Preparing to take out a mortgage

Buying a new car or property can be a daunting task, especially for those who have never done it before. Very few people are lucky enough to be able to make such purchases with cash. Odds are most Filipinos would need to take out a mortgage, and this can only increase the stress for first-time buyers, as applying for loans brings a new level of complexity to the process.

Questions like, “Where should I apply for a home or car loan?”, “Which of these banks has the lowest interest?”, “How much should I borrow?”, or “What happens if I get rejected?” could be difficult to answer, depending on one’s situation, and might scare off would-be buyers altogether. But it doesn’t have to be a stressful experience. As with all things, a little preparation goes a long way.

Know your financial situation

The simplest way to start is to consider where you stand financially before you apply for a loan. This involves knowing your net worth, or the value of your money-making assets and income minus debts and other liabilities. Having a strong fundamental knowledge of money will not only help you put your best foot forward when approaching potential lenders, it will also make it easier for you to understand how the mortgage might impact your financial future. Needless to say, you shouldn’t take out a loan if you cannot afford to pay it back.

Lenders usually look for clients who are financially stable, with good income and minimal debt. Make sure that you have a steady income, and try to stick with your current occupation during the loaning process.

For those who are unsure about the state of their finances, it won’t hurt to review your credit history before submitting a loan application. Check if you have any record of missed or overdue payments, even if it’s from a different bank than the one you plan to borrow from. Banks and lending institutions typically share information on delinquent and defaulting borrowers. Even one instance can be a red flag.

While it might not be impossible to get approved for a loan with a bad record, it will make it significantly harder. Not to mention that lenders might hit you with higher interest rates if they deem you an untrustworthy creditor. Before applying for a loan, double check if you’ve paid your bills on time, and eliminated any standing credit card balances. If you have unpaid loans, it might be best to finish paying them off first before getting a new one. The less you owe, the better.

When you approach your chosen lender, have an honest conversation about your goals and financial history. Most banks would interview clients about their projected down payment, their assets and properties, if they have any, cash flow, monthly income, liabilities, and credit history. Most importantly, they would look at their debt service ratio, or how much of their income would go to the monthly amortization. They would then evaluate applications and other necessary details based on those factors.

Have a clear goal in mind

The other thing you should know when applying for a home or car loan is how much you would actually need. One easy way of doing this is by using mortgage calculators. Many banks offer such tools free of charge for potential borrowers so they can check if their finances can handle the payment schemes on offer. Calculators can show you how much your monthly amortization would be under different loan amount, interest rates, loan tenure, and annual income scenarios.

Using tools like calculators also have the benefit of giving you an idea of how much you should pay in cash for downpayments. If you’ve already readied a hefty savings account to finance your planned purchase, banks would be happier to lend a helping hand in making the difference.

After that, it’s only a matter of completing the required documents and submitting your application. At minimum, you would need to provide valid, government-issued IDs with photos, proof of income such as employment certification and income tax returns, and other relevant collateral documents. Make sure they are all up-to-date.

As mentioned before, having an honest conversation with your lender is crucial towards getting into their good graces and getting your loan approved. This extends even after submitting your application. Keep your lines of communication open. Should your lender request any additional information from you and you were unable to respond, your application could be on the line. At the very least, it might cause a delay in the processing. After all that effort at making the best impression, it would be foolish to risk ruining it all for something so easily avoidable.

Buying a new car or property is a big step towards financial security. It’s best to be prepared. — Bjorn Biel M. Beltran








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