When buying a house, choosing how to pay for it is just as important as choosing the house itself. In the Philippines, there are three primary paths you can take.
Here is a breakdown of your financing options and tips to help you decide which one fits your budget.
1. Bank Financing
This is the most common option for buyers with a stable income and a good credit score.
- How it works: You apply for a loan through a commercial bank (like BDO, BPI, or Metrobank). They usually cover 70% to 80% of the property’s appraised value.
- Pros: Generally offers the lowest interest rates and flexible fixing periods (e.g., you can lock in a rate for 1, 3, or 5 years).
- Cons: Very strict credit investigation (CI) and higher income requirements.
2. Pag-IBIG Fund (HDMF)
A favorite for first-time homebuyers and government/private employees.
- How it works: You must be an active Pag-IBIG member with at least 24 months of contributions. They offer loans of up to ₱6 Million.
- Pros: Longest payment terms (up to 30 years), which makes the monthly amortization smaller. They are also more “lenient” with credit history compared to banks.
- Cons: The processing time can sometimes be slower than banks, and there are specific limits on the loan amount based on your actual contribution.
3. In-House Financing
This is when you skip the bank and the government, and you pay the real estate developer directly.
- How it works: The developer acts as the lender.
- Pros: Easiest to qualify for. There is very little paperwork and almost no credit investigation. If you have the down payment, you’re usually “approved.”
- Cons: High interest rates (often 12% to 18%, compared to the 6-8% of banks). They also offer shorter payment terms (usually only 5 to 10 years).
Tips for Finding the “Right” Financing Option
1. Know Your “Buying Power”
Before you fall in love with a house, get pre-qualified. Ask a bank or check the Pag-IBIG website to see how much they are willing to lend you based on your salary. This prevents the heartbreak of choosing a house you can’t get a loan for.
2. Compare the “Fixing Period”
Interest rates change. A bank might offer you 6% for the first year, but it could jump to 10% the next.
- Tip: If you want stability, choose a longer fixing period (e.g., 5 years) so your monthly payment stays the same even if the economy fluctuates. A fixing period is the length of time during which your home loan’s interest rate is locked and will not change, regardless of market fluctuations.
3. Look Beyond the Interest Rate
Don’t just look at the percentage. Ask about:
- Processing fees: Some banks charge higher “bank fees” upfront.
- Appraisal fees: The cost for the bank to visit the property.
- MRI and Fire Insurance: These are mandatory monthly add-ons to your payment.
4. Check for “Pre-payment” Penalties
If you receive a bonus, you might want to pay off a huge chunk of your loan principal to shorten your term.
- Tip: Choose a lender that allows lump-sum payments toward the principal without charging you a penalty fee.
5. Consider your Age
If you are in your 20s or 30s, Pag-IBIG is great because you can stretch the loan to 30 years to keep monthly costs low. If you are older or want to finish the debt quickly, bank financing for 10–15 years is often more cost-effective in terms of total interest paid.
Pro-Tip: Always try for bank or Pag-IBIG first. Only use in-house financing as a last resort if you have trouble getting approved elsewhere, as the interest will significantly increase the total cost of your home.
Home Loan Comparison Table: ₱2.4M Loan Amount
To give you a clear picture, here is a comparison for a property worth ₱3,000,000. In this scenario, we assume you have paid a 20% down payment (₱600,000) and need to borrow the remaining ₱2,400,000.
| Feature | Bank Financing | Pag-IBIG Fund | In-House Financing |
| Typical Interest Rate | 7% – 8% (Variable) | 6.25% (3-yr fixing) | 12% – 18% (Fixed) |
| Max Loan Term | 20 Years | 30 Years | 5 – 10 Years |
| Monthly Amortization | ₱18,600 (20 yrs) | ₱14,700 (30 yrs) | ₱34,400 (10 yrs) |
| Required Gross Income | ~₱62,000 | ~₱49,000 | ~₱115,000 |
| Approval Difficulty | Hard (Strict CI) | Moderate | Easiest |
| Total Interest Paid | Moderate | High (due to 30 yrs) | Extremely High |
Key Insights from this Table:
- Pag-IBIG is the “Budget King”: Because they allow you to stretch the loan to 30 years, it offers the lowest monthly payment. This is perfect if you want to keep your monthly cash flow flexible.
- Bank Financing is the “Middle Ground”: It offers a shorter path to full ownership (20 years) with competitive rates. You pay less total interest than Pag-IBIG over time, but your monthly payment is higher.
- In-House is the “Emergency Option”: Notice how the monthly payment is more than double Pag-IBIG? Because the interest rates are high and the terms are short, this option is very expensive. Only choose this if you plan to “Refinance” (move the loan) to a bank as soon as possible.
3 “Hidden” Costs to Include in Your Budget:
When looking at these numbers, don’t forget to set aside money for these extras:
- MRI (Mortgage Redemption Insurance): This protects your family. If the borrower passes away, the insurance pays off the remaining loan so the family keeps the house.
- Fire Insurance: This is mandatory for all home loans to protect the lender’s collateral.
- Real Property Tax (Amilyar): Once you move in, you are responsible for paying this annually to the City/Municipal Government.