So you already have the property you want to buy, the spare cash to pay all the fees and stuff, and your choice of loan provider? What’s next for you?
Below is the general process of how a home loan is applied for up to the time you actually get the cash. Again, processes will vary per loan provider and along the way, you’ll notice that a lot of steps need NOT be done if the loan will be via in-house. That does not mean that in-house financing is the best though, it definitely has its own trade-offs (Click here for the comparison on loan providers). Again, details are best asked from the providers themselves. Nonetheless, for your guidance, as follows is the general flow based from my experience.
1. Loan Documents
Different and lots of documents are asked in the various stages of your home loan application. Primarily of course are application forms, IDs especially government IDs, income proof or ITR, copies of the title, tax declaration of the property, seller documents (if seller is developer and loan is not in-house) such as HLURB registration, tax clearances, permits, etc. The deed of absolute sale (DOAS) will be needed later on as well.
2. Property Appraisal
This checks the estimated value of the property, to the point-of-view of the loan provider. This is based on location, size, materials used, design and build, value of adjacent properties, property age, resell potential, physical condition, etc. This step also removes for the loan provider the mark-ups of the seller on the selling price such as commissions, fees, etc. This appraised value will also be the basis for the loanable amount, subject to the loan-to-value ratio [LTV] policy (simply loan amount divided by appraised property value) of the loan provider. For this, buyer needs to give the address of the property and a photocopy of the title (not yet the original owner’s copy). Appraisal fees (depends on property location) are usually shouldered by buyer/borrower or deducted from loan proceeds.
3. Title Verification
This is usually done simultaneously with #2 but title verification results usually come out after property appraisal (i.e. appraisal is quicker than verification). This step ensures that the title of the property is real, authentic (not fabricated from Recto) and property details (location, size) are accurate. It’s for your own protection too. So the loan provider or its agents shall go to Registry of Deeds (RD) where your property is located to check the duplicate copy of the title of the property. From there, they’ll know if the title indeed exists, and whether or not it is clean (i.e. there are no existing claims to the title, or that it is not mortgaged to anybody). In-house financing will not go through this since the loan provider is also the original owners of the title. So they won’t bother checking the duplicates in RD right? As such, you should have a trustworthy developer. Buy properties only from those you trust. This usually takes 3 days to a week.
4. Loan Processing
Once the title is verified and the property deemed acceptable by the loan provider, the credit investigation on the borrower commences. By this time, you should have submitted much if not all of the documents in #1. By this time as well, you should have already signed the DOAS: that is the property was officially sold to you already and that what remains to be done is to pay the seller. Hence the loan. So they will check whether you have the capacity to pay requested loan, if you have good standing internally and with other financial institutions (cards, other loans), then verify the documents and information you provided (calls to employer, government queries, etc). The seller (especially if developer) is checked as well, whether it is a legitimate and licensed developer with no government or reputational issues (taxes, zoning, permits, etc), or if seller is an individual, checks will be done as well. Of course if you’re going in-house, seller check will not be done anymore. If you clear all these and your requested loan is within their LTV cap, then chances are you’ll get approved. Or if ever, they can lower the loan to give you so that you meet LTV.
5. Loan Approval
Assuming your loan got approved, (for Pag-ibig, this might take a while. Imagine how many applications they get and how many hand-offs and approvers your application go through), so assuming you get approved, then congratulations, you’re a third of the way. Next steps are title transfer and the actual drawdown where you get the loan proceeds. Not sure how Pag-ibig does it but banks usually give borrowers a Letter of Guarantee (LOG) or they execute of Memorandum of Understanding (MOU) with the seller. What’s the difference?
The LOG basically says that the bank guarantees the seller that it will give the amount of Pxxx (home loan amount) to the seller once the title is successfully transferred to buyer name and once the bank has annotated (it’s claim) on the said title. This gives comfort and security to the seller to actually give the original documents (original title, tax documents, etc) to the buyer or agent, so that the title transfer can begin. This set-up means that seller lets go of title first, before he gets the guaranteed cash.
The MOU meanwhile is executed in case the seller wants to get the cash first before he lets go of the title. Or this happens when the property being loaned for is a pre-sell, meaning it does not exist yet but it will in the next few months or years. In which case, the property title similarly does not exist yet, but it also will in the future. Usual case for condominiums. So the MOU states that the seller and the bank has an understanding, that bank gives the cash, then seller gives the title for transfer to buyer, once it is available.
Obviously, MOU is a bit risky for the banks (or loan provider in general) since they’re the ones who have to wait, as such not all loan providers enter into a MOU with all sellers, even developers. Not to all developers.
6. Title Transfer and Annotation
Depends on the arrangement of buyer, loan provider and seller in #5, the title transfer and annotation may happen before or after the loan drawdown. Title transfer basically means the title will now be named after the buyer (cancelling old title named after the seller), and annotation means that the loan provider has a claim on that property, by stipulating this at the property title (property is mortgaged). All these changes and stipulations are recorded in the Registry of Deeds, the municipal or city hall, BIR, etc. Due to its intricacies, I will allot a separate post to provide more details on this.
Especially for banks, they also require borrowers additional securities / collateral on top of the mortgaged property, and these are insurances. Banks usually require a life insurance of the borrower, with the bank as the payee in case the borrower dies or suffers permanent disability and is unable to repay the loan. Likewise, borrowers are also required to avail of fire and earthquake insurance for the property, again with the bank as the payee in case the property is destroyed by fire or earthquake. You will need to pay the insurance premiums annually to keep the insurance in place for the rest of the loan. It’s actually good practice and investment anyway, whether you have a home loan or not.
8. Loan Drawdown
Assuming all requirements are in place and all insurance premiums are paid, you can now get your loan. Usually, loan providers give this via Managers Check, credit to account, and rarely cash. Take note that loan amount may not always equal drawn amount. Drawn amount will likely be less due to deductions such as documentary stamp tax (DST), processing fees and other fees, charges. Be sure to give loan proceeds to the seller or else you’ll be in trouble with seller and loan provider. Usually, a certificate of full settlement is given to certify that property has been fully paid with seller. Then begins your years of obligation with the loan provider.
So with these milestones, I hope I was able to guide you through the general end-to-end process of getting a home loan. Next entries will detail on the title transfer and annotation process overview.
Disclaimer: This post is written based on experience and recall and only a small bit of research. It is meant to serve only as rough guide to the unfamiliar ones, such that when you finally discuss with the professionals, you have a bit of a background already. Of course, this is not the official guide to the topic (assuming an official one exists).
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