Written by: Rita Magallona
It’s never too early to talk about life goals. Be it traveling around the world, starting a family, or launching a startup, we all need dreams that give life meaning.
One life goal worthy of the name is buying a home. Whether it is a condominium unit or a freestanding house, this purchase is a long-term commitment.
Do you have a firm financial foundation, or are you building your house on sand? Let’s go through the financial planning questions that you need to address as a first-time home buyer.
4 Financial Questions for First-Time Home Buyers
1. Can You Pay for the Monthly Amortizations?
A casual look at real estate ads will show you homes worth millions. Unless you come from a wealthy family and can pay in cash, you will have to borrow money from a bank to make the purchase.
To make this work, you should have a stable source of income. Can 28% of your monthly income cover the amortization for the next 20-30 years?
2. Can You Afford the Down Payment?
Most banks will not give you the full appraised value of the property you intend to buy. They will only give you 80% of the amount you need – or less. You will have to pay the remaining 20% (or more) to the seller.
Where will the rest come from? It is important to have saved a fairly large sum to cover the down payment before committing to buy a home.
However, if you’re planning on buying brand-new property, especially pre-selling condominiums, the developer often offers a “rent-to-own” scheme. Here, even the down payment is payable in monthly amortizations over a period of about two to five years.
Take note that this initial amortization will become much higher once the downpayment is completed and the transition to a bank loan is done. So, make preparations during that time when you’re paying a smaller amount.
3. Can You Secure the Legal Requirements?
Buying a home is not like buying a pair of shoes. With shoes, you just pay the price written on the tag and they are yours. Purchasing a home requires a lot of paperwork, which means additional costs.
- Documentary Stamps Tax – P15 for every P1,000 of the Fair Market Value of the property
- Local Transfer Tax – 0.5% to 0.75% of the property selling price
- Notarial Fee – 0.1% to 0.15%
- Bank Loan Fees
- Mortgage Redemption Insurance
- Fire Insurance
4. Can You Still Live on What’s Left?
On top of all that, consider the costs of moving, appliances, security, and furniture. You also need to set aside funds for maintenance in case something breaks or leaks.
If you are living in a subdivision or a condominium building, add the association dues to your list of bills to pay. Plus, you need to pay real property tax annually.
Home ownership may sound daunting, but it’s one dream that’s worth the cost. A home will provide a measure of security for you and your family for decades to come.
Looking for home financing options? Find out how to improve your chances of getting your Pag-IBIG loan approved.