BEING turned down by a lender for a real estate loan does not necessarily have to mean the end of one’s search for a new home, developer DMCI Homes said, offering several tips for those whose first applications for housing loans have been declined.
Although real estate lending in the Philippines is expanding—property loans grew by 4.7 percent year-on-year as of the third quarter of 2016, indicating an increasing number of loans being made by universal and commercial banks—not every loan application is approved. This does not mean, however, that the would-be homebuyer is necessarily unqualified to purchase a property, DMCI said.
“The most important thing is to find out exactly why your application was rejected, which all lenders are required to tell applicants,” a DMCI representative explained. Most often, he added, lenders will provide this information without the customer needing to request it, as they are likely to suggest alternatives in order to keep the customer’s business.
“There are two things lenders consider, the property being purchased and the financial capacity of the customer,” DMCI said. In terms of the property, it may simply be overpriced for the credit profile of the customer, or the property itself may be unattractive.
If the property is simply too expensive for the customer’s level of income and savings, the easiest option is to look for a less-expensive property, DMCI explained. Some properties, however, are considered a risk, either due to their location or problems with the title.
“Every bank considers how easy it would be to sell a property if it eventually ends up in their hands because the borrower defaulted,” the developer explained. “If there are problems with the property that would make it difficult for the bank to sell for a price close to the loan amount, they may turn down the application,” forcing the customer to look for a different property.
The other reason for a rejected loan application could be issues with the borrower’s financial profile, such as a poor credit history, income that is too low for the kind of property being sought (or for any property, in some cases), or not enough savings.
“If the customer partly qualifies, or is just a bit short of the requirements, the bank will almost always offer some alternative loan programs,” DMCI said. “These might have a higher interest rate, or require a larger down payment, but remember, if at all possible, the bank wants your business. If there’s a way they can accommodate you, they will try.”
If there is no alternative with the same lender, the customer can try other lenders. “Banks tend to have similar requirements, so this might not be successful, but there are some variations, so it’s sometimes worth it to shop around,” the developer said.
One option may be to borrow with a co-signer or guarantor, such as a family member, with better credit strength.
Other alternatives include applying to non-bank lenders, such as the Home Development Mutual Fund, or Pag-IBIG Fund. Pag-IBIG members who have contributed to the fund for at least 24 consecutive months are eligible to apply for a Pag-IBIG housing loan. There are, however, certain limitations, such as a ceiling on the price of the property eligible for a Pag-IBIG loan, and as DMCI pointed out, not all developers or property owners will accept Pag-IBIG financing.
Finally, DMCI pointed out that many developers offer some form of in-house financing, which usually has minimal requirements compared to banks. “We have our own program here, which customers who even qualify for a bank loan should take a look at,” the DMCI representative added.