Find How Much Property You Can Afford
Finally buying a property of your own? Well, congratulations! You are one step closer to owning your “own” home. But before going through the purchasing phase, take time to sit down and have an honest look at your financial situation. Can you really afford it?
Most people tend to overlook the most important factor when deciding on buying a property —affordability. They want to buy as much property as they can afford, without being overstretched or seeing the ways forward. Budgeting for a property price isn’t only the expense you have to think of. There are plenty actually. And if you’re wondering if it’s time for you to dive into homeownership, here are a few questions to think about.
You see it takes the right mind, finance, and attitude to finally own your dream home. Because unlike credit card debt, which can be paid for months or a couple of years, your mortgage payments can continue for decades.
How Much House Can I Afford?
Determine the properties you can afford by following rules based on the percentages of your monthly income:
The 2.5 Rule
This rule is simple. It just means you multiply your annual income by 2.5, to find out which property you can afford. Let’s say, you are making Php50,000 a month (tax and deductions free), your annual income will be Php650,000 (multiplied by 13 as Philippine law requires all companies to pay their employees 13th-month pay); hence, the property you can afford will cost about Php1.625 million.
The 28/36 Rule
The second rule is the 28/36. This states you should only spend a maximum of 28% of your gross monthly income on total housing expenses and should spend not exceeding 36% on total debt service. Anything higher than this can lead to financial stress.
As said above, besides the purchasing price of the property, you still need to set aside a budget for other expenses such as documentary stamp tax, transfer tax, registration fee, notarial fee, loan fee, association dues, and other miscellaneous fees. Don’t underestimate how much money you’ll need. Be ready to have cash above the downpayment amount, and use your calculator to verify your resources and assets.
Buying a property is a significant phase of one’s life. It can be an exciting and emotional experience. But beyond just the price, there are other things you have to consider such as right mind conditioning, preparing finances, as well as the other fees and costs tied to buying a property in the Philippines.
Disclaimer: The above advice only provides a general overview of how much an individual can afford, and they should only serve as guidelines. If you need some advice and assistance, contact any Filipino Homes Property Investment Advisers/Endorsers today.
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- How to be Financially Prepared to Buy Your First Home
Arnann Jay is a blogger of Filipino Homes and a Freelance Communications Officer, with experience in managing projects and campaigns focusing on education, peace, and digital literacy.