Are You Ready To Buy A House?
Every time you watch a movie, you’re probably subjected to a million ads for new condo developments all over the metro (and the country) before the trailers even start. It seems like there’s a development for every sector, from yuppies looking for condos in the city center to retirees looking for a quiet place to relax.
But how do you know if you’re financially ready to buy a house? You should look beyond your bank account and the price of the house. Here are the six things you need to consider before you even start meeting with real estate agents and dreaming about your new condo lifestyle (note: this article does not take into consideration pre-selling units):
1. You know you want to commit.
Owning and living in a home is a long-term commitment. If your income or lifestyle isn’t stable enough to ensure that you’ll be living in the home you picked for the next 3 – 5 years, you’re not ready to buy a home. The Wall Street Journal says that “in most cases, you should consider buying a home only when you plan to stay somewhere for several years.” Not only are there considerable expenses involved with moving into a home, but with moving out as well, so if you’re not going to stay there for a long time, it’s not financially smart to buy a house.
2. You’ve already saved up a down payment.
Because banks here in the Philippines usually give an 80% margin of finance when they give you a loan, you need to have at least 20% saved up for your down payment. If you have more, even better — a larger down payment means you’ll have to take out a smaller mortgage, and you’ll pay less in interest in the long run. Before you talk to lenders or banks, you should already have an idea of how big a down payment you can make.
3. You know how much you can spend on a new home in your budget.
Don’t look at properties before you look at your budget. Instead, look at your budget first to find out how much house you can afford. Most lenders suggest home expenses should be a maximum of 28% of your gross monthly income. So if you make P50,000 gross a month, your budget for monthly mortgage payments for your new house shouldn’t go over P14,000. Got other high costs, like college tuition payments for your kids or an auto loan? Then you should lower the amount. Use the number you come up with as a guide to find out how much house you can truly afford.
4. Your consumer debt is under control.
Still struggling with credit card payments or other consumer debt? You’re not ready to buy a new house. You don’t have to have zero consumer debt to be able to afford a mortgage — but you have to have a plan for paying off those debts, so you’re not just adding to your problems by taking on new debt. (If you need help dealing with credit card debt, check out these strategies.) Dealing with your debt responsibly also has the added benefit of improving your credit rating. A good credit score will allow you to get the best home loan rates.
5. You know your home loan options.
Generally, you’re better off getting a loan with a financial institution than relying on in-house financing, because in-house financing usually has higher rates. Once you know how much you can afford and how long you want your term to be, you can use our housing loan comparison tool to quickly compare different banks’ housing loans, find out how much the monthly repayments will be, and choose the loan that best suits your budget.
6. You’re ready for ALL the costs of homeownership.
The expenses of home ownership don’t end with paying the mortgage. You’ll have to consider the costs of moving fees, furnishing, parking spaces, association dues if you’re living in a condo or planned community, home repairs, and others. Remember, you’re in this for the long term, so your finances should be as well.
So are you ready to be a homeowner?