How to be Financially Prepared to Buy Your First Home

A house is often one of the largest and most important purchases we make in our lives, but getting ready to buy your first house can be a little intimidating.  First and foremost, you have to be financially prepared to make the jump to home ownership.  Here’s a step-by-step guide to ensure that buying your dream home doesn’t turn into a nightmare.

 

Step 1: Make sure that it’s the right time to buy a house.

The first thing you should do before buying a house is to make sure it’s the right time to do so. Take into consideration the state of the real estate market and your financial and personal circumstances. In general, when you might move in the next five years, it may be better to rent than buy a property.

 

Step 2:  Determine how much you can afford

Once you decide you want to buy a home, the most important thing to do is to look at your income and expenses. Examine your personal cash flow and determine how much you can set aside for your monthly mortgage payments. Ideally, you should not spend more than 30 percent of your gross monthly income on housing. Otherwise, you will be “house poor,” meaning you live in a beautiful home but have difficulty in covering other monthly expenses such as utilities, groceries, etc.

TIP: Keep your total housing payment under 30 percent of your gross monthly income.

 

Step 3: Trim Your Expenses

The best way to save money for home ownership is to cut down your expenses. Know the difference between your “needs” and “wants.”

Are there any expenses you can lower or get rid of? Look at your internet bill, for example. If you are paying for a telephone bundle that you are not actually using, you can get rid of that and lower your monthly expenses. Can you do without cable TV or reduce the number of channels you pay for? Call your provider to downgrade your plan.

Try to practice a simpler lifestyle, and do away with unnecessary luxury. Trade your daily Starbucks with inexpensive coffee, cook your own food as often as you can, and take your lunch to work. It’s often surprising how much you can actually save and set aside for your home buying project.

 

Step 4: Take advantage of opportunities to increase your income

If you enjoy cooking or baking, you can sell at your office, at bazaars, or weekend markets. Or maybe try to sell online. You can also consider taking on a part-time job or a freelance gig as a writer, designer, etc. There are a lot of options. Look for ways you can use your talent and passion to boost your income.

Sometimes, you just have to ask your boss for that much-deserved pay raise. 🙂

 

Step 5: Prepare your finances

You need to save cash for a down payment, typically between 3.5 and 20 percent of the purchase price. Don’t forget to save up for other fees and expenses involved in the home buying process, such as reservation fee, monthly down payment, and closing costs.

As a rule of thumb, prepare 20 percent of the property’s purchase price for your down payment. A higher down payment makes the loan tenure shorter and monthly mortgage and interest payments smaller.

TIP:  Don’t underestimate how much money you’ll need. Be ready to have cash over and above the down payment amount.

 

You also need to begin to collect documents that you’ll need for verification on your mortgage application.  If you’re applying for PAG-IBIG or bank financing, have a checklist of requirements. You will need documents as proof of income, such as bank statements, certificate of employment, and copies of your tax returns.

 

 


Further readings:

 

Lovette Jam is a founding member and blogger of Filipino Homes. She is a freelance digital media professional. With a Masters in Business Management degree and Hubspot certification on Inbound Marketing, she currently works as a social media manager, project manager, and digital consultant.

Lovette Jam is also the founder of Iligan Bloggers Society, Inc. She authors the travel blog Travel Jams and lifestyle blog Lovette Jam.