Despite being a dream job for some, freelancing also has drawbacks. One of them is the difficulty of getting home loans. Lending institutions are reluctant to lend money to freelancers, especially those without a fixed monthly income. But I have good news: you can still buy a house even if you work as a freelancer. And in this post, I’ll share everything you need to know about buying a house as a freelancer based on my own experience.
Within a year of working as a full-time freelancer, I was able to get two properties: a townhouse and a condo. I started paying for the townhouse last year and acquired a condo early this year.
Before sharing the technicalities and requirements for buying a house as a freelancer, let me just stress that this is a huge financial decision and commitment you’re about to make. So I suggest having at least a year of stable freelance income before you start thinking about this.
If you don’t have a track record of steady income, you’ll have a slim chance of getting a loan. In some cases, you might be flat out rejected for a loan even though you’re earning more than an average employee.
I know how difficult it is to meet financial obligations, especially in huge decisions like this, so I make sure that I can pay for this. In fact, in my case, I was able to save up for a downpayment through my freelance work. And I’m confident that the freelancing skills and experience I’ve gained will allow me to pay for these properties without much difficulty.
And while you’re reading this, I know you’ve come to a point in your freelance career when you feel confident enough to make money to cover up your mortgage.
Now, let’s delve deeper into the technicalities of buying a house as a freelancer.
Why Freelancing Is A Risk for Lenders
When you’re self-employed, it can be difficult to convince a lender to give you a loan. This is because lenders are in the business of making money and they see freelancing as a less-stable career than traditional employment.
Freelancers often experience a great deal of income volatility, which can make lenders nervous about providing loans for self-employed individuals. Additionally, lenders have different criteria for individuals based on risk. Some lenders may accept your application and some might not.
It’s important to check eligibility criteria and calculate monthly mortgage payments before applying for a home loan, especially if you work as a freelancer. Freelancing is a great way to make a living, but it’s not always easy to get a mortgage when you’re self-employed.
How do you get approved for a home loan if you are self-employed?
If you’re self-employed, lenders typically require at least three years of accounts. This is because your income is lumpy and inconsistent, making it hard for you to qualify for a loan. However, some lenders may only ask for a year of income history.
In most cases, formal lending institutions and government agencies will require you to provide your payslips, tax returns (ITR), certificate of employment, and other documents proving your ability to repay the loan.
In my case, I submitted a certificate of employment (COE) from my foreign client and a bank statement from UnionBank where I receive my monthly income. I opted for a Pag-IBIG home loan for the townhouse and a bank loan for the condo unit.
Aside from the necessary documents, I made sure to voluntarily pay my Pag-IBIG MP1 contributions and maintain a good credit history.
How to Get a Home Loan as a Freelancer in the Philippines
You can follow these tips to increase your chance of getting approved for a home loan:
1. Maintain a good credit score.
This means you should not miss payments on your current loans and bills, be it for credit cards or car loans. Also, make sure that any delinquent accounts are paid up.
If you have a good credit record, it is easier for you to get approved for a home loan. However, if you have no or bad credit history, your chances of getting a loan are slim to none.
Getting yourself a credit card is one way of building your credit score. If you don’t have a credit card yet, be sure to check these Philippine Credit Cards with no annual fees.
2. Pay your taxes.
ITR is an annual tax form that you must file and pay to the Bureau of Internal Revenue (BIR). It shows how much you earn in a year and is one of the documents lenders use to decide whether or not to let you borrow money.
If you need help in filing your taxes as a freelancer in the Philippines, here’s a freelance tax guide that can help you.
3. Prepare your financial documents.
When you’re buying a house, the lender will want to ensure that you can afford to repay the loan. This is done by looking at your income and financial documents. In order to prove your income, you will need to provide some form of documentation.
This could be payslips, tax returns, or bank statements. Bank statements are one of the documents that some lenders accept as proof of income.
Here are some of the most common types of financial documents:
- Payslip: A document from your employer that shows how much money you’ve earned in the past month or year.
- Tax returns: A document from the government that shows how much money you’ve earned in the past year, as well as how much tax you’ve paid.
- Bank statements: A document from your bank that shows how much money is in your account(s) and where it came from (e.g., salary, investments, etc.).
Some lenders also accept certificates of ownership for valuable assets, such as property or cars. If you have any such certificates, be sure to include them with your other financial documents.
4. Borrow from a bank where you have an established relationship.
It is also important to try and borrow from a bank where you have an established relationship. This will help make the process smoother and faster. This is because you will already have an established credit history with the bank, which makes it easier for them to grant your loan.
5. Pick a good real estate agent.
Look for an agent with experience and make sure to ask them plenty of questions, especially when it comes to applying for home loans. They should be able to help you through the process and answer any questions you may have.
One thing to keep in mind when choosing a real estate agent is that not all of them are created equal. Some agents may have more experience or specialize in a certain type of property than others. You should also find an agent who you feel comfortable working with- someone who is responsive and knowledgeable, but also patient and understanding.
Pag-IBIG Loan Requirements
The Pag-IBIG Fund Housing Loan allows you to borrow up to P6 million at very low-interest rates and on extremely friendly terms. This loan can help you realize your dream of homeownership!
What is the qualification for a Pag-IBIG loan?
In order to be eligible for a Pag-IBIG loan, you must be an active member of Pag-IBIG. In addition, you must update your existing Pag-IBIG funds if you want to qualify for the loan. This means that you must have been contributing regularly to Pag-IBIG for at least 24 months and have maintained a certain savings balance in order to be eligible for the loan.
I was locally employed for four years before I became a full-time freelancer. But when I changed careers, I voluntarily paid my government benefits including my Pag-IBIG contribution. And I highly encourage you to do the same to increase your chances of getting a Pag-IBIG loan.
- Active member with at least 24 months of savings
- Not more than 65 years old at the date of loan application and is not more than 70 years old at the date of loan maturity
- Legal capacity to acquire and encumber real property
- No Pag-IBIG housing loan foreclosed, cancelled, bought back, or voluntarily surrendered
- If with existing Pag-IBIG Housing account or Short Term Loan (STL), payments must be updated
To find out if you are eligible for the Pag-IBIG loan, you can visit their website:
Proof of Income for Self-employed (any of the following):
- ITR, Audited Financial Statements, and Official Receipt of tax payment from bank supported with DTI Registration and Mayor’s Permit/Business Permit
- Commission Vouchers reflecting the issuer’s name and contact details (for the last 12 months)
- Bank Statements or passbook for the last 12 months (in case income is sourced from foreign remittances, pensions, etc.)
- Copy of Lease Contract and Tax Declaration (if income is derived from rental payments)
- Certified True Copy of Transport Franchise issued by an appropriate government agency (LGU for tricycles, LTFRB for other PUVs)
- Certificate of Engagement issued by the owner of the business
- Other documents that would validate the source of income (e.g. Certificate of Earnings from online freelancing sites like Upwork)
Bank Housing Loan Requirements for Freelancers in the Philippines
Although the eligibility and requirements may differ for each bank, the following are the general requirements for bank housing loans in the Philippines:
- Photocopy of Audited Financial Statements for the last two (2) years with latest ITR
- Bank Statements or Photocopy of Passbook for the last six (6) months
- Certificate of Business Registration from DTI or SEC, Articles of Partnership or Articles of Incorporation (whichever is applicable)
- Business Background or Company Profile
It’s important to note that not all banks will require the same documents and it’s best to check with your bank first before applying.
How Much Should You Allocate for Your Home Loan?
It’s no secret that the cost of housing has been on the rise across the Philippines in recent years. But just how much house can you afford?
The answer to this question depends on a variety of factors, including your income, credit score, and down payment amount. In general, though, you should expect to spend about 28-36% of your monthly income on mortgage payments.
If you’re looking for a more specific answer, you can use an online mortgage calculator to get a better idea of what you can afford. Just be sure to enter all relevant information accurately so that the calculator produces an accurate result.
Of course, these calculations are just a starting point; it’s always best to consult with a qualified lender before making any final decisions. They’ll be able to help you find mortgages that fit within your budget and give you advice on the best way to finance your new home purchase.
Tips for first-time Homebuyers
If you’re a first-time homebuyer, there are a few things you should keep in mind as you search for your dream property. Here are some tips to help you get started:
1. Have a steady stream of income
In order to be approved for a mortgage, your bank will want to see that you have a consistent income flow. This is especially important if you’re a freelancer or self-employed, as banks may be less likely to approve your loan application.
2. Get organized
Having all of your financial documents in order will make the approval process go much smoother. This includes copies of your signed income statement and balance sheet, as well as any other relevant documentation related to your finances.
3. Ask around
Talk to friends and family who have recently bought homes and ask them for recommendations on lenders, solicitors, and other professionals who can help with the process.
4. Stay informed
Keep up with the latest real estate news so you know what’s going on in the market and which areas may be worth considering for purchase.
5. Prepare yourself emotionally and financially for homeownership
It’s an exciting time, but also a big commitment. Make sure you’re ready to take on the responsibilities that come with owning a home.
So, whether you’re a freelancer or someone who’s self-employed, it’s still possible to buy a house in the Philippines. Just be sure to work on your creditworthiness and find a bank that’s willing to work with you. And remember, there are many different types of financing available, so don’t give up hope if you don’t have the latest income figures. With some effort, you can make your dream of homeownership a reality!