Connecting Buyers and Sellers of Philippine Real Estate
What Happens to the Buyer's Down Payment When There's No Bank Loan
I noticed some developers and brokers in the Philippines are advertising no down payment schemes. Here's a sample scenario:
Purchase Price: 1 Million
Down Payment: 200,000 (2-3 years to pay)
Balance: 800,000 (paid through bank financing)
There is still a down payment but it is paid by installment by the buyer then bank financing will kick in or pay the balance in cash at the end of the installment period.
My questions are:
1. What happens to the Buyer's funds (paid towards the down payment) if he/she cannot get a loan afterwards?
2. When or what stage should the buyer apply for bank financing?
3. Are the loan requirements disclosed upfront before making the purchase?
4. Are all the loan fees, interest rate and terms disclosed before the purchase?
Some say the developer will end up financing the balance. In case the developer financed the remaining balance, are the loan fees, interest rate and terms disclosed before the purchase?
Purchase Price: 1 Million
Down Payment: 200,000 (2-3 years to pay)
Balance: 800,000 (paid through bank financing)
There is still a down payment but it is paid by installment by the buyer then bank financing will kick in or pay the balance in cash at the end of the installment period.
My questions are:
1. What happens to the Buyer's funds (paid towards the down payment) if he/she cannot get a loan afterwards?
2. When or what stage should the buyer apply for bank financing?
3. Are the loan requirements disclosed upfront before making the purchase?
4. Are all the loan fees, interest rate and terms disclosed before the purchase?
Some say the developer will end up financing the balance. In case the developer financed the remaining balance, are the loan fees, interest rate and terms disclosed before the purchase?
Replies to This Discussion
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Permalink Reply by Alvah Buckmore on
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Dear Mike:
There are a lot of things wrong with this whole financing scheme common in the Philippines due primarily to the lack of government rules and regulations. The Government is simply not strong enough, allowing dozens of greedy people to work around and through the dozens of loopholes in law.
(1) The interest rates are far too high putting the purchase of a home out of reach for most Filipinos.
(2) The payment terms are absurdly unrealistic and far too short to make each monthly payment well in excess of affordability for most Filipinos, usually well beyond the monthly income for most people, even for people in management and high-technology. Just look at the salaries offered in employment advertisements and then compare them to the typical monthly mortgage payments.
(3) I have seen ridiculous requirements for (a) a reservation fee, (b) a down payment and (c) then a willingness to provide "in-house financing" at very short periods for payment and at very high interest.
"Reservation fees" and "down payments" are the same thing meaning, in effect, a requirement for two down payments, one for the greedy developer and the other for the bank. Then, the developer also receives a certain prearranged percentage of the interest the bank charges the buyer.
That means, if the bank financing the loan charges an interest rate of 14%, the developer will receive one or more percentage points of a "kickback" from the bank, a very common practice among car dealerships in the United States.
Successful developers will usually work out several elaborate schemes to get income for themselves from several different sources with each piece of property they sell. They will get a reservation fee, full payment for their property directly from the bank shortly after the buyer signs the contract and a kickback from the interest rate every month for the duration of the buyer's term of payment.
With a minimum of local government regulations dealing with the development of real-estate property, the developer will save an enormous amount of money by not having to install a proper drainage system and an adequate water supply system, such as a proper water tower for each sub-division.
So, there is a great deal of fraud in the development and sale of real-estate properties. In the United States there are statutory provisions to prosecute such developers. In the Philippines, however, there is very little protection for the buyer.
Respectfully,
Alvah Buckmore, Jr.,
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Permalink Reply by CYD CASEÑAS BACALSO on -
Hello,
Developer differs in some policies. Our developer MCJR Realty and Development Corp. has the following
1. For buyers who cannot avail the loan afterwards, she can get the refund less expenses which includes the commissions released. However the company assessed the buyers first if he is qualified to get a loan before closing the transaction
2. The soonest the unit is available and if the buyer can afford to pay both the loan amortization and the monthly DP
3. YES all loan requirements are disclosed to the buyer for proper assessment
4. YES fees and other charges including the terms are properly discussed with the buyer before approval
For in house financing, everything is disclosed in the contract
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