Housing Loans for Renovation: The Optimal Home Improvement Loans

A home renovation is one of the only investments that can improve the quality of life in your living space and increase the value of your home in the future. Renovating can boost the return on investment (ROI) of a house. Some homeowners want to add more rooms to accommodate an expanding family or to make some kid or elderly-friendly features. Others want to turn their homes into profitable assets, such as rental property or remodel their homes before selling them to get a higher price.

The most important question is how are you going to finance the renovation. With careful research and planning, you can save money and time in the long run. Today, we’re going to look at a few home renovation loan options you may want to consider.

What is Housing Loan for Renovation

A home renovation loan in the Philippines is a type of personal loan or housing loan designed to provide funds for renovating, remodeling, or repairing a home.

There are two main types of home rennovation loans: personal loans and home loan for renovation. Personal loans can be either unsecured, requiring no collateral, or secured, requiring collateral such as a vehicle or other assets. Housing loans, on the other hand, are typically secured by the property itself and may offer lower interest rates compared to personal loans.

Housing loan vs. Home Improvement Loan Differences

A home improvement loan and a housing loan serve different purposes and have distinct characteristics.

• A home improvement loan is specifically designed to provide funds for renovating, remodeling, or repairing an existing home. This type of loan is typically offered as a personal loan, which can be either unsecured or secured

Eligibility requirements for loans to renovate home might be more flexible than housing loans, with proof of stable income and a good credit score generally necessary. The processing time for home improvement loans is usually faster than housing loans because the amount is smaller and often doesn’t require extensive documentation or appraisal.

• A housing loan, also known as a home loan or mortgage, is used to purchase a new home, construct a new property, or refinance an existing mortgage. Housing loans can also be used for home improvement if specified by the lender.

Housing loans are secured loans, with the property being purchased or constructed serving as collateral. The loan amount for housing loans is typically larger, as it covers the cost of buying or constructing a home. Interest rates for housing loans are generally lower. Repayment terms for housing loans are longer, ranging from 10 to 30 years. Eligibility requirements for housing loans are more stringent, including proof of stable income, good credit history, and sometimes a significant down payment.

Property appraisal and other legal documentation are usually required. The processing time for housing loans is longer than home improvement loans due to the need for property appraisal, legal checks, and more comprehensive documentation.

Home Loan for Renovation Options

There are viable options for financing a home renovation in the Philippines. Check out 5 easy methods of financing your home renovation:

1. Personal Savings: If you have savings set aside, it may be a good idea to use that money to pay for your home renovation. This is the simplest and most cost-effective way to finance your renovation, as you won’t have to worry about interest rates or repayment schedules.
2. Credit Cards: If you have a credit card with a high enough credit limit, you can use it to finance your home renovation. However, you should be careful not to overspend, as credit cards typically have high interest rates.
3. Personal Loans: You can apply for a personal loan from a bank or other financial institution to finance your home renovation. Personal loans have fixed interest rates and repayment schedules, which can make it easier to budget for your renovation.
4. Home Renovation Loans: Some banks and government services in the Philippines offer home improvement loans specifically for home renovations. These loans typically have lower interest rates than personal loans and credit cards, and they can be a good option if you don’t have enough equity in your home to qualify for a home equity loan.
5. Home Equity Loan: This is a type of loan that allows you to borrow money using the equity in your home as collateral. Home equity loans typically have lower interest rates than other types of loans, and you can use the money for any purpose, including home renovations.

Best Home Renovation Loans in the Philippines

A personal loan for home improvement is like any other unsecured loan used for personal needs such as business or renovating a house to increase its value. Personal loans for the renovation of a home can be obtained from banks, government agencies and financial companies.

1. The SSS Philippines  and Pag-IBIG loans are among the most dependable government loans.
2. Some banks that offer this kind of loan include: BPI, Metrobank, and Security Bank, and BDO Home Loan.
3. Some financial companies that offer personal loan: Blend.ph, Easycash, Finbro, and Digido.

SSS Housing Loan for Repairs and/or Improvements

The SSS Housing Loan (1) for Repairs and/or Improvements seems like a viable option for financing major home renovations. It’s designed for members of the Social Security System in the Philippines who need funds for significant house repairs or improvements, including building adjacent structures like gates and fences.

The loan offers a minimum amount based on 70% of the appraised value of the property, up to 90%, with the actual amount dependent on the borrower’s repayment capability and the project’s requirements. The maximum you can borrow is ₱1 million, with an interest rate of 9% per annum. Loan terms can extend up to 20 years, although Overseas Filipino Workers (OFWs) have a limit of 15 years.

Eligibility requires being under 60 years old at the time of application, having at least 36 months of SSS contributions, and 24 consecutive contributions before applying. You shouldn’t have any existing or previously granted repair/improvement loans from SSS or the National Home Mortgage Finance Corporation (NHMFC), and you must be up to date on any other SSS loan repayments.

Required documentation includes various forms, IDs, building plans, and proof of income, which varies depending on whether you are employed or self-employed. The SSS might request additional documents as necessary.

Pag-IBIG Home Improvement Loan

This loan option from Pag-IBIG (2) (Home Development Mutual Fund, HDMF) is particularly attractive due to its low interest rates, which are among the lowest available for home improvement loans in the Philippines. It offers a special rate of 3% per annum for minimum-wage earners, making it accessible for those on tighter budgets. The maximum loan amount is ₱6 million, and the terms extend up to 30 years, tailored to not exceed the borrower’s age of 70 years at the time of loan maturity.

Eligibility is straightforward: the applicant must be an active Pag-IBIG member with at least 24 months of membership savings, have legal capacity to acquire and encumber property, be updated on any other Pag-IBIG financings, and not have any previous Pag-IBIG housing loans that ended negatively (foreclosed, cancelled, etc.).

Documentation required includes a loan application form with ID photos, title documents, tax declarations and receipts, building plans, proof of income specific to employment type, and various other supporting documents.

For income proof, the requirements differ based on employment status, including specific documents for employed, self-employed, and other income situations like rental or commission. Additional documents may also be requested by Pag-IBIG as needed.

This loan could be a great option for financing your home renovations, especially with its flexible terms and low interest rates. If you meet the membership and savings criteria and can provide the necessary documentation, this might indeed be the best choice for your needs.

Home Equity Loan

A Home Equity loan allows you to borrow against the market value of your existing home and use the funds for home improvements. If you want to borrow from the government, Pag-IBIG Home Equity Appreciation Loan (HEAL) (3) allows qualified borrowers to loan an amount based on the net value of their home at very low-interest. Home Equity Loans has its  pros and cons, and here they are:

Pros:

• Lower interest rates: Home equity loans typically have lower interest rates than other types of loans, as they are secured by the value of your home.
• Large loan amounts: Depending on the value of your home, you may be able to borrow a large amount of money through a home equity loan, making it a good option for major home renovations or other large expenses.
• Flexible repayment terms: Home equity loans often come with flexible repayment terms, allowing you to choose the length of the loan and the monthly payment amount that best fits your budget.
• Tax benefits: In the Philippines, the interest paid on a home equity loan may be tax-deductible, which can help you save money on your taxes.
• Use of funds: Home equity loans can be used for any purpose, not just home renovations. You can use the funds to pay for debt consolidation, education expenses, medical bills, or any other major expense.

Cons:

• Risk of losing your home: Because home equity loans are secured by your home, if you are unable to repay the loan, you risk losing your home through foreclosure.
• Fees and closing costs: Home equity loans may come with fees and closing costs, such as appraisal fees, origination fees, and title fees, which can add up to a significant amount.
• Time-consuming process: Obtaining a home equity loan can be a time-consuming process, as it often involves a lengthy application process, a home appraisal, and other requirements.
• Interest rate changes: Home equity loans often have variable interest rates, which means that your monthly payment amount can fluctuate over time, making it difficult to budget.

When Obtaining the Home Equity Loan is Ideal: The conditions where applying for a home equity loan is considered well-timed are when home renovations are costly and time-consuming.

You can Improve the value of your home by using Home Equity Loan personal loan to make home renovations. This can be especially beneficial if you are planning to sell your home in the future, and get a higher sale price and recoup your investment.

Housing Loan for Renovation from BPI

The BPI Home Improvement Loan (4) offers financial assistance for renovating residential properties, which includes upgrades, repairs, or starting new construction projects. This loan option is an excellent choice if you’re considering substantial modifications to your home.

Key Features:

✅ You can borrow from a minimum of ₱400,000 up to 90% of your property’s appraised value, making substantial renovations feasible.
✅ Varying rates are available depending on the duration you choose to fix your loan rate, starting from 7% for one year to 12% for a 20-year term, allowing flexibility based on your financial planning.
✅ The loan offers terms from 1 year up to 20 years, providing a range of options to manage repayment according to your financial capacity.

Requirements of BPI Housing Loan for Renovation:

Applicants should be between 21 and 65 years of age by the end of the loan term and must have a household income of at least ₱40,000. Essential documents include property titles, tax documents, and, depending on the project type, either construction-related documents or proof of property status for refinancing.

Income Verification

• Employed Individuals: Recent employment and income verification documents are necessary, including job certification, tax returns, and recent pay slips.
• Self-Employed Individuals: Require proof like tax returns, financial statements, and business permits.
  Other Income Sources: Documents such as lease agreements for rental income or franchise agreements for transport businesses are needed.

This BPI loan is structured to support a variety of renovation needs with competitive rates and flexible repayment plans, making it a strong contender if you are looking to enhance the value and comfort of your home.

Security Bank Home Improvement Loan

Security Bank offers a specialized loan for homeowners aiming to upgrade or repair their properties (5) It’s crafted to simplify financing for various housing projects, including renovations, refurbishments, or expansions.

The loan starts at a minimum of ₱1 million and can cover up to 80% of the assessed property value. Loans can be spread over a period of up to 20 years, providing flexibility in repayment.

• Interest Rates: Depending on the chosen term, regular home loans range from 7% to 7.75%, and home equity loans from 8% to 8.75%.

Eligibility Requirements

• Applicants must demonstrate a combined gross monthly income of at least ₱50,000.
• Proof оf Income. This varies by employment type but generally includes identification, tax returns, and financial statements. Specific documents like pay slips for employed individuals and audited financial statements for self-employed applicants are required.
• Prospective borrowers need to complete an online application form and provide necessary property documents.
  Applicants should provide detailed building plans and cost estimates.

Maybank Home Construction Loan

The Maybank Home Construction Loan is tailored for individuals who wish to build or significantly renovate their homes, turning them into their envisioned dream homes.

Starting with a minimum loanable amount of ₱1 million, Maybank provides financing up to 80% of the combined appraised value of the land and the proposed building. The interest rates are competitive, starting at 6.75% per annum for a one-year fixing period and rising to 7.50% for a five-year term. The term of the loan is 1, 3 or 5 years.

Eligibility:

• Applicant’s age plus the loan term should not exceed 65 years at the time of loan maturity.
• Applicants need to have stable employment, with a requirement of being employed for at least two years, or owning a business that has been operational and profitable for the past three years.

Documents needed:

• This includes a filled-out housing loan application form, valid government-issued IDs, and relevant personal documents.
  Building plans and detailed cost estimates.
• Locally employed individuals must provide recent pay slips, the latest Income Tax Return, and employment certificates for both spouses if applicable.
• Self-employed applicants need to submit business registrations, audited financial statements for the last two years, a company profile, and recent bank statements or passbook copies.

Maybank’s requirements for additional documentation ensure a thorough evaluation process, which helps in providing a tailored loan package that best fits the financial and construction needs of the borrower.

Home Loan Refinancing

Refinancing involves paying out your current loan with a new one. This new loan has a new interest rate, outstanding balance, monthly installments, and repayment terms. You can put the extra cash from your refinanced home loan toward a home improvement project.

In the Philippines, you can consider several key institutions for home loan refinancing, including major banks, government-backed agencies, and other financial institutions. Here are some prominent options:

• BDO Unibank: Known for offering competitive refinancing options.
• Metrobank: Provides refinancing services with various rate options.
• Bank of the Philippine Islands (BPI): Offers refinancing with flexible loan terms.
• Security Bank: Known for straightforward refinancing processes.
• Pag-IBIG Fund: Offers refinancing under its home loan program, primarily for lower interest rates.
• Land Bank of the Philippines: Provides refinancing options mainly aimed at farmers and fishermen but also available for residential properties under certain conditions.

Benefits of Home Loan Refinancing

• Reduced monthly payments: refinancing is intended to make loan repayments more manageable.
• Reduced interest rates: one of the most common reasons for refinancing home loans is to pay for lower interest rates.
• You can pay off your loan earlier: If you change your existing loan from a 30-year term to a 20 or 15-year term, you will pay off your loan sooner than expected. Your interest payments will be reduced as well.
• Reasons to Refinance Your Home Loan:  Home loan refinancing is only a good option if you have an excellent credit score and history, a substantial amount of home equity, and you have a plan to complete the home loan as soon as possible.

The Downsides of Home Loan Refinancing

There is no guarantee of approval. Having an existing loan does not guarantee approval of a new loan. Lenders will still look at your credit score and credit history. Also, this can prove to be more expensive than other types of home renovation loans in the Philippines.

A new home loan means that you will be paying interest on your new monthly mortgage rather than reducing your outstanding balance. Similarly, switching your loan from a longer to a shorter term will necessitate higher monthly mortgage payments.

Learn more:
✦ How much to Build a House in the Philippines
✦ Minimize House Renovation Cost in the Philippines

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Personal Loans for Renovation of Home

When to opt for a personal loans for renovation your house? A personal loan is an advantageous option if you require small home improvement projects, you have a good credit score, or your home equity is inadequate.

For example, Digido can be a great way to get the funds you need fast to complete your project or small, urgent needs, without having to worry about high interest rates or collateral requirements. Digido is a digital lending platform in the Philippines that provides personal loans to individuals online.

It is important that you can get an online loan of up to 25,000 PHP in just 5 minutes without leaving your home. Digido has a fast approval process and you can get a loan with only government valid ID

 

Pros and Cons of Personal Loans

• The application is simpler and less expensive:
  Personal loans do not require appraisals or other services to be approved.
• No collateral:
  Instead of relying on a borrower’s assets as security, lenders approved an unsecured home loan for renovation based on the borrower’s creditworthiness. Moreover, borrowers with low home equity can qualify for a personal loan.
• Loans with lower loan amounts:
  You can borrow as low as Php 10,000 which is ideal if you need money for minor home repairs.
• It has a fixed rate of interest:
  For the loan duration, a single interest rate determined by the borrower’s credit history applies, which means that the monthly payments are predictable and easy to budget for.
• Shorter repayment terms:
  Personal home loans for renovation have shorter repayment terms compared to other types of home improvement loans, typically ranging from one to five years. This allows you to pay the loan quickly and save on interest payments.
• Loan repayments must be made more quickly:
  Personal home loans for renovation have shorter terms than other home loans, the monthly amortizations can be difficult on the budget.
• Increased interest rates:
  Certain personal  loans have higher annual interest rates than other types of home renovation loans. This is due to the simple process of applying for a loan and quick approval of applications.

5 Tips for Saving on Home Renovations

Home renovations can be a significant investment, but there are ways to save money without sacrificing the quality of your project. This list contains 5 tips to help you save on home renovations.

1. Set a realistic budget and stick to it:
   Before you begin your home renovation project, set all the costs involved, such as materials, labor, and permits, and make sure you can afford it.
2. Plan ahead:
   Start by creating a detailed plan of what you want to accomplish with your renovation. Make a list of all the materials you will need, and compare prices from different suppliers.
3. DIY where possible:
   Doing some of the work yourself can save you a significant amount of money. For example, you can paint the walls, install light fixtures, and even lay flooring with some practice.
4. Keep existing structures:
   Consider keeping certain elements, such as cabinets, sinks, and appliances, if they are still in good condition. This can save you a lot of money on materials and labor.
5. Shop around for the best deals:
   Take the time to shop around for the best deals on materials, appliances, and furniture. Look for sales and discount.

Final Thoughts

Home improvement has become much easier these days because there are numerous ways to finance a home renovation project. Choosing one, on the other hand, should always be based on reality, which is represented by two factors: project size and budget. Don’t rush your decision to avoid making costly mistakes. Examine the benefits and drawbacks of each funding option. You can always ask Digido for help financing your home renovations.

Learn moreabout:
the Most Expensive Houses in the Philippines

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