund that can cover at least six months’ worth of amortization payments.
One Last Tip
It’s important to keep your communication lines open after submitting your home loan application. Your lender will appreciate it if you respond to any requests for additional information, which will make it faster for them to process and approve your loan.
Even if you don’t meet the qualifications, don’t get discouraged. Do know that even financially-abled borrowers get disapproved for some reason. Do also know that many people have risen above financial problems in order to purchase their first house. Just create and implement a realistic plan, stick to it, but be flexible if the need arises.
HOMEPOSSIBLE is where Pursuit of Passion all started. Originally a series of events by Avida, it encourages and educates the target market to take steps toward an independent life and gives them the tools for an easy home purchase. Through the HOMEPOSSIBLE series, Avida has helped Filipinos to be better informed on how they can maximize life opportunities; inspiring and empowering them to reach their life goals, which includes owning and investing in a home.