Common Home Loan Mistakes Pinoys Make

By Mark B. Aragona for Yahoo

Buying a home is one of the most important and—because of the expenses involved—nerve-wracking experiences in the life of a typical Filipino family. Applying for a loan allows a family to get the house of their dreams without having to spend most of their lives saving up for it. That said, applying for a home loan is not something you want to rush. It takes planning, communication, and an awareness of these common home loan pitfalls:

1. Delaying your application. So you’ve picked the lot and the design of the house, and you’re ready to start paying for it. But you applied for the home loan too late—a costly mistake. 

Considering the amount of documentation, financial checks, and assessments bank take, home loans tend to be a tedious, well-drawn-out processes that take 1 to 2 months, depending on complexity. Potential borrowers should provide enough time for the application process or they might find themselves overrun by housing expenses (particularly construction-related) before their funds are released. 

2. Getting the lowest rate in the market and opting for a short-term re-pricing. Of course, your aim is to find the right rate that matches your cashflow, but sometimes borrowers gloss over the fine print with their loan interest rates and end up biting the bullet later. 

Usually, the lowest loan rates are offered only on a promotional basis (e.g. good for 1 year, then subject to re-pricing), and the borrower gets hit with the “real” rate later on. This is often the case when interest rates have been falling for some time. Banks can offer locked-in rates, but never as low as the short-term rate. Borrowers shouldn’t try to play the rates; instead, they should focus on maintaining a stable rate that their cashflow can accommodate.

3. Misdeclaring finances. Banks require all potential borrowers to fill up a financial questionnaire. Here, you would have to declare other loans, expenses, and all streams of income. The trouble happens when borrowers try to outsmart the bank by withholding or misdeclaring information in order to either to increase the loan amount they can qualify for or increase the likelihood of approval. This can be a costly mistake because banks will always check and verify information. 

Since banks also share information with other banks, they will eventually know your payment history and if you have a third credit card or an auto loan that you are paying for. This will draw out the loan process, as the bank will then have to recollect the correct information from you. Worse, this may cause the bank to question your integrity, and in some cases decline your home loan application altogether. 

4. Ignoring “miscellaneous” fees and title processes in buying homes. This is more a problem with buying a home rather than getting a loan—but borrowers often consider only the selling price of the house when budgeting and ignore the other fees that come along with purchasing a house, such as title transfer, taxes, etc. This leads to a problem similar to item 1, as non-payment of these fees will delay the loan process by preventing banks from placing a mortgage on the property, thus preventing the disbursement of the loan. 

Always consult your property agent, developer, or if need be, talk to a lawyer to ensure you are aware of the mortgage and titling processes in your city. 

5. Forgetting about insurance. Insurance is an integral part of the budget for borrowing. Bank mortgages require at least two kinds on the part of the borrower: fire insurance for the property itself, and a mortgage redemption insurance (MRI) for the borrower—all to cover the amount of the loan proceeds in the event of worst case scenarios. An MRI is basically a life insurance policy with the bank as the beneficiary, put in place in case of the borrower’s untimely death. Both types of insurance are needed to disburse the loan proceeds, and both have their own process. If you don’t apply for insurance on time, then you risk delaying your loan. 

6. Not negotiating. Within reason, everything is negotiable in buying homes and applying for home loans, particularly finances fees and closing costs. Negotiating important costs like the price of your house and your loan’s interest rate may save you a lot of money in the long run. Give it a try, and if it doesn’t work out to your liking, you always have the option to walk away.