Home Financing Guide for Rural Banks/Small Banks: Terms, Eligibility, and Tips

Home Financing Guide for Rural Banks/Small Banks: Terms, Eligibility, and Tips

Many Filipinos dream of buying their own home. Unfortunately, not everyone can pay outright for the house of their dreams. Luckily, many banks are making it easier for Filipinos to apply and get approved for a housing loan, through various programs like increasing loanable amounts and flexible payments.

In many cases, a home loan obtained from a bank can be used for the purchase of a house and lot, condo unit, townhouse, or a vacant lot. It may even be used for the renovation of an existing home or the construction of a new one.

Aside from top banks like Banco de Oro, Bank of the Philippine Islands, Land Bank of the Philippines, Metrobank, etc., rural and small banks offer home loans as well.

If you’re looking to take out a home loan from a rural bank/small bank, here are some tips that you should keep in mind. We also list down some terms that you should familiarize yourself with.

 

Loan Terms to Familiarize Yourself With

As you browse through home loans offered by rural banks/small banks, it helps to be familiar with different terms you’ll encounter. Here’s a list of words related to making a loan that will help you make an informed decision.

  • Principal. Principal refers to the entire amount you borrowed on your housing loan. To reduce the amount of the principal on your loan, you must pay fixed amounts each month until the loan is paid fully.
  • Down Payment. Down payment refers to the amount of money paid up front – this is deducted from the principal. In the banking industry, the usual practice for a down payment on your home loan is 20% of the principal. 
  • Loan Term. Loan term refers to the amount of time you’re given to be able to make payments on the loan. For home loans, this can range from 2 – 20 years. Note that the longer the term, the higher interest rates and vice versa.
  • Interest Rate. Interest rate refers to the percentage of the principal that’s charged for its use. For home loans, interest rates are charged on an annual basis. This is also known as the annual percentage rate (APR). 
  • Default. When you fail to make your payments, this is known as default. Depending on the loan contract, you may be considered to be in default if you fail to make one payment or several payments. 

 

Eligibility: Who Can Apply for Home Loans?

Numerous factors affect one’s eligibility to apply for a home loan. These factors include age, income, credit standing, qualifications, and employment. The financing institution needs to guarantee the borrower’s ability to make payments. Other factors considered are spouse’s income, assets, liabilities, and number of dependents.

At its most basic, self-employed or working Filipino residents between the ages of 21 and 65 years old are eligible to apply for a home loan.

Overseas Filipino Workers (OFWs) may also apply with special documentary requirements. Often, this includes documents like: a certificate of employment (COE), POEA-approved (Philippine Overseas Employment Administration) contract, and a special power of attorney.

 

3 Tips to Improve Your Chances of Getting Approved

Don’t want to waste time on getting your home loan application approved? Here are some tips!

  1. Keep your income stable. While you’re applying for a home loan, it’s important to keep your income stable. Banks and mortgage providers won’t approve your loan without proof that you can make your payments. A full-time job is the best way to prove that, as it ensures your long-term income. 1. Keep your income stable. While you’re applying for a home loan, it’s important to keep your income stable. Banks and mortgage providers won’t approve your loan without proof that you can make your payments. A full-time job is the best way to prove that, as it ensures your long-term income. 
  2. Pay down your existing debt. Taking on a home loan means taking on some long-term debt. So, you’ll want to minimize your existing debt. Once you get your home loan, paying it will be easier if you don’t have other debts to pay off. Plus, existing debt will make it harder to be approved for a mortgage, a lender will check your debt-to-income ratio when considering whether or not to approve your application. 
  3. Save for a larger down payment. Buying a home requires paying some cash up front – this is also known as a down payment. The bigger your down payment is, the better, for several reasons. The main reason is simply that the larger your down payment, the less you have to borrow, and the less interest you have to pay. 

 

The Takeaway

Aside from top banks like Banco de Oro, Bank of the Philippine Islands, Land Bank of the Philippines, Metrobank, etc., rural and small banks offer home loans as well.

Before taking out a home loan, you need to familiarize yourself with common terms, like principal, down payment, interest rate, loan term, and default. You should understand the eligibility requirements (though this can differ depending on the bank).

Good luck on your home loan application journey!

NOTE: This article is for informational purposes only. You should always obtain proper financial and legal advice. IRL Properties is not affiliated with any banks.

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