How do I know if I can get a loan approval?
When cash is not enough to pay the house you want, the other option is to take out a loan from bank or if you are a PagIBIG member. Before you embark on a search for a house and save time, efforts and heartaches, it is best to know first if you can get a loan – be approved and how much.
Many buyers I encountered would look for house first without knowing if they can get a loan and how much. Then when they liked one, that’s the only time they will prepare their financial documents which most of the time takes time to secure like Certificate of employment. Then they submit these documents to the bank which also takes few days to few weeks. By the time they get approval, another buyer has bought the house they liked. They missed the chance and get disappointed.
In some cases, so that they get hold of the house they liked, the very aggressive broker would ask for earnest money. But processing of documents takes time before they can get approval or a letter of guarantee, then their earnest money gets forfeited. It is fine if they were able to get the approval and ask for extension. But what happens when you are disapproved? Or the amount the bank or PagIBIG allowed are much less than you expected? Are you prepared to add equity?
Best to request your bank for pre-approval so you know if you are qualified for home loan and for how much. The small fee that you will pay for application is nothing compared to the time wasted in looking for homes you think you can buy. When you know that you can make a loan and how much, then you can start looking on that range plus 20% or more because bank’s appraisal are always lower than selling price. You need to be prepared also to have cash for equity. For example, if you get a loan approval of P4M, then you search for homes that costs not more than P5M. And you have to be ready for the difference of P1M plus the transfer costs and other fees, which starts at 3% plus bank charges.
What are possible reasons why you may not get bank approval?
1. No existing or past court case. If you know you had one, get court clearance.
2. No other existing bank loan, like car loan or your credit card balances. If you still have those loans or always have remaining balances in your monthly credit card payments, that affects your loanable amount.
3. If you have existing loan and you have good paying record, you can still get a loan provided your income can support the monthly amortization of both loans.
How do I know how much loan I can get?
Normally, the bank computes your loanable amount based on your disposable income from 30% to 40%. Depending on their evaluation, they can increase or decrease your loanable amount. It is your disposable income versus your monthly amortization. In the case of PagIBIG, they have a table of salaries with corresponding amount you can get.
Other expenses you need to include in your housing loan budget
When you apply for bank loan, check also how much are the bank charges, plus you need to pay for transfer of title to your name before they release your loan proceeds. As a buyer, documentary stamp tax (1.5%) based on your deed of sale are for your account. Transfer tax to be paid to Treasurers Office is between .5% to .82% depending on the city or municipality where the property is located. At the Registry of Deeds, around .5% too plus IT Fees.
If you need assistance on bank loan, please feel free to approach this author. Would be happy to assist you!