Are you financially ready to buy a condo unit or house-and-lot? This blog will provide you a simple guide to help you decide whether you are financially ready or not.
Buying a condo or house is probably the biggest investment you make. This is probably your biggest loan as well. Thus, you must prepare yourself in order to make an informed decision. Among the important things to prepare is your budget for housing.
(1) Make a commitment. When you buy a condo or a house, you must learn the art of budgeting. A significant portion of your monthly income will be allocated to the payment of your housing loan.
The general rule is that you don't spend more than 30% of your income on housing. If your monthly income is P50,000 per month, your monthly budget on housing could be P15,000. Thus, you look for a condo or a house with P15,000 or below monthly amortization (housing loan). You must be ready to set aside P15,000 per month of your income for your housing loan amortization.
The best practice is to save at least 3 months for your housing loan amortization, in case you will face unforeseen financial problems in the future.
(2) Prepare for the 20% Equity or Down Payment. Most banks only covers 80% of the total selling price of the condo or house. It means that you shoulder the 20% balance to be paid to the developer/seller. The good news is that you don't need to pay the equity or down payment in lump sum as most developers, if not all, offer installment payments for the equity or down payment at 0% interest up to 36 months.
(3) Perpare for the 80% Housing Loan. This is the amount you loan from a bank. You can negotiate with the bank for terms that is manageable in your part. Usually, the bank offers repayment period up to 20 years.
You need to maintain a good credit score by promptly paying your credit card and other debts. Don't miss the due date. Credit score can be built over time. The bank will be looking at your credit history aside from your capacity to pay.
It is wise to maintain a 30% debt-to-credit ratio, that is, if your credit limit is P100,000 your balance should be P30,000 or less.
If you are planning to buy a house via home loan, avoid or suspend other loans until yo get the home loan approval.
(4) Prepare for Other Fees. Aside from the reservation fee and the down payment, there are other upfront cost in buying a house or condo. These are the legal fees and the move-in charges.
Legal fees include:
1. Capital Gains Tax - 6%
2. Documentary Stamps Tax - 1.5%
3. Transfer Tax - 0.5% to 0.75%
4. Registration Fee - 1%
5. Notarial Fees - 0.5% to 2%
6. Loan Fees - depends per bank
Move-in fees include the payments for the connection of water and electricity, subdivision/condo dues, and others. You can ask the developer or your agent about these other fees. Let us illustrate:
Type: Two Storey Townhouse
Location: Gun-ob, Lapu-lapu City Total Contract Price: P2,850,000 Reservation Fee: P10,000 20% Equity/Down Payment: P570,000 payable in 36 months Monthly Equity: P15,834/month 80% Home Loan: P2,270,000 Bank loan: P15,615/month for 20 years If you can budget P16,000 per month for this townhouse near Opon Public Market, this gated subdivision is a good choice. This subdivision is near the Cebu-Cordova Link Expressway.