INFO ON RENT-TO-OWN

INFO ON RENT-TO-OWN OR PROPERTY FINANCING IN THE PHILIPPINES
rent to own philippines
“Rent-to-own” is a marketing term which actually means purchasing a
property through real estate mortgage. Nobody in their right mind
will give-out their property to total strangers, and receive few tid-bits of
payments per month in the span of many long, not only just years, but
even decades, and then lose ownership of their property eventually. So “Rent-to-own” is NOT a straight-up owning a place after renting it for some
period of time. Rent-to-own is actually Mortgaging a property and paying
back the financier who borrowed you the money, and not necessarily the
seller, through installment basis.When mortgaging a property, one can pay “monthly installments” for the loan just like paying for monthly rent, and as soon as the loan is fully paid, the loan-borrower shall own the property. And here are the ways for people to get real estate loans in the Philippines:
I. PAG-IBIG FUND:
Pagibig loan
And just to give you an idea how the “installment schemes” work in the
Philippines, most Filipino workers avail of the government
housing loan called “Pag-ibig Fund” which offers the lowest interest
rates as low as 6% per annum for loanable amount less than P300K.
Pag-ibig fund finances “residential  houses” and not commercial or rental apartment properties.A Pag-ibig fund member can avail of loan if he or she is; a member of at least 1year (12months) and regularly paying monthly contributions equivalent of 2years (24months)  before he or she is eligible to apply for a Pag-ibig Fund loan.
The requirements to be a Pag-ibig member are:
– You must be a Filipino or a former Filipino;
– You must be employed by a COMPANY REGISTERED WITH PAG-IBIG FUND
– or self-employed WITH REGISTERED BUSINESS
– or an Overseas Filipino Worker,
– and with age not over 65years old.
If you’re a Filipino working abroad, I suggest that you appoint a representative here in the Philippines who will work on your papers  for a more speedy process of the Pag-ibig fund membership and loan.—> SPECIAL POWER OF ATTORNEY FORM

Here’s the Pag-ibig fund website to learn more about Pag-ibig Fund Programs <– Check them out here.

Pag-ibig fund program for Overseas Filipino Workers <— Find them here.

Pag-ibig Fund OFW Program Frequently Asked Questions and Answers <— Please read here.

So, the loanable amount shall depend on these things,
1. The willingness and selling price of the seller to have his/her property be purchased
through Pag-ibig fund. If the seller is not in a hurry to sell the
property and willing to wait one or two or even three months to
process the Pagibig fund loan, the seller can submit the documents of
his or her property to be mortgaged under Pag-ibig fund.
2. The assessed value of the property. The borrower shall then submit
the following documents: Title, lot plan, vicinity map, tax
declaration, tax clearance, ID of seller to Pag-ibig fund for
evaluation. Once Pag-ibig fund evaluated the documents, they will
schedule an ocular inspection of the property. After the inspection,
they shall be giving the borrower a “Loanable amount” based on their
appraisal of the property and the eligibility of the borrower to loan
that certain amount.
3. the amount of monthly contribution of the
borrower. Ofcourse, the bigger the monthly contribution, the bigger
loan a borrower can avail.
4. The monthly disposable income of the loan borrower. Each loanable
amount corresponds to a monthly disposable income bracket. If you have
the said “disposable” monthly in come in the said bracket, then you
can borrow that amount of money.
Please click this link to see the table below:

pagibig fund

If you look at the table, for example,  in order for you to borrow
P1,000,000.00, and apply for 30years to pay terms, you need to be
earning P23,604.55 “disposable” income per month.
Disposable income means, “extra” income not including your monthly expenses such as
water, electricity, rent, school tuition fees, credit card bills, phone
bills, food, etc.
5. Do you have a good credit-line with Pag-ibig fund?

When we say “credit-line” it means that if a member/borrower/client already had history of borrowing money from the said financing institution (like Pag-ibig fund/Banks/Cooperative/Financiers), and paying back the debt plus interests on time. That member/client can have the privilege to borrow bigger amounts of loan each time he/she pays-off the previous debts. Thus it is said that a good creditor that pays his loans on-time will have longer credit-line, which means the client/borrower can borrow bigger amounts of money.

So if you want to borrow bigger amounts of money from Pag-ibig fund or from the banks, then better start building your “good credit-line” right away. You may start borrowing small amounts of money and pay-off that debt on-time. Then borrow bigger amount of money the next time…and so on… then you’ll have the privilege of loaning more money!

 

New SUBDIVISION PROJECTS can offer the houses they are selling through
Pag-ibig fund, because they have already “pre-appraised” their projects
to Pag-ibig fund. Therefore, when buying new subdivision projects, you
just have to consider the number 3, 4 and 5 factors I’ve mentioned above,
because numbers 1 and 2 has already been done by the subdivision
developer. But if you’re buying a “pre-owned” property, then you have
to consider all factors.

 

If you have a land and you want to borrow money from Pag-ibig to erect
a house, your architect/engineer must submit approved drawings and
designs to Pag-ibig fund as well as the title, tax declaration, lot
plan and vicinity map of your land. Together with these documents, the
architect must also include costings on how much would be needed to
build this house. After some review from Pag-ibig fund, they would
tell you how much you can loan for the said construction. Then the
borrower pays a certain downpayment, and Pag-ibig fund shall release
the funds by stages of completed construction.

 

FOR EMPHASIS…
1. The maximum loanable amount from Pag-ibig fund is now already P6M. But that doesn’t mean Pag-ibig Fund will lend you P6M anytime you wish to apply for it. That is just the maximum amount they can loan to members.

2. If the asking price of the seller is P3,000,000, but Pag-ibig fund says you can only loan the property at P1,000,000, then you have to pay the seller P2,000,000 downpayment in spot-cash before Pag-ibig fund releases the P1M loanable amount.

3. Ofcourse, the bigger monthly contribution you pay to Pag-ibig fund, the more eligible you are in loaning bigger amount.
4. The bigger monthly disposable income you earn the bigger chance a borrower can loan for a bigger amount.
5. The better credit-line you have with Pag-ibig fund, the more chance you have in borrowing bigger amount of money.
6. If the owner does not want his/her property to be bought through Pag-ibig fund, then there’s nothing the buyer can do.

 

THE BIGGEST DRAW-BACKS IN TRYING TO PURCHASE A “PRE-OWNED PROPERTY” THROUGH PAG-IBIG FUND:
Fact 1. People are selling their properties because they are in need
of money for whatever reason thus they would prefer to receive
payments in cash A.S.A.P.
Fact 2. If the property is really good, and it is affordable enough to
be loaned through Pag-ibig Fund, chances are, if it is really good and
affordable enough, there will be people who would buy the property
through “spot cash” payment.
Fact 3. To apply for a Pag-ibig fund loan, the many processes to have
the loan approved and released would take around 3 to 12 months. Which
is quite a long time, given the fact stated in number 1.
Fact 4. Since the sellers would want to get money in selling the
property A.S.A.P. which was stated in number 1, and if their
properties are good and affordable enough which is stated in number 2,
and applying for a Pag-ibig fund loan would take such a long time,
mentioned in Fact number 3; Then the seller would rather wait for cash
buyers than commit their property for 3 to 12months waiting for the
Pag-ibig fund approval.

 

Therefore, should you wish to purchase a property through Pag-ibig
fund, it would be more convenient to purchase new residential projects
that are pre-appraised by Pag-ibig fund.

 

Here are some of the documentary requirements:

2 pieces ID pictures
Certificate of Employment & Compensation
3months Latest Payslips
Company ID
Employment Contract
Passport
birthcertificate
marriage certificate and marital consent (if married)
proof of billing address in the Philippines

 

To compute for Pagibig fund loan, here is PAG IBIG FUND AMORTIZATION CALCULATOR

Pag-ibig loan can be applied on residential housing units only and not
commercial or rental apartment units.

There are other ways to get a real estate loan ofcourse, and these are
 through BANK FINANCING and IN-HOUSE FINANCING.

II. IN-HOUSE FINANCING
Vendor financing
Subdivision developers for brand new communities are usually the ones who give “In-house financing” by tying up with financing establishments, because  they have “ready collateral” which are the properties they are selling.
These project developers are the ones who can accept 10%, 20% or 30% as downpayment. They offer the highest interest rates as high as 14% to 26% per annum. And we do have subdivision projects that
offers these. The advantage of purchasing property through “in-house financing installment” is that, the documentary requirements would be much less. Most projects with in-house financing would only require:
ID’s
Birthcertificate
Marriage Certificate and Marital consent (If married)
Proof of Billing Address
Proof of Income
And post-dated checks for the monthly payments.

 

Hence in-house financing would be easiest and most convenient way to purchase properties through installment.

 

III. BANK-FINANCING
Most of the houses/apartments in Angeles City/Mabalacat/San Fernando and other areas,
especially in the older and more established communities, town/city proper, and urban
areas, that are for sale, are  “pre-owned”. Pre-owned property owners
are expecting to receive cash payments. If you are the one selling
your own house, you’d also prefer to receive the payments in cash
instead of  receiving bits and pieces of payments over several decades of installment of course.
In these cases, clients opt to avail of bank financing to acquire these properties. Wherein, the buyer pays a certain amount or what we call “Equity” or “downpayment” to the seller, and the rest shall be paid by the bank through real estate loan. In turn, the seller can get the payments in full.
The loanable amount shall largely based on 2 factors amongst the other factors:

bank financing Philippines

Factor 1. The proof of capacity to pay of the principal borrower.

 

Banks sometimes give a “pre-approved” loanable amount to their clients by reviewing their clients’ proof of “Capacity to pay” which could be in the form of employment or business. To show proof of capacity to pay, one can submit employment documents showing the monthly salary like payslips, employment certificates and/or employment contract; and/or business licenses, income tax returns and bank statements for business owners.

 

On the average, to be eligible for a bank loan, the principal borrower must show proof that his/her monthly disposable income is at least 200% of his/her monthly amortization. The reason for this is quite common sense, how can a borrower pay for his/her mortgage regularly if his/her monthly income is barely enough to fulfill his/her own needs? So as rule of thumb, most banks require that the monthly disposable income is at least double the monthly amortization.

NOTE: If a bank approves that you can loan a certain amount, does not mean that the bank will give you that amount at any time you ask for it.

 

Let’s say the bank approves a loanable amount of P3M. It just mean that P3M is the maximum loanable amount that the bank can give to you. The ACTUAL loanable amount shall then depend on factor number 2, which is the “bank-appraised-value” of the property you want to finance.

 

Factor 2. Bank Appraised Value

 

Just to give you a hypothetical example of how bank loans work;
For example, If a property has a total contract price of P1.5M, and would be applied for bank property loan, it shall be surveyed by an appraiser who will charge an appraisal fee of about P4000 for his/her services to be paid by the “borrower”.

 

The bank appraiser will usually give an “appraised value”  lower than the contracted price. This is because the bank of course will look after its’ own interest, just in case this property will be foreclosed, the bank can still sell the property fast at an attractive low price without accumulating any losses while still gaining adequate profits.

 

In this example, lets  say the bank has an appraised  value of P1,000,000.
From the appraised value, the bank gives a maximum loanable value of
70% of the appraised value, in this example, that would be P700,000
loanable value. Since the contract price is P1,500,000 minus the
loanable value of P700000, the downpayment shall be P800,000.
The bank  shall be asking the P800000 from the borrower to be paid to the seller
to facilitate the title transfer. The seller and the buyer shall then
execute a “Contract of Sale” with an attached “bank guarantee” that
the bank shall pay the rest of the amount once the title has been
transferred.

 

On the average, banks only finance about 50% to 60% of the actual market value (or what the banks call 70% of their appraised value). They do this to secure their interests.

 

Aside from the appraisal fee, the loan borrower would have to pay for documentary stamp tax (P20 for the first P5K of loan and P10 for the every other P5K of loan or fraction thereof) example if the approved loanable amount is P1.5M, divide that by 5K = 300, then (1 x 20) + (299 x 10) = 20 + 2990 = P3010 should be the documentary stamp tax;

 

Borrower would also need to pay the Mortgage Redemption Insurance which will depend on the banks’ policy;

 

The borrower will also pay the legal fees, on the average is about .5% of the loan amount or depending on the lawyer notarizing the documents;

 

The loan borrower will also pay the registration of mortgage to the registry of deeds which is an average of about 1% of the loan amount.

 

The loan borrower will also have to pay for the bank processing fees depending on the bank policies. Rural banks on the average charges 5% of the loanable amount, but commercial banks charge much much lesser loan processing fees than rural banks.

 

The loan borrower pays for the advanced-interests in some banks, depending on the banks policy.

 

Once the title is transferred to the name of the new  owner, the borrower and the bank shall then execute a “Mortgage  Contract” before it gives the rest of the P1.5M, which is P800,000, to the seller.

 

Since the Certificate of title shall be transferred to the loan borrower already, in most cases, the property buyer would have to pay for the transfer tax, registration fee, I.T. fee, Registry of Deeds processing fee, legal documentation fees, etc. of about 1%.

 

The bank in turn shall  hold on to the title and have it stamped as “Mortgaged” in the annotation.

 

Then  the loan can be paid monthly through the bank with interest of course  depending on the bank.

 

Once the full amount of the loan is paid, the  bank shall give a certificate of “Released from Mortgage” which shall be stamped as annotation on the title  and shall transmit the title to the owner.

 

Of course this is just a hypothetical example and figures can change  due to many factors.The computation of monthly amortization and down payment shall be done  by your preferred banks/financing institutions (each bank/financing  have their own terms and schemes of course) for they shall be the one  lending you the money and not the brokers/agents or sellers.If you want to loan any property, we can assist you as long as all the requirements are complete.

TO COMPUTE FOR AMORTIZATION try this—-> AMORTIZATION CALCULATOR

Should you have any questions, please feel free to ask. If you or any
of your representatives would like to view these properties please
calls only at for office landline +63456258103, for Smart and wireless landline
+63454362678, for Globe network +639175064356, for Sun cellular network +639239185171 to schedule a
viewing trip.

Cheers,

Gary

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Cheers,

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Real Estate Broker License No. 0003469

VP for Marketing KingDavid Realty Co.


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