Home Loans in the Philippines: What Future Homeowners Must Know

Many Filipinos dream about having their own home. However, buying a house or property in the Philippines can be expensive.

This is why plenty of Filipinos turn to housing loans. In fact, according to preliminary data from the Bangko Sentral ng Pilipinas, lending for real estate activities rose by 3.5% in January 2023.[1]

Despite the rising prices of properties, higher interest rates, and increased borrowing and funding costs, you can still buy your dream home with a loan for a house in the Philippines.

What is a Housing Loan?

A housing loan is a financing facility that provides funds for the following:

• Acquisition of a fully developed lot

• Purchase of a residential house and lot, townhouse, or condominium unit

• Construction or completion of a residential unit on a lot you already own

• Home improvement or renovation of existing residential property

• Refinancing of an existing housing loan

A loan for a house in the Philippines usually offers a high loan amount and competitive interest rates for longer repayment periods.

How Does a Housing Loan Work in the Philippines?

Banks and financial institutions offer home loans in the Philippines, making it possible to purchase a house without paying the full price upfront.

However, until you fully repay your mortgage, the bank or financial institution retains the property title. Since the bank or financial institution holds the property title while the mortgage is in effect, they also have the right to foreclose on the property if you fail to make your home loan payments.

What to Consider Before Getting a Housing Loan

Before you get started with the housing loan process in the Philippines, it's important to know what makes up your housing loan. Consider these four main things before you choose one:

• Monthly payment. Depending on the loan amount the bank will approve you for, your monthly payment should fit your budget. What is the required income for a home loan in the Philippines? You must have a sufficient income of at least three times more than your monthly payment.

• Down payment. This is the amount you pay upfront when purchasing a home. Generally, the bigger the down payment, the smaller the loan amount and the shorter the loan duration.

• Loan tenure. The total interest paid is directly proportional to the loan tenure. The higher the tenure, the higher the total interest paid, and vice-versa.

• Type of interest rate. You can choose between fixed-rate and variable-rate terms. The former is a good option for those who prefer consistent monthly payments. The latter has interest rates that vary as market interest rates change.

What are the Purposes of a Housing Loan?

Filipinos usually apply for a home loan in the Philippines to finance a home purchase. However, there’s a wide variety of uses for a home loan.

🏠 Home Purchase

Banks, real estate developers, and government agencies in the Philippines provide this basic type of loan to people looking to buy a house and lot, lot only, or a condo.

🏠 Home Construction

You can get a home construction loan if you own a lot and want to build a house on it. This loan type funds construction expenses such as building materials, permits, and labor.

🏠 Home Improvement

Do you need money for a home renovation, remodeling, or repair? This loan can also fund expenses for extending a part of your house or building additional rooms.

🏠 Loan Refinancing

You can apply for a home loan refinancing when your current mortgage no longer suits your needs. Basically, you’re changing to a new mortgage with better terms. This can allow you to switch from a variable rate to a fixed rate and vice versa, helping you save money.

🏠 Home Equity

You can borrow money against your property’s value with a home equity loan. The funds can be used for other major expenses such as tuition, travel, business, investment, and more.

What are the Types of Housing Loans in the Philippines?

There are two types of housing loans in the Philippines—conventional and flexible. You can choose from these two, depending on the terms you prefer:

👉 Conventional Loan

With a conventional housing loan, you're expected to make fixed payments over a particular period. This predictable payment scheme is ideal if you want to plan your finances.

👉 Flexible Loan

Banks usually offer this type of home loan. You can control the interest rate of your flexible home loan, depending on how much you'll deposit. You can also start principal repayment anytime.

Loan for a House in the Philippines: Options Based on Financing Scheme

You can choose from any of these three types of housing loans based on financing schemes:

📌 Bank Financing

Most banks in the country offer bank financing housing loans. However, the application can be rigorous, and the list of bank financing requirements is quite long. The loan amount and loan terms vary from bank to bank.

Pros of Bank Financing

• Faster loan processing - These days, the home loan process in the Philippines has faster turnaround times because you can apply and submit documentary requirements online.

• Low-interest rates - Compared to in-house financing and lending institutions, bank financing offers low interest rates that range from 4.99% to 6.25%.

• Affordable payment terms - Most banks offer payment terms from five to 25 years, depending on the borrower’s income source or type of employment.

Cons of Bank Financing

• Strict requirements - There are qualifications you must meet and documentary requirements you must submit when applying for a home loan. Prepare for a lot of paperwork.

• Additional fees and charges - Home loans come with certain fees, such as processing, cancellation, mortgage registration, notarial fees, documentary stamp tax, and fire insurance premiums, just to name a few.

• Long-term financial commitment - Over the long repayment period, your income will mostly be spent on the principal and the interest of your home loan, limiting your capacity to save more or diversify your investment portfolio.

📌 Pag-IBIG Housing Loan

If you're a Pag-IBIG member, you can get a Pag-IBIG housing loan. This is open to salaried, self-employed, and OFW members up to 65 years old. You can borrow up to ₱6 million for a residential lot, house, or condominium.

Pros of Pag-IBIG Housing Loan

• Easier to qualify - If you’re an active Pag-IBIG member with a minimum of 24 monthly savings who passes the credit and employment checks, you can apply and get approved for a Pag-IBIG housing loan. Even low-income earners and minimum-wage workers can qualify and purchase a house.

• Low and more predictable interest rates - Pag-IBIG keeps its interest rates low to help Filipinos buy a home with the most affordable terms. As of January 2023, rates per repricing period start at 5.75% for a one-year fixing period to 10% for a 30-year fixing period.

• Budget-friendly repayment terms - You can pay off your Pag-IBIG housing loan for up to 30 years.

Cons of Pag-IBIG Housing Loan

• Must be a Pag-IBIG member - You need to be a member of Pag-IBIG and meet the required number of contributions to be eligible for this loan.

• Longer processing time - Depending on the availability and accuracy of your submitted requirements, processing of Pag-IBIG housing loans can take around three to four months.

Read more: 12 Helpful Tips to Get Your Pag-IBIG Housing Loan Approved

📌 In-House Financing

You can get a housing loan directly from real estate developers. Usually, you must only make a 10% to 30% down payment and submit proof of income. However, this loan option usually has a shorter tenure of up to five years.

Pros of In-House Financing

• No credit approval required - You only need to provide proof of your primary source of income—unlike bank financing, which requires many income and employment documents.

• Fast application and processing - In-house financing is faster, more convenient, and easier to qualify for. Everything is done and processed in-house, so you can expect fewer back-and-forths.

Con of In-House Financing

Higher interest rates - Interest rates for in-house financing are usually fixed at 14% to 18%, depending on the term. This makes it higher than bank interest rates, which are usually at 4.99% to 6.25%.

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