Each year millions of houses are bought and sold, but such events are irrelevant. Why? There are more or less 4.6 Millions of families are homeless in Philippines alone. And yet increasing because of massive foreclosures as a result of unstable income. No one can ever predict with certainty what can happen in the future. You may encounter a personal financial crisis such as job loss or illness that can impair your ability to pay your bills, including your mortgage. That is why we should be able to know our own purchasing power when buying a home or any real estate investments.
Here are some few steps when buying a home.
Add all your total annual income. This includes your salary, business income, dividends, and other sources.
Look for licensed real estate brokers and loan officers of the banks and other financial institutions. These financial advisors may give you a great help when financing your new home. Ask for an estimated monthly cost, this includes the principal plus the interest.
Speak with property owners and real estate brokers to determine the property taxes in the area. Because property values may varies with respect to location.
Speak with brokers and insurance advisors to determine how much property insurance will cost each month for your home. According to Money Sense (Guide to Buying Home Insurance), “Many people are not aware that home insurance is not as expensive as other types of insurance. You can get one year basic protection for a P1 million property for less than P2, 000. That’s a small amount to pay in exchange for your peace of mind. “
Compute your Front-End Ratio by combining your monthly cost for mortgage principal, mortgage interest, real estate taxes and property insurance. Divide this total by your gross monthly income. This ratio indicates a portion of individual income earners is used to make mortgage payments and is expressed in percentage.
List your monthly debts include expenses such as mortgage payments, credit card payments, expenses to your child and families. Add these debts.
Compute your Back-End Ratio also known as your debt-to-income ratio by combining your monthly debts with your PITI. Divide by your gross monthly income. Some lenders use this ratio in conjunction with front-end ratio to approve mortgages.
Note: Water and Electrical connection is not included in the computation because it will be a one-time payment upon the turnover of your new home. Ask the water and electrical companies near you.
Generally, most mortgage lenders prefer less than 30% of borrower’s monthly gross income. If you want to know more about real estate investment, please try to fill out the form below and ask our licensed real estate brokers for your guidance. Also please don’t forget to subscribe for our other notifications for upcoming events and newsletters.