A Condo Buyer’s Guide to Financing a Property

A Condo Buyer’s Guide to Financing a Property

Unlike the popular misconception, owning a condo is not a privilege exclusive to the upper class. Today, condos have become a worthy investment option available to those who wish to make the most of their hard-earned money. Given the flexibility in payment terms of condos for sale accompanied with financing methods such as in-house financing, bank loans, owning a condo has never been more affordable.

What keeps some people from owning their dream property is perceived financial incapacity. Little do they know that financing a condo is a fun and enlightening endeavor, especially if it’s your first time. In fact, there are certain steps and tricks to make the whole process faster, smoother, and pocket-friendly.

Worry no more. This guide will help you prepare yourself (and your bank account) for buying a condo. It will provide you everything you need to know when it comes to financing a property, from financial preparations to loan options. A condo may be your first big purchase, but it may well be the most worth it.

Part 1: How to Financially Prepare Yourself

How to Financially Prepare Yourself

(Easy Piso)

Start preparing early on to make sure that you get pre-approved by a financing or lending company. Here are the things you can do to speed up the process and get yourself ready for your investment.

  1. 1. Fix and improve your credit score

Your credit score or credit report is an indication of your credit history and usage with banks. This is what banks and financial institutions look at to determine if you are credit-worthy or qualified for a loan. Your credit history can be collated from banks, government agencies, credit card companies, collection agents, and other such organizations.

Find out what your current credit standing is, and start changing bad spending habits to boost your credit score. Use your credit cards responsibly by being mindful of every purchase you make. Make a budget plan and stick to it to avoid indiscriminate spending. This takes a lot of discipline, but motivate yourself by thinking that soon, you will have your own condo.

Another way to fix your credit score is to settle your outstanding debts. Unpaid debts are never a good thing for your credit history. You don’t want unpaid debts hanging in your head when you purchase a condo. When you finally pay them off, you will have more financial freedom to plan out future purchases such as a condo.

2. Set your budget

If you want to own a property, then consider changing your spending habits. Set a budget for yourself, and make sure to stick to it. Set a goal amount and timeframe. Tell yourself you will only spend a certain amount or a certain percentage of your income to reach a particular amount. For instance, you want to save Php100,000 in one year. That means that you will need to set aside approximately Php8,300 every month for the next 12 months. How much is left from your monthly income after the Php8,300?

Calculate how much you need for daily food, transportation, and miscellaneous expenses to be able to allot a certain amount to that. You may also need to consider utilities. Budgeting involves discipline. Tighten the purse strings, if you must, and avoid purchasing unnecessary items.

3. Evaluate your borrowing capacity

Your borrowing capacity is not just about your credit score. It’s about your total financial capability. Will you be able to afford paying your mortgage, previous debts, and future expenses such as utilities, food, and medical bills? These are some of the things you need to assess.

The best way to evaluate your financial situation is to meet with a financial advisor. He or she can analyze your current situation and assess how much you can get from lenders or financing houses. Your financial advisor can also provide professional advice on how you can prepare yourself to buy a condo.

4. Start saving for down payment

If you’re planning to buy a condo, then you will need at least a 20% down payment. Start saving now! Set a target amount and a target date, and create a budget that allows you to save a decent amount of money every month that can help you reach your goal.

For example, you need a down payment of Php200,000 with a target date of one year. That means, that you need to save at least Php 16,600 each month. Have a little wiggle room in your budget plan for unexpected events such as hospitalizations and other unforeseen expenses.

Also, ask your prospect developer if they are offering stretched terms for down payment. In this case, you only need to set aside a certain amount of money to pay for your down payment on a monthly basis.

Part 2: How to Earn and Save Money for Your Down Payment

How to Earn and Save Money for Your Down Payment

(Choice)

Your down payment is one of the indicators that you are financially ready to buy a condo. Follow these tips to start saving up for your down payment.

  1. 1. Automate your savings

Once you’ve set a monthly budget, automate your savings by earmarking a certain amount from your paycheck or earnings. Open a separate account in the same bank where you receive your salary, and sign up for internet or mobile banking. This makes it easier for you to transfer funds to your new account and track your savings. Spend what’s left after saving, not the other way around.

2. Forget the luxuries

List down what you need and why you need them. This lets you think twice about spending on unnecessary items. Designer items? There are cheaper alternatives. A a hundred and fifty peso coffee every day? Forget it. Go for instant coffee or bottled coffee beverages. Taking a private car to work? Carpool instead. Or, consider other transportation options. Going back to basics will let you save on regular expenses.

3. Sell old items

We like keeping old personal and household items for its sentimental value. Go through your closet and you’ll find a boxful of items and trinkets that you no longer use or need, taking up space and collecting dust in your home. Sell them all! You’d be surprised at the amount of money you could earn from old items.

4. Pay off your credit card debt

Credit card debt accumulates interest fees, late fees, and financing fees. Paying them off will save you thousands in the long run. Take the time to study your monthly credit card bill, and see how much interest and late fees you’re charged every month and how much you can potentially save if you just pay them off.

5. Get a part-time job

If you’re serious about saving up for your down payment, consider supplementing your current income with freelance work or a part-time job. There are numerous websites you can join where you can get freelance work such as Freelancer, Upwork, Getcraft, or Elance. Check job hunting sites. Maybe there’s a BPO company near your home or current place of work that accepts part-timers.

6. Stash every salary raise

Have you ever considered asking your boss for a salary raise? Companies normally perform annual or bi-annual appraisals to give their employees opportunities to increase their monthly wage. When you get a raise, pretend it never happened and don’t adjust your current budget.

Just add it to the amount you automatically earmarked for your savings. You can also consider automatically transferring premiums and bonuses you receive to your savings account.

Part 3: Types of Loans for Your Condo

Types of Loans for Your Condo

(Own Right)

Choosing a loan type or financing company can be a tedious task. Here, we provide you a quick comparison between getting a bank loan vs. in-house financing.

  1. 1. Bank Loan

Bank loan terms vary per bank. With a good credit score, you can get the best rates and terms from bank financing. Check with a financial advisor or visit your bank to apply for a loan.

Who qualifies:

  • • 21 to 65 years old
  • • Employed for at least 2 years with a minimum salary of Php 30,000
  • • If self-employed, business must be in operation for at least 2 years

What you need:

  • • Valid IDs
  • • Marriage Certificate (if applicable)
  • • Income tax Return (ITR) or BIR Form 2316, 2306, or 1700
  • • Certificate of Employment
  • • Recent Payslips
  • • Collateral documents – photocopy of CCT (Condominium Certificate of Transfer) or TCT (Title • Certificate of Transfer)
  • • Lot Plan and Vicinity Map

Loan Terms: 5 to 20 years

Interest Rate: 5.75% subject to re-pricing after one year. Fixed rate mortgage is also an option.

Loan Amount: Minimum of Php 400,000 or up to 80% of total property value

Payment terms and interest rates can depend on your credit score, and whether there’s a current promo you’re qualified in. Ask your bank of choice for the housing loan that fits your financial situation best. You can also check out this list of the 7 top banks in the Philippines and their requirements for housing loans.

2. In-House Financing

For those who are not qualified or approved for bank loans, here’s good news for you. Most developers offer in-house financing with flexible terms that suit your financial capacity. It takes a lot less to qualify for in-house financing, but at the cost of higher interest rates.

Who qualifies:

  • • Any interested buyer of legal age

What you need:

  • • Valid IDs
  • • Certificate of Employment and Compensation
  • • Proof of Income
  • • Remittance Slips (for OFWs)
  • • Post-dated Cheques

Interest Rate: 14% to 18%

With in-house financing, developers take care of the loan for you, and your monthly amortization is paid directly to them. Usually, only a 10% down payment is needed for pre-selling condos. The higher your down payment, the lower your monthly amortization. Some developers also let you finance the down payment until the turnover date.

Part 4: Tips on Housing Loan Applications

Tips on Housing Loan Applications

(LKFS)

Applying for a housing loan can be intimidating for a first-timer. Not everyone gets approved for a home loan. Here are some quick tips to make sure that you get pre-approved for a bank or in-house financing.

  1. 1. Improve your credit profile

As discussed above, boosting your credit score will greatly increase your chance of being approved of a bank loan. Open a savings account with your bank of choice and build a relationship with banks and credit card companies.

As bank loans offer competitive interest rates and terms when it comes to financing your condo, you can get more value for your money. Before applying for a loan, check your credit score with a financial advisor and start building your credit history.

2. Get your down payment ready

When you apply for a housing loan, let the bank or lender know that you have your 20% down payment ready. This shows that you are prepared to buy a property, indicating your financial capability to pay for the monthly amortization while shouldering some risks. This can also lower your monthly amortization and shorten your loan terms.

3. Be pre-qualified

If you’re financially ready to buy a condo, it’s time to get pre-qualified. This is the first step in your property financing effort.

You need to show the bank or the financing institution your overall financial status, including debts, income, and assets. After this, the lender will provide you a ballpark figure for which you pre-qualify and the options available for your financial situation.

4. Get pre-approved

Being pre-qualified is not the same as getting pre-approved. To be pre-approved, you need to complete the mortgage or home loan application form, and be thoroughly investigated by the bank or lending institution. You will need to submit the required documents and certifications to prove your capability to pay your monthly mortgage.

Once approved, you will be given a Good Faith Estimate (GFE) in writing. This document includes the terms of the loan, type of loan, interest rate, and closing costs. By getting pre-approved, you can compare the various rates and terms that lending institutions offer, helping you choose the best terms.

5. Shop for housing loan options

Weigh your options. Compare and contrast the loan options from different lending institutions after pre-approval. If you have decided to go for a bank loan, determine which bank offers the best rates and terms. Banks have promos and new products to offer, so ask the lending officer the best terms for you.

Take out your calculator and compute the exact figures you need to pay for with each option available. Determine which works best for your situation. This list can help you compare the different housing loan rates that banks offer.

6. Learn how interest rate works

Educate yourself about the ins and outs of your loan terms. Make sure you fully understand how interest rates work. Home loan interest rates in the Philippines depend on the current key rates of the Bangko Sentral ng Pilipinas. The current rate is approximately 5%.

Some banks have factor rates included in the computation of your monthly amortization. So, the actual figures you get from your own computation may differ from theirs. Ask your bank or lending institution to give you a complete and detailed calculation.

7. Know all other fees you need to pay

When purchasing a new condo, don’t just consider the total cost of the property. Aside from your monthly amortization, there are other fees you need to pay for including taxes, title transfer fees, and other expenses. Even miscellaneous expenses such as gas money and fees when getting certificates and other pertinent documents must be taken into consideration. There are legal documents and government taxes that you cannot take for granted. Do your research to be fully prepared.

Owning a property is one of the Filipino people’s greatest dreams, especially those from the working class. With the country’s economy at a steady incline and bank interest rates at a record-low, now is the best time to buy.

A condo is a major investment and a long term commitment. This is why it’s important to understand all your options and choose wisely. Don’t be afraid to ask your sales agent or lending officer whatever question you have in mind. Any concerns you have regarding financing a property is valid, so get all the help you can get from experienced professionals and other homeowners.

Focus on the fact that after all the paperwork and legwork, you’ll be a proud homeowner to a lovely new condo. This investment is worth your time and effort.