What Are The Upfront Costs Of Buying A Home?
Buying your first home is a big milestone. It requires a lot of time, effort, research, paperwork, and most importantly, money.
Learning how much you can borrow from your bank is essential to finding a house that’s within your budget. Many banks offer pre-approvals to give you an idea of what your borrowing power is.
Borrowing power refers to the amount of money that a bank is willing to lend you. It can also be called your borrowing capacity.
If you have a large borrowing capacity, it means you are financially stable and banks have faith in your ability to pay off the amount.
However, this amount is given assuming your financial capability stays the same throughout the duration of your loan. So just because you can borrow millions of pesos, doesn’t mean you should. It’s just an indication of what the bank is willing to lend you.
It does differ for each bank, which is why you should shop around with a mortgage broker so you can get the best loan for you! Large banks like BPI and BDO have larger revenue, and are therefore more willing to lend to people with more risk (such as having a high LTV). Alternatively, it may be influenced by the level of insurance the bank has. Some insurers of banks may push for stricter lending criteria whereas others may be more relaxed.
These differences mean that you might have higher borrowing power with one bank than another.
There are a lot of documents involved depending on what bank you’re applying for, whether you’re self employed, or whether you’re an OFW. Banks often clearly list what documents they require for your application on their website! A few of the commonly required documents for a home loan can include:
Check with the bank you are interested in applying for or with a mortgage broker to ensure you gather all the required documents. Not having the right documents is the number one reason for delayed loan approvals.
Let’s delve a little deeper into what can influence your borrowing capacity:
Your salary is the most important factor in determining your borrowing power. Not only do applicants need to earn a minimum (usually 50,000 pesos per month, gross), but you also need to be consecutively employed for 2 years.
The higher your deposit, the lower your LTV will be. A bigger deposit suggests good savings habits and better money management skills. A lower LTV is a lower-risk borrower, which banks look kindly upon.
In general, a lender determines your rough borrowing power by looking at your deposit size in conjunction with the purchase price of the property.
If you have other debts, or have missed payments on loans in the past that have now been paid off, this may still affect your borrowing power. Active loans and credit cards are considered debts by the bank and negatively impact you. This financial history creates your credit score, which is used to determine your risk-level as a borrower.
Assets are seen as a positive by lenders and could potentially influence your borrowing power for the better.
Whether it’s an investment property, an investment portfolio, a car, boat or other vehicle – it indicates that you are able to save money and put it towards investments.
Additionally, these are assets that you might be able to sell (or that the lender can seize) to improve your cash flow in the case that you are struggling financially.
The type of loan, as well as its term and interest rate can play a role in shaping your borrowing power.
Philippine banks often give you a few options when it comes to locking in a fixed-term rate mortgage loan, up to 5 years on average. Most loans need to be paid within 20 or 30 years.
But, the purpose of your loan can impact your borrowing power. A loan used to renovate a property is typically a shorter-term loan with lower cost, therefore a bank may be more inclined to approve it.
Banks partner with developers and have them on tier levels in terms of their benefits. Buying from a top accredited developer with a large bank like BDO may result in you getting more favourable loan terms and borrowing capacity.
Banks have minimum loan amounts, and maximum loan amounts. It is rare (but possible) for a high-income earning borrower to have a higher borrowing capacity than what the maximum loan amount is advertised at on their website. In which case, choosing a different bank or contacting a mortgage broker to negotiate interest rates and loan terms is a good option.
Your LTV also affects your borrowing power. If you have a high LTV, a bank may decide the risk of loaning to you is too high and you may be declined entirely.
Your borrowing power can increase or decrease depending on economic stability, market rates, and other government interference. But there are a few ways to increase your borrowing power on your own terms.
Here are some ways that you can increase your borrowing power:
Getting a second job or combining finances with a partner to reach the PHP50,000 monthly income minimum is a way to increase your available funds.
Having a higher income gives you a greater capacity to handle larger home loan repayments.
And don’t forget to claim all of your income on your home loan application – even freelance work. Many lenders class rental income, superannuation and government payments as different income streams – just make sure you have proof in the form of tax returns and pay slips.
Prioritising paying off your current debts before applying for a loan is another way to increase your borrowing power.
This helps because you’ll have less debt and more money to service a loan. This debt can include other home loans, auto loans, personal loans and credit cards.
Having a good credit rating and healthy credit history can boost your borrowing power. It indicates to lenders that you know how to responsibly handle money.
If you don’t have any history, getting a low-limit credit card and paying that off every month on time is a great way to build a precedent for the banks to see. You can use a credit card for regular purchases instead of your everyday debit card.
Every bank offers different services, so find one that suits you – not because everyone else goes with them. OFWs, self employed business owners, or rural farmers are a few examples of people who may desire a specialised lender. High-income earners may wish to use an international bank. Find a lender that specialises in helping people like you.
Maintaining consistent employment can help evidence that your income is stable and you’ll be in a strong position to repay a loan. Nearly all lenders want to see at least 2 years of stable income.
As obvious as it may sound, having a larger deposit means you won’t have to borrow as much money from the lender when purchasing a home.
Because you’ll be lower risk to the lender, your borrowing capacity will likely be greater.
Buying your first home is a big milestone. It requires a lot of time, effort, research, paperwork, and most importantly, money.
Borrowing power refers to the amount of money that a bank is willing to lend you. It can also be called your borrowing capacity.
You see the phrase everywhere and hear people talk about them, but what exactly are interest rates?
Your Loan to Value ratio, also known as an ‘LTV’, refers to the percentage of the value of a property a buyer needs to borrow.
Buying your first home is a big milestone. It requires a lot of time, effort, research, paperwork, and most importantly, money.
Borrowing power refers to the amount of money that a bank is willing to lend you. It can also be called your borrowing capacity.
You see the phrase everywhere and hear people talk about them, but what exactly are interest rates?
Your Loan to Value ratio, also known as an ‘LTV’, refers to the percentage of the value of a property a buyer needs to borrow.