Pre-approval Process

Going through the pre-approval process for a home construction loan is a smart way to streamline your application and improve your chances of getting approved. Pre-approval helps you determine how much you can borrow, your interest rate, and your overall budget before starting your project. Here are the best steps to follow for loan pre-approval:

1. Check Your Credit Score and History

• Why It Matters: Banks rely heavily on your credit score to assess your risk as a borrower. A higher score generally leads to better loan terms and interest rates.

• Action: Request a copy of your credit report through credit bureaus like TransUnion Philippines or CIBI. Review your credit report for any inaccuracies or negative items that could affect your application.

  • Target Score: A score above 600 is generally considered good, and a score above 700 can give you access to the best interest rates.

• Pro Tip: If your credit score is lower than expected, consider paying off smaller debts or negotiating with creditors to remove inaccuracies before applying for pre-approval.

2. Assess Your Debt-to-Income Ratio (DTI)

• Why It Matters: Banks use the debt-to-income (DTI) ratio to determine how much of your income is already committed to debt payments. A lower DTI increases your chances of approval.

  • Formula: DTI = (Total Monthly Debt Payments / Gross Monthly Income) x 100

  • Target DTI: Ideally, your DTI should be below 40%.

• Action: Add up all your monthly debt payments (credit card, car loans, etc.) and divide by your gross monthly income. If your DTI is too high, consider paying off some debt before applying.

3. Prepare Necessary Documents

• Why It Matters: Having all your documentation ready makes the pre-approval process smoother and faster. Incomplete or missing documents can delay the process.

• Required Documents:

  • Proof of Identity: Government-issued IDs like a passport or driver's license.

  • Proof of Income: Payslips (last 3-6 months), Income Tax Return (ITR), and Certificate of Employment (if employed).

  • Bank Statements: Last 3-6 months of bank statements showing your income and savings.

  • Land Title (if applicable): A copy of the land title or proof of property ownership.

  • Construction Plans (optional): If available, provide architectural or engineering plans of the house you intend to build.

• Pro Tip: Some banks may have specific documentation requirements, so it’s best to call your chosen bank in advance and ask for their checklist.

4. Calculate Your Budget and Down Payment

• Why It Matters: Banks generally require a down payment of 20% to 30% of the property’s appraised value. Knowing how much you can contribute upfront is essential for pre-approval.

• Action: Calculate your total project cost and ensure you have enough savings for the down payment. The larger your down payment, the smaller your loan amount and the less risk you present to the bank.

  • Example: For a home project valued at ₱3,000,000, you’ll need at least ₱600,000 to ₱900,000 as a down payment.

• Pro Tip: If you can contribute more than 20%, it can improve your loan terms and even help you secure a lower interest rate.

5. Research Different Banks and Compare Pre-Approval Offers

• Why It Matters: Banks offer different loan products with varying interest rates, terms, and fees. Shopping around can save you thousands over the life of your loan.

• Action: Research the best banks in the Philippines for construction loans. Key banks to consider include:

  • BPI: Known for competitive interest rates and flexible loan terms.

  • BDO: Offers a wide range of loan products, including progressive loan releases.

  • Security Bank: Offers quick pre-approval processes and good customer service.

  • Pag-IBIG: Ideal for low to middle-income earners due to its low interest rates and long terms.

• Pro Tip: Visit multiple banks and ask for a loan simulation (many banks offer online loan calculators) to compare interest rates, loan terms, and monthly payments.

6. Submit the Pre-Approval Application

• Why It Matters: Submitting a pre-approval application gives you a formal assessment of your borrowing capacity and potential loan terms. This gives you a clearer picture of how much you can borrow and at what rate.

• Action: Visit the bank’s nearest branch or submit an application online (if available). Provide the required documents and information about the property and construction plans.

• Typical Questions You’ll Be Asked:

  • What is the value of the property you’re building?

  • How much are you contributing as a down payment?

  • What is your expected timeline for construction?

• Pro Tip: Some banks offer pre-approval for free, while others might charge a small processing fee (around ₱5,000 to ₱10,000), so make sure to ask about fees upfront.

7. Get Pre-Approval Confirmation

• Why It Matters: Pre-approval means the bank has assessed your financial capability and is willing to lend you a certain amount at a specified interest rate, pending final approval.

• What You’ll Get: A pre-approval letter from the bank, stating:

  • Maximum loan amount

  • Interest rate

  • Loan term

  • Conditions that must be met (e.g., submitting additional documents or passing the property appraisal)

• Pro Tip: Pre-approval usually has an expiration date (typically 60 to 90 days), so plan your construction timeline accordingly to ensure your pre-approval is valid when you're ready to move forward.

8. Stay Within the Pre-Approved Budget

• Why It Matters: Once pre-approved, it’s important to stick within your approved budget. Overspending or significant changes in your project plan could cause issues with final approval.

• Action: Use the pre-approval amount as your upper limit for construction costs and work closely with your architect or contractor to ensure that your project stays within this budget.

9. Plan for the Appraisal and Final Approval

• Why It Matters: After pre-approval, the next step toward securing the loan is a property appraisal. This ensures that the bank’s loan amount aligns with the value of the property being built.

• Action: Once you begin construction, schedule the bank’s appraiser to visit your property to assess its current value. The appraisal may happen in phases as the construction progresses.

• Pro Tip: Keep all your project documentation, receipts, and contracts organized, as these will help with the appraisal and final loan approval.

10. Follow Up Regularly with Your Bank

• Why It Matters: Regular communication with your loan officer ensures that your pre-approval progresses smoothly to the final approval stage, avoiding delays.

• Action: Check in regularly with the bank to make sure that no additional documents or clarifications are needed. If your financial situation changes (e.g., a new job, additional debts), notify the bank as this could impact your loan terms.

• Pro Tip: Banks are often more willing to expedite applications for borrowers who actively engage in the process, so maintaining open lines of communication is key.

By following these pre-approval steps, you’ll increase your chances of securing a home construction loan with favorable terms and ensure that your project is fully funded. Pre-approval not only gives you peace of mind but also makes it easier to work with contractors, knowing exactly how much you can borrow.

Pre-approval Process