Why Do You Still Need Cash or Equity Even With a Bank Loan?

Getting a home loan doesn’t mean you’ll receive the full amount right away. Instead, banks release the loan in stages (tranches), based on your project’s progress. This means you'll need additional cash or equity upfront to keep construction moving. Let’s break it down with an example:

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Example: A ₱3.5 Million Home Loan

• Loan Amount: ₱3,500,000

• Project Cost: ₱3,500,000

• Lot Value: ₱1,000,000

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How Banks Release the Loan

The first release (tranche) depends on your lot value, as banks use it as collateral. Typically, they release around 70% of your lot’s value, which in this case is ₱700,000 (or about 20% of the project cost).

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Why You Need Extra Cash or Equity

🔹 1. The First Tranche Isn’t Enough to Get Started
The bank requires you to complete 30% of the project before releasing the next tranche. However, they only give you 20% upfront—which isn't enough to cover 30% of construction. This means you’ll need at least an extra 10% in cash to reach the 30% milestone.

🔹 2. Banks Underestimate Project Completion
Banks are conservative in their assessments. For example, even if you’ve completed 95% of the actual work, the bank might only acknowledge 90% completion to protect themselves from potential defects. This means you’ll need an extra 5% in cash to compensate for their underassessment.

🔹 3. Delayed Fund Releases Can Stall Construction
Each time you request a loan release, the bank takes about 2 weeks for processing, inspection, and approval. Meanwhile, construction continues at around 7.5% progress every 2 weeks. To avoid delays, you’ll need an extra 7.5% in cash to keep things moving while waiting for bank approval.

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Total Cash or Equity Needed

For the first tranche, you’ll need:
✅ 10% – To reach the required 30% progress
✅ 5% – To cover the bank’s underassessment
✅ 7.5% – To keep construction going while waiting for bank release
💰 Total: 22.5% (₱787,500 for a ₱3.5M project)

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For the final tranche, banks require 90% completion but only release about 62.5% of the funds. This means you'll need even more cash to cover the gap:
✅ 27.5% – To cover the funding gap
✅ 5% – Bank underassessment
✅ 7.5% – To keep construction moving
💰 Total: 40% (₱1.4M for a ₱3.5M project)

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The Bottom Line

To successfully build using a home loan, be prepared to have at least 30% in cash or equity on hand. This ensures smooth construction, prevents delays, and helps you complete the project while waiting for bank releases.

This is why we say: "You borrowed money because you needed money, but now you need money so the bank can release your money!" 😅

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How to Use the Calculator?

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1️⃣ Enter Your Lot Details

• Lot Area: Type in the size of your lot (sqm).

• Price per sqm: Input the current market price.

• Tip: Check real estate listings like Lamudi or Facebook groups for price updates.

 

2️⃣ Fill in Your Loan Info

• Loan Amount: How much do you need to borrow?

• Interest Rate: Use the latest rates from banks (e.g., BDO, BPI, Security Bank).

• Loan Term: Choose how many years you want to pay (e.g., 10, 15, 20 years).

 

3️⃣ Get Your Results!

• Monthly Payment: Estimated amount you’ll pay every month.

• Income Needed: Recommended monthly income to qualify for the loan.

• Upfront Cash Needed: The amount you should have before starting the loan.

 

4️⃣ Adjust & Compare

• Play around with the numbers to find a budget that works for you.

• Compare different interest rates to get the best deal.

 

Things to Keep in Mind

• This is just an estimate! Banks may have different requirements.

• Some banks offer fixed rates for the first few years, then adjust them.

• If you already have a loan, add its monthly cost to see your total expenses.

 

Need Help?

We’re here for you! If you have questions, APS Construction Corporation is happy to guide you. Let’s build your dream home together! 🏡🚀