Buying your first home is one of the biggest financial steps that you will ever make. It’s a major milestone that you want to cross off your lifetime bucket list in your late 20s or early 30s.
Prepare yourself in every aspect — from planning — to closing, in order to make your home a blessing, and not a negative experience.
We know that this juncture can be one of the most exhilarating and stressful moments of your life, here are some basic steps that you should follow when it’s time to:
Study how stable are you financially
Knowing where you’re at financially is the key. Learn your finances by identifying how much you are earning, how much you’re saving, if you have any; and how much you’re actually spending every month.
Quick tip: Create simple tables regularly and check how much are you taking home from your salary after taxes then subtract your other daily spendings.
Another thing, you might need to check your credit score. Get reports from your major credit card providers to weigh the loan approval chance. If your score is diving down, consider spending a little amount of time to improve it before proceeding with your application.
Check your means
Buying your first home is a big fish to fry, one night isn’t enough to decide if you’re going for it or not, 100%. Before you decide, be sure to ask yourself ten times, ‘Is it really time for me to buy a home?’
If the answer is an emphatic “Yes”, here’s a good rule of thumb, your home loan mortgage fees should only take up to 28% of your total monthly earnings.
It’s good to determine your budget prior to deciding whether you want a house or a condo unit that’s worth one million or two. Paying for your dream house shouldn’t be a burden in the long run.
Build an Emergency Fund
Managing a home is like taking care of your children; you’ll surely need money for various maintenance. That’s why an emergency fund is particularly important for homeowners.
Going from renting to owning is a huge adjustment because all of a sudden, you can’t call your landlady if there are roof leaks or if the washing machine breaks — you have no choice — but to shoulder the cost of fixing this time.
To prepare a strong emergency fund, recommendations tell that you must have between three and six months of your daily expenses kept. Hence, if you spend P4,000 a month, you need to save between P12,000 – 24,000 to have recourse.
Prepare a down payment and money for other fees
Most local banks require 20% down payment on average for houses and 10 to 30% for condominium units. It’s best to aim for high initial payments to lower your total mortgage balance and monthly amortization.
Other countinghouses offer flexible payment options wherein you can pay on your own term. You can pay more when you have an extra; and make underpayments when the budget is tight, without extra charges!
You also need to allot extra pennies for property taxes, housing insurance, closing and moving costs plus other notary stamp requirements that will be charged on top of the total home cost.
Here’s a table of fees that you can check:
|Fee||What percentage of the total cost?||Who pays?|
|Notary Fee||1% – 2%||Buyer|
|Local Transfer Tax||0.50% – 0.75%||Buyer|
|Documentary Stamp Tax||1.50%||Buyer|
|Capital Gains Tax||6.00%||Seller|
|Real Estate Agent’s Fee||3.00% – 5.00%||Seller|
Take note that notary fees are negotiable. On the other hand, local transfer tax differs on location, it is charged 0.50% for properties in provinces, and 0.75% for properties located in the cities and municipalities within the Metro.
Documentary stamp is around 1.5%, and it is mulcted on fair market value of property or selling price, whichever is higher.
On the seller’s side, Capital gains tax are charged for transferring or selling houses and other real estate properties which are classified as capital assets. It is usually 6% of the gross selling price or fair market value of the property, whichever is higher. While real estate agent’s fee is usually around 3% to 5% of the property value.
Get pre-approved for a mortgage
Credit institutions like banks provide a pre-approval quiz to probe your creditworthiness, the results determine how much you can borrow from them and your likelihood to pay the loaned amount. Some questions include your annual gross income and other credit information such as credit cards from other banks and existing loans.
Once approved, it’s now time to start shopping for your pad, a real estate agent is not necessary, but if you have a handful of questions in mind, it’s advised to get one.
Be extra thorough in choosing your place, look for the best value at the lowest price. Eye-catching places are everywhere online, but you need to stick to your budget.
Pro-tip: Do not try to look at anything that’s priced above your approved loan amount.
Familiarize yourself with the location
Aside from being impulsive in choosing homes that you can’t afford, one of the biggest mistakes first-time homeowners make is buying in a town or city that you don’t know by heart.
Exploring the city where you want to buy a house or a condominium if definitely part of the planning stage. Walk around the neighborhood, day and night — to see if there’s a difference — and to make sure you’re comfortable in it.
Keep in mind that you can always change how your pad looks like, but you can never transfer its location.