House Construction Financing Options

Gabriel Mikael
Jun 25
5 min read

When it comes to financing options for home building in the Philippines, there are several choices available depending on your financial situation, credit standing, and goals. Here’s a breakdown of the best financing options available, along with their key advantages and considerations:

1. Bank Home Construction Loans

Overview: Bank home construction loans are a common choice for building a home. These loans offer flexible terms and competitive interest rates, especially if you have a good credit history and stable income. Banks typically release funds in stages as the construction progresses.

Top Banks Offering Construction Loans:

BDO (Banco de Oro)
BPI (Bank of the Philippine Islands)
Security Bank
PNB (Philippine National Bank)

Key Features:

Interest Rates: 6%–8% (variable depending on bank and loan term)
Loan Term: 10–20 years
Loanable Amount: Up to 80% of the appraised value of the house and lot
Disbursement: Funds are released in tranches as construction reaches different stages.
Processing Time: 1-2 months (varies by bank)

Advantages:

Lower Interest Rates: Compared to other types of loans, banks typically offer lower interest rates, especially for construction loans.
Structured Payment Plans: You can choose fixed or flexible payment plans, with options to lock in interest rates for a certain period.
Larger Loan Amounts: Banks allow you to borrow up to 80% of the property value, making it ideal for larger projects.

Considerations:

Strict Requirements: Banks typically require comprehensive documentation, including proof of income, credit history, and detailed construction plans.
Progressive Release of Funds: Money is released based on project milestones, which means you need to carefully manage your construction timeline to avoid delays.

2. Pag-IBIG Fund Housing Loan

Overview: The Pag-IBIG Fund is a government-run savings program that provides affordable home loans to its members. It offers competitive interest rates, longer loan terms, and is accessible to employed individuals.

Key Features:

Interest Rates: As low as 5.375% per annum (for loans up to ₱6M)
Loan Term: Up to 30 years
Loanable Amount: Up to ₱6M depending on your contribution and capacity to pay
Disbursement: Released in stages during the construction
Membership Requirement: At least 24 months of Pag-IBIG contributions

Advantages:

Lower Interest Rates: Pag-IBIG offers some of the lowest interest rates in the market, especially for its affordable housing loan programs.
Longer Loan Terms: With loan terms of up to 30 years, this option offers very affordable monthly payments.
No Prepayment Penalties: Pag-IBIG does not charge penalties for early loan repayment, allowing you to pay off the loan faster if desired.

Considerations:

Loan Amount Limitations: The maximum loanable amount is ₱6M, which may not be enough for larger or luxury home projects.
Lengthy Processing Time: Pag-IBIG loans often take longer to process compared to bank loans, and it may take 2-3 months for approval and release of funds.

3. In-House Financing by Developers

Overview: For those purchasing a lot and building through a property developer, many offer in-house financing as a flexible option. This method bypasses traditional banks, allowing you to deal directly with the developer.

Key Features:

Interest Rates: 12%–15% (higher than bank loans)
Loan Term: 5–10 years (shorter terms)
Loanable Amount: Depends on the developer and value of the property

Advantages:

Flexible Requirements: In-house financing is often easier to qualify for compared to banks. Developers may be more lenient with credit requirements and documentation.
Faster Processing: Since there’s no third-party bank involvement, the approval and processing times are much faster.
Simplified Application Process: The developer handles everything in-house, streamlining the documentation process and making it simpler to secure a loan.

Considerations:

Higher Interest Rates: In-house financing comes with much higher interest rates compared to bank loans and government-backed financing options.
Shorter Loan Terms: Repayment periods are shorter, which means higher monthly payments.

4. Cooperative Housing Loans

Overview: Housing cooperatives provide an alternative means of financing for members. These are non-profit organizations that offer affordable loans to help members build homes. They are a great option for individuals who may not qualify for traditional bank loans.

Key Features:

Interest Rates: 5%–10% (depending on the cooperative)
Loan Term: Up to 25 years
Loanable Amount: Varies based on the cooperative and individual contributions

Advantages:

Lower Interest Rates: Cooperatives often offer more favorable interest rates than banks, particularly for lower-income individuals.
Flexible Terms: Cooperative housing loans tend to be more flexible in terms of eligibility and repayment schedules.
Community Support: Cooperatives focus on member welfare, which can be beneficial if you need financial advice or assistance in securing the loan.

Considerations:

Membership Required: You must be a member of the cooperative and meet their eligibility requirements.
Limited Loan Amounts: Cooperatives may not offer high loan amounts for larger construction projects.

5. Personal Loans

Overview: For smaller construction projects or if you need a quick infusion of cash for certain phases of construction, personal loans from banks or financial institutions can be an option. While personal loans are unsecured, meaning you don’t need collateral, they come with higher interest rates.

Key Features:

Interest Rates: 12%–18%
Loan Term: 1–5 years
Loanable Amount: ₱50,000–₱2M

Advantages:

Fast Approval: Personal loans can be approved within days, making them ideal for short-term cash needs during construction.
No Collateral Required: You don’t need to use your property or home as collateral, making it less risky for some borrowers.

Considerations:

Higher Interest Rates: Personal loans have significantly higher interest rates compared to housing loans, making them more expensive over the long term.
Smaller Loan Amounts: Personal loans may not cover the entire cost of building a home, so this option is typically used as supplementary financing.

6. Sangla (Pawning) Loans for Lot or Property

Overview: Some homeowners may consider leveraging an existing piece of land or property through a Sangla Loan. This allows you to use your land or existing home as collateral for a loan, which can provide access to significant funds for home construction.

Key Features:

Interest Rates: 5%–10% (based on the lender)
Loan Term: 5–20 years
Loanable Amount: Up to 70%–80% of the property value

Advantages:

Significant Loan Amounts: Using property as collateral can unlock larger loan amounts, making it feasible for substantial home construction projects.
Competitive Interest Rates: The interest rates are generally lower than personal loans or in-house financing since the loan is secured against the property.

Considerations:

Risk of Foreclosure: If you default on payments, there’s a risk of losing your property through foreclosure.
Strict Repayment Terms: These loans may come with stricter repayment schedules, so careful financial planning is required.

Summary of Financing Options:

Financing Option	Interest Rate	Loan Term	Loanable Amount	Best For
Bank Home Construction Loan	6%–8%	10–20 years	Up to 80% of appraised value	Stable income, large loan amounts
Pag-IBIG Housing Loan	5.375%–7.5%	Up to 30 years	Up to ₱6M	Lower-income earners, longer loan terms
In-House Financing	12%–15%	5–10 years	Based on property value	Quick approval, easier requirements
Cooperative Housing Loan	5%–10%	Up to 25 years	Varies by cooperative	Cooperative members, lower-income borrowers
Personal Loan	12%–18%	1–5 years	₱50,000–₱2M	Quick cash needs, smaller projects
Sangla Loan	5%–10%	5–20 years	Up to 70%–80% of property value	Securing funds against property

Best Option for You:

For long-term, large-scale projects: A bank construction loan or Pag-IBIG Housing Loan will be your best bet due to competitive interest rates and flexible loan terms.
If you need quick approval: In-house financing from developers or a personal loan may be your best option, though more expensive in terms of interest.
For affordable, low-interest loans: Pag-IBIG Housing Loans or Cooperative loans are ideal for those who qualify and want lower monthly payments.