The differences between getting a mortgage in the U.S. and in the Philippines

Buying a house in the U.S. isn’t the same as buying a house in the Philippines. The two countries handle their loan processes differently. First of all, in the U.S., a home loan is called a “mortgage.“ In the Philippines, you’d barely hear that term. They may teach you that in school, but most banks just refer to a mortgage as a home or housing loan.

There are also a few key differences in the way American lenders and Filipino lenders assess borrowers. If you’re a Filipino-American or an Overseas Filipino Worker who’s never bought a home in the Philippines, this article will let you know what to expect from Filipino lenders:

Credit score: the U.S. vs. the Philippines

In the U.S., individuals are required to have a credit score before applying for a loan. Though some banks may bend this rule for the sake of non-residents and first-time borrowers, the credit score remains an essential factor in every borrower’s financial records. A credit score of 300 is bad, while a credit score of 850 is considered the best. To define credit score, it’s a three-digit number that depicts your creditworthiness. The higher it is, the better your chances of getting approved for any loan.

The “big three“ credit bureaus, namely Equifax, Experian, and TransUnion, give credit scores to all American borrowers. They sell an individual’s credit information to lenders or any company that has a valid reason for checking someone’s credit history. If they’ve shown lenders a bad record, such as unpaid debts, delayed bills payments, or too many loans, the lenders will use that as a basis for denying a loan to a borrower.

In the Philippines, on the other hand, credit scores don’t exist. Instead, banks either rely on an internal database or external sources to evaluate your capacity to repay the loan. The bank’s internal database includes the records of their past or existing clients’ loans and/or deposit accounts. So basically, they’d check your account balances, loan history, and other relevant financial information.

With regard to external sources, the Philippines’ centralized national credit bureau, Credit Information Corporation (CIC) commenced operations around late 2015. They perform a similar function as the U.S.’s credit bureaus.

Types of home loans

Both the U.S. and the Philippines offer more than one type of home loan. In the U.S. the most common types of mortgages are:

• Fixed-rate Mortgage: The simplest type of home loan with an interest rate that stays constant throughout the life of the loan (15–30 years).
• Adjustable-rate Mortgage: A home loan with an interest rate that can change at some point. It will stay fixed for a number of years in the beginning, and start changing annually after 10 years or so.
• Home Equity Loan: A.k.a. second mortgage. In this loan, you’d borrow against your home’s equity, and you can use the cash for major expenses like college tuition, home improvement, or leisure.

In the Philippines, there are only two types of housing loans:

• Conventional Home Loan: This allows you to make fixed monthly payments for a specific term or period. Terms usually last up to 20 years, and the minimum loan amount is Php500,000.
• Flexible Home Loan: A.k.a. flexi loans: This type of housing loan is tied to a current account. As such, you can reduce your home loan interest per cash deposits you make on your account. You may also withdraw your excess payments without notifying the bank, and you can repay the principal amount anytime.

Getting approved for a home loan

Banks in the U.S. and in the Philippines have similar standards for their borrowers. For you to get approved and receive cash enough for a spacious yet affordable house and lot, you need to earn a stable monthly income, pay your bills on time, and reduce your debts.

You also need to prepare a set of documents proving your employment and income. In the U.S., that’s the Form W-2, most recent tax return, and other documents on hand. In the Philippines, you need to submit a recent valid ID, government-issued ID, Income Tax Return, employment certification, payslips, and other relevant collateral documents.

Once you’ve submitted your requirements, keep your communication lines open, because the lender may contact you anytime. The approval process in both countries takes just a couple of days. Still, your lender may request additional information before giving you your cash. So stay alert and available to talk with them anytime to speed up your approval.

By the time you get approved, all you need to do is to make your down payment, get your loan, and buy your first home. The overall process isn’t as complicated as it sounds. As long as you have the complete requirements, and fit the lender’s risk profile, you’re considered a worthy borrower in both the U.S. and the Philippines.