Today, we’ll see the specifics of a bank loan for your real estate project, I will use figures from RCBC Savings Bank so they may vary slightly with other banks. This “case study” is about a loan for house construction but it’s quite similar for developer’s projects or the acquisition of a property, the collateral would be different then though.
All the figures are informative and are here to give you an idea about the costs & requirements as well as about the time it will take.
Requirements of a Real Estate Loan
Some of these may vary depending on the bank and may or may not be optional depending on the situation.
- For everyone
- Community Tax Certificate (CTC/Sedula/Cedula), details here.
- Birth certificate
- Post-dated checks
- Tax Identification Number (TIN) verification slip from the the Bureau of Internal Revenue (BIR)
- Proof of billing (water/electric/phone/cable…)
- 2 valid IDs (SSS, GSIS, postal, driver’s licence, OFW, BIR, ACR, DFWD… the list is quite long, basically any ID issued directly or indirectly by the government :))
- If single
- Certificate of No Marriage Record (CENOMAR)
- If married
- Marriage contract
- Birth certificate of your spouse too
- 2 valid IDs (see above) of your spouse too
- For senior
- Result of a full health medical examination
- Health statement form (ask the bank for it)
Mainly, you need to prove your income. It can be any of the following depending on your situation.
- For locally employed
- Notarized Certificate of employment
- Latest Income Tax return (ITR)
- Latest 3 months payslip (originals with signature)
- For OFW employed
- Latest Certificate of employment or job contract
- Special Power of Attorney (SPA), notarized (locally) or consularized (abroad) for the bank*
- Latest 3 months payslip (originals with signature)
- 2 valid IDs (see above) of your Attorney in Fact
- For self-Employed
- Business Permit/Mayor’s Permit
- Department of Trade and Industry (DTI) or Securities and Exchange Commission (SEC) Registration
- Audited Financial Statement (with the stamp from the BIR)
- Official Receipt (OR) of Tax Payment
- Bank statements, at least the last 6 months
- Latest Income Tax return (ITR), at least 2 years
- Business Sketch Plan
- Name & number of 3 clients
* You may need a second SPA depending on the situation, it may be for the developer, your broker or anyone else acting on your behalf.
If you use a property as collateral, you will need to have the following. In case of construction, the collateral would probably be the lot you will build on, in case of an acquisition, you can sometimes negotiate with the seller so that the property sold is its own collateral.
- Copy of title
- Tax clearance
- Tax declaration
From the contractor/architect, you’ll need the following, both sets of documents need to be signed by the architect and the engineer.
- Bill of materials with labor cost
- Building plan
The bank will then appraise the property, count between 3 to 5k for this, it costed 3,500 in RCBC for our case study.
It’s the timeline for an approved loan (of course :)), it may vary a little depending on the bank and the documents you provide. A real estate loan takes, as a general rule, 2 to 3 weeks to be approved, providing you had all the requirements. Some research/checks may take more time for specific situations (separation, issues on the title…).
Day 1: You are ready, the title is clean, taxes are paid. A plan & the bill of materials for the future building are ready. You can go to the bank for pre-evaluation of the documents. The property will be appraised, in our case, the bank appraisal takes up to 1 week.
Day 7, after the approval of appraisal, the bank will endorse the documents for Loan Evaluation from their legal department regarding the title of the land, once OK, It will be signed by the officers. It takes 1 to 2 weeks since they thoroughly check and since it needs signatures.
Day 14/20, the bank loan has been approved so congrats, you’re close to your goal. :)
The banker will let you know the maximal loan you can avail based on the appraisal value, it will generally be 80% of it. You can then opt for this amount or anything lower.
It’s time to sign the loan, I suggest to do some fingers workout before this, there are a lot of pages. :D
Cost & Loan value
As stated above, you can generally loan up to 80% of the appraised value. Here are the fees & costs for the loan application.
The figures below are informative and rounded for clarity, the ones followed by an asterisk will be proportional to the loanable amount, here are figures for a 2M real estate loan.
- Real Estate Mortgage
- Around 20,000*
- Entry fee 30
- Legal Research Fund: 100
- IT fee/Computer Fee: 1,600
- Registration Fee: 10 – 12k
- Documentary Stams: 4 – 5k
- Notarial Fee / REM: 1k
- Service/Processing Fee for Registration: 2 – 3k
- Bank Charges: 20 – 21k (not sure if proportional)
- Documentary Stamp: 10 – 11k*
- Notarial Fee / Credit Agreement Document: 1,000
- Fire Insurance: This one really depends on the property, around 3k in this case
- Handling Fee: 3,500
- Processing Fee/Filing Fee: 2,500
All in all, that makes it a little more than 40,000 for a 2 millions loan.
A Mortgage Redemption Insurance (MRI) will be included in the monthly amortization for the duration of the mortgage.
Once approved, the releasing of the bank loan will generally be staggered following a scheme that could potentially look like this in case of construction:
- 1st Release: 70% of the value of the lot (collateral)
- 2nd Release: 30% of the house construction
- 3rd Release: 60% of the house construction
- 4th Release: 90%
- 5th Release: 100%
What to expect, considerations
Don’t hide anything from the bank, it may avoid being declined and potentially bad record. The investigation seems to be quite thorough and they tend to refuse when in doubt as far as I could see from my experience with my clients.
The bank may call your past employer (employed), your clients (self-employed) so give real contacts. You may also receive a visit from a bank employee during the pre-qualification.
I hope the above did not scare you, globally if you have honest and thorough, it’s fine. :)