Illustration by Steph Bravo
It’s easy to get lost in the conversation when you start hearing jargons being thrown your way—most especially when you venture into unfamiliar territory. For instance, if you’re not that well-versed in banking, a few seemingly familiar terms might actually confuse you when you start talking to your bank officer about a possible home loan.
You might have familiarized yourself with most of the basic terms in banking, as featured earlier in this column (“Dictionary of bank loans,” Sept. 22, 2018). But knowing a few more phrases might actually come in handy when you start your way to achieving your dream home.
Bank financing
In buying a home, one is often given the option for either in-house financing or bank financing. The former refers to securing financing from the real estate developer, while the latter refers to funding the purchase via a home loan from a commercial bank. Bank financing is said to hold more advantages over in-house financing in terms of flexibility of payment terms.
Most banks like Metrobank usually offer a home loan, which refers to the sum of money borrowed from a financial institution with the principal amount and interest rates paid over a set period, on the assumption that the borrower meets the eligibility criteria.
Metrobank currently offers home loans that can also be used for construction, renovation or refinancing of an existing loan. As of this writing, it offers among the most competitive fixed interest rates, ranging from 7 percent (one-year fixing) to 8.5 percent (five-year fixing). For more details on the requirements and the process of availing a home loan, you can check out Metrobank’s website at www.metrobank.com.ph, or better yet, go to the nearest branch and consult the bank experts.
Financial capacity
This pertains to one’s ability to repay a loan or mortgage as evidenced by documents that can serve as proof of your income, whether you’re employed by a private company or a government agency, or you have your own business. Obviously, this is the primary consideration among banks to ensure that they do not incur any losses.
Proof of income
This refers to a set of documents that can serve as proof that you receive compensation. For one to avail of a home loan from Metrobank, the local banking giant requires a certificate of employment, which would normally indicate how long you have been working for the company and in what capacity. Some meanwhile would also include your gross compensation, allowances and all the bonuses you may have received in the last 12 months.
Another option is an income tax return, which is usually provided by employers. An employee should be able to receive from his or her company a Certificate of Compensation Payment/Tax Withheld or Bureau of Internal Revenue Form 2316, as this will serve as proof that your taxes were withheld. Metrobank also accepts as proof of income three months worth of payslips, which indicates your gross compensation and reflects all deductions that may include taxes, absences without pay, tardiness, loans, as well as your SSS/GSIS and Pag-ibig contributions.
Credit history
Credit history is a record of a consumer’s ability to repay debts. A consumer’s credit history may include number and types of credit accounts, how long each account has been open, amounts owed, amount of available credit used, whether bills are paid on time and number of recent credit inquiries. It may also contain information regarding whether the consumer has any bankruptcies, liens, judgments or collections.
So, if you have a good credit history, chances are you’ll be able to secure an approval for your home loan. And you can start getting a good credit history simply by paying your credit card bills, loans and other dues on time.
Prequalification
Pre-qualification refers to the evaluation of the credit worthiness of a potential borrower by a creditor for the purpose of providing a pre-approval. Pre-qualifications typically estimate an offering amount of credit, and should not be confused with pre-approval. Getting pre-qualified is the first step in the mortgage process. You supply a bank or lender with your overall financial picture—including your debt, income and assets—and they give you an estimate of how much you can borrow.
Getting pre-approved is the next step, and it tends to be much more involved. To get pre-approved, you’ll complete an official mortgage application and supply the lender with the necessary documentation to perform an extensive check on your financial background and current credit rating.
Again, getting a home loan should be a breeze for you, assuming that you have done your research, you have studied your options carefully, you have all the documents to back up your loan, and of course you have a trusted bank like Metrobank to get you started on your dream home.
Sources: www.metrobank.com.ph, www.investopedia.com