Home Financing for Clueless Buyers

I feel for those buyers who made some serious mistakes in buying a house only to find out later that they really can’t afford to pay the future monthly dues and has to give it up. It can be a very stressful experience and can be expensive mistake, too. It doesn’t have to happen to you.

If you are clueless about home financing, as many home buyers are, here are some tips that you can use to help you determine how much you can afford to finance your home purchase.

1. Check your income and employment of business status. How long are you in your current work? Are you sure your working visa will be extended? Is your employer happy about your performance and will renew your contract for a longer term? How is your business performing over the past two years? Does your cash flow show a healthy figure?

2. If you are paying spot cash, do you have enough savings?

3. If you are paying in installments or planning to avail a mortgage, you can use the formula below to determine how much you can safely spend for your home on a monthly basis. Take note that it is the formula currently by a number of financial institutions in the Philippines to determine the amount of loan granted you.

M = (I – D) / 3

Where:

M = monthly payment you can afford
I = your monthly income, plus that of your co-borrower
D = monthly payment for any long term debt such as car loan

Example:

Your monthly income, I = PhP 250,000
Your monthly amortization for you brand new car, D = PhP 54,000
The monthly payment you can afford is:

M = (I – D) / 3
= (250,000 – 54,000) / 3
M = 65,333.33 <-------- This amount

What does it mean for your home financing? A lot, according to the banks and the developer from whom you will avail of the in-house financing for your home purchase.

A lower value of M means that the bank will refuse to finance your ambition of having a luxurious house, because you are a risky borrower already. Remember that banks would rather not grant you a loan than foreclose your property. It also means that they might have to extend your loan term to 15 years instead of 5 years as you initially wanted it to be. But that has to depend also on other factors such as your employment or business status.

On the other hand, if the resulting value of M is very high, a lot of banks will come rushing to grant you the loan you always wanted! The agent might even suggest that you buy a bigger property.

TIP: As much as possible, always go for the lowest interest rate and the shortest payment term. It is cheaper in the long run — or make that short run.

TIP: Deferred Cash payment is usually short term and does not incur any interest. You may want to check with the developer / seller if this option is available.

Source: http://www.realestatephilippines101.com/articles/2007/07/home-finacing-f...