Considering buying a property is a significant step, indicating that you have substantial savings and a steady income. It suggests you believe you're financially ready for such a commitment. However, you might wonder how much you should really prepare.
In this guide, we will focus on the monetary aspects of preparing to buy a property in Metro Cebu, building on our previous discussion about mental readiness.
Key Questions to Ask Yourself
Is this the right time for you to buy a property?
Thinking about buying a home or condo usually means you have sufficient savings and a stable income. But ask yourself: Do you need to make this purchase now?
If you’re currently living with your parents, buying your own place could signify a new phase in your life. A condo close to your workplace might be ideal.
If you’ve been working abroad and want to provide your family with a comfortable home in a secure, well-equipped community, a subdivision with modern amenities and proximity to the city could be perfect.
Alternatively, if you're looking to invest in a rental property while abroad, consider how this fits into your financial goals.
Clarifying your motive will help you make a more informed decision.
Are you financially prepared to buy a property?
This question assesses your financial capability, focusing on two key aspects: (1) the monthly equity for the down payment and (2) the monthly home loan amortization.
When evaluating property costs, consider the monthly payments, not just the Total Contract Price (TCP), because payments are made monthly.
Four Key Financial Considerations
1. Monthly Equity
After the reservation fee, you’ll pay a monthly equity for the down payment, usually 20% of the TCP. The remaining 80% is covered by a home loan provider. This down payment can often be paid in installments, up to 60 months with zero interest.
For example:
Total Contract Price: PHP 2,195,000
Reservation Fee: PHP 15,000
Equity: PHP 537,000 (payable up to 36 months)
1st - 12th Months: PHP 16,000/month
13th - 36th Months: PHP 14,375/month
Home Loan: PHP 1,643,000
Estimated Pag-IBIG Monthly Amortization: PHP 9,200/month for 30 years
Instead of paying the entire down payment upfront, you can pay PHP 16,000 per month for the first year and PHP 14,375 per month for the next two years. This makes purchasing a townhouse more manageable.
This particular townhouse is strategically located near the Cebu-Cordova Link Expressway (CCLEX), ensuring a quick commute and a serene environment within a well-planned subdivision.
2. Home Loan Monthly Amortization
Once the down payment is settled, you’ll begin paying the home loan’s monthly amortization. Sometimes, the equity payments overlap with the amortization, so be prepared for this scenario.
In our example, the loan amount is PHP 1,643,000 with a 30-year Pag-IBIG Housing Loan term and a one-year fixed pricing period. The monthly amortization is PHP 9,200 (excluding Mortgage Redemption Insurance).
The required gross monthly income for this loan is approximately PHP 30,670.
3. Your Capacity to Pay
As a general rule, avoid spending more than 30% of your income on housing. For a monthly income of PHP 50,000, this means a housing budget of no more than PHP 15,000.
Pag-IBIG Fund allows up to 35% of your gross monthly income for housing. Other guidelines suggest 28% for housing loans and 36% for all debts. Calculate your capacity to pay (e.g., PHP 15,000) and search for properties with monthly amortizations within this limit.
Banks and Pag-IBIG Fund offer affordability calculators to help you determine how much you can borrow based on your income. Maintain a good credit score by paying bills on time and keeping a debt-to-credit ratio of around 30%. Avoid other loans until your home loan is approved.
4. Other Expenses
In addition to the reservation fee and down payment, anticipate other upfront costs, including legal fees and move-in charges:
Capital Gains Tax: 6%
Documentary Stamps Tax: 1.5%
Transfer Tax: 0.5% to 0.75%
Registration Fee: 1%
Notarial Fees: 0.5% to 2%
Loan Fees: Vary by bank
These percentages are based on the gross selling price, zonal value, or fair market price, whichever is higher. In most cases, the developer’s gross selling price exceeds the fair market price. 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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