Financial Preparation for Buying a Home or Condo
In this blog, we guide you through the financial preparation needed for buying a house or condo. Specifically, we'll cover closing costs and other expenses you should be aware of before reserving a unit. Often, closing costs are only discussed later in the process. It's essential to ask your agent or developer about these costs upfront.
Understand Your Financial Capacity
Understanding your financial capacity is the crucial first step before purchasing a house or condo. Determine what property fits your budget based on your income. For example, if your gross monthly income is P50,000, the calculator suggests you can afford a home loan of up to P2.5 million or a house priced around P3.3 million. This helps you understand what kind of property is within your reach, ensuring you make informed decisions.
In Pag-IBIG Housing Loan, you can visit its website and look for the Housing Loan Affordability Calculator.
If your gross monthly income is P50,000, based on the calculator, you can afford to buy a house with a loanable amount of P2.5 million or a house with a price tag of P3.3 million.
Types of Properties You Can Afford
For instance, you can buy a townhouse in Lapu-Lapu City for P2,850,000, with a Pag-IBIG monthly payment of P12,711. Your loan provider will give you a schedule of monthly amortizations and other expenses, like loan processing fees and mortgage redemption insurance.
Reservation Fee
Your first payment is the reservation fee, which reserves the unit under your name. It's generally non-refundable but can be transferable within the same project. Before paying this fee, ensure you're committed to buying the property. The reservation document should clearly state the block and lot number, the type of house or condo unit, and any promotions offered by the developer or seller. This ensures transparency and protects your interests.
Home Loan Details
Typically, financial institutions cover a portion of the property's cost through a home loan. For instance, banks might cover up to 80%, leaving you to pay a 20% down payment directly to the developer. Pag-IBIG covers 70%, requiring a 30% down payment. It's advisable to ask your loan provider for specific loan amounts available to you.
Choosing Loan Terms
Banks usually offer loans up to 20 years, while Pag-IBIG offers up to 30 years, depending on your age and financial capacity. Shorter loan terms mean higher monthly payments but less total interest. Longer terms mean lower monthly payments but a higher total cost over time.
Understanding Home Equity and Down Payment
Home equity is the difference between your home's market value and what you owe on your mortgage. For example, if your home is worth P1 million and you owe P800,000, your equity is P200,000. The down payment, often confused with equity, is the upfront payment you make when buying a home. For a P1 million house, if the bank lends you P800,000, your down payment is P200,000. This amount increases as you pay off your loan, building your equity.
Most developers in Cebu offer flexible down payment options, including installment plans with 0% interest, often up to 36 months. Some even offer discounts for full or partial upfront payments.
Requirements Before Moving In
Before moving in, ensure you've completed the following:
Full payment of the down payment or equity
Full payment of "miscellaneous fees"
Release of the home loan
Banks will issue a "Letter of Guarantee," confirming the loan's approval and detailing the conditions for the developer. Pag-IBIG Fund will release the loan proceeds once these conditions are met.
Transfer Fees and Move-In Charges
Transfer fees cover legal expenses for transferring the land title and property to your name. This includes:
Documentary Stamps Tax: 1.5% of the property's selling price, fair market value, or zonal value (whichever is higher).
Local Transfer Tax: Varies from 0.5-0.75% of the selling price or zonal value.
Notarial Fee: 0.1-0.15% of the selling price for notarizing the Deed of Absolute Sale.
Loan Fees: Includes mortgage redemption insurance, fire insurance, appraisal fees, and handling fees.
Move-In Fees
These fees cover necessary services to make your home livable, such as:
Water Connection: Payment for installing water meters and other materials.
Electrical Connection: Fees for setting up electricity, often pre-arranged by the developer.
Association Dues: Membership fees for the homeowners' association, covering maintenance, security, and garbage collection.
Summary of Payments
Prepare for the following payments:
Reservation Fee
Monthly payment for the Equity/Down Payment - Issuance of Post-Dated Checks (PDCs)
Bulk payment for miscellaneous fees (transfer fees and move-in fees) - can be paid in cash or installments.
Monthly amortization of your housing loan.
This guide is for educational purposes only. Consult a lawyer for advice on your specific situation. If you have any questions or need personalized assistance, contact us at 0920 207 5035 or email cebuhousefinder@yahoo.com. We're here to guide you every step of the way, ensuring a smooth and confident buying experience.
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