One alternative that private sector employees should consider when acquiring a house and lot is to take out a housing loan from the Home Development Mutual Fund (HDMF), more popularly known as Pag-ibig Fund.

Republic Act 7742 has made membership in the fund mandatory for private sector employees earning 4,000 pesos and above. If you’ve been contributing religiously to the fund for at least two years, you probably quality for that loan.

Pag-ibig Fund allows borrowing of up to 3 million pesos to fund any of the following:

* purchase of a fully developed lot in a residential area

* purchase of a lot and construction of a house on it

* purchase of a house and lot, townhouse, or condo unit

* construction of a house on a lot owned by the member

Determining the maximum amount that a member may take out as a loan, the fund decides based on the “lowest” from among four factors:

1. Contribution. The table below shows the schedule of contributions and the corresponding loanable amounts. POP in the first column means Pag-ibig Overseas Program and the amounts in column 2 under the heading Pag-ibig I and II as well as in the third column under loan amount are in Philippine peso.

Hence, if your monthly contribution is 500 pesos, your loanable amount is over 1 million to 1.1 million pesos.

The provision serves as a guarantee that the property developer will reacquire housing units foreclosed by financing institutions due to non-payment of borrowers.

Pag-ibig fully covers housing units costing up to 300,000 pesos even without a buy-back guarantee and over 300,000 up to 750,000 pesos with buy-back guarantee. The fund will cover 90 percent of the cost of housing units worth over 300,000 up to 750,000 pesos without a buy-back guarantee.

Housing units that cost over 750,000 up to 1 million pesos are only 95 percent covered if with a buy-back guarantee and 85 percent covered if without.

Pag-ibig covers 90 percent of the cost of housing units worth over 1 million to 2 million pesos if with a buy-back guarantee and 75 percent of the cost if without.

3. Actual need. This represents the amount of the housing unit as stipulated in the contract to sell, license to sell, amount of loan applied for, or cost estimates.

4. Capacity to pay. Pag-ibig Fund takes into consideration the member’s capability to pay the monthly amortization of his or her housing loan. It requires that the monthly amortization of the member on his or her loan must not be more than 40 percent of his or her net disposable income. Hence, if a member’s take home pay is 20,000 monthly, his or her monthly amortization must not exceed 8,000 pesos.

Other uses of a Pag-ibig housing loan, aside from the four mentioned above, are: home improvement and refinancing of an existing loan in an institution acceptable to the fund.

Aside from meeting the contribution requirement, Pag-ibig also requires that borrowers must not be more than 65 at the time of the loan application and not more than 70 at the date of loan maturity, they must not have any outstanding housing loan either as borrower or co-borrower, and must not be in arrears in their multi-purpose loan repayment.

Pag-ibig charges 3,000 for housing loan processing fee. The 1,000 pesos is paid at the time of the processing while the remaining 2,000 pesos is taken from the loan proceeds upon its release.

The monthly amortization of the housing loan may be paid in two ways: through salary deduction or by issuing 12 post-dated checks to cover one year of payment.

Payment of the monthly amortization starts a month after the full or final release of the loan.

By fully developed lot, Pag-ibig means land that is free from squatters, with access to electricity and water, with provision for drainage and road right-of-way, and with existing land monuments.

Also, the lots to be acquired using the loan must be free from any encumbrances.

The maximum term of a Pag-ibig housing loan is 30 years.