Buying a home is a long-term financial commitment. This is unlike other financial products such as personal loans or credit cards that have a time frame of 1-5 years because a mortgage amortization can last up to 10 years or more.
If you want to buy a home and not risk losing it over debt, then putting together some savings beforehand will be crucial. But the question is, how?
Look at your financial capacity
The down payment for a house is a big amount, so it’s important that you know precisely the property amount you can afford, how your finances work and whether you can afford to put away more money aside from your budget.
Financial advisors recommend the 2.5 rule for anyone planning to become a homeowner soon. This involves getting your annual income and multiplying it by 2.5. The product is roughly equal to the cost of the property you can afford.
For example, if you are making Php50,000 a month, your annual income is Php600,000; hence, the property you can afford costs Php1.625 million. If you choose to purchase a house that costs higher, you might find it difficult to afford the monthly mortgage installment.
A great way to purchase within your financial capacity is through a housing loan. Know the requirements of a housing loan in this article.
Make your money work for you
Look for ways to increase your income stream, or in the case of families, pool resources together, so that you can be protected from debt in the case of loss of income while paying for the monthly amortization.
One way your money works for you is putting it in a high-yield savings account. Another way is to invest some of your money to beat inflation. Both ways ensure that your savings are earning interest which you can use for future payments or renovations of your home. Just be sure to put your money on investment products you understand.
Remember that saving for the down payment on your home will let you have a little more leeway with a loan, so it’s important to maximize the way your savings earn.
Contrary to popular belief, real estate is not just for people who have lots of money to spend.
In fact, there are people who have successfully attained this Filipino-dream through hard work and discipline.
Track your finances
Adding the big expenses of a real estate purchase to your budget can be a big change and it is crucial to make it one of your priorities in order to avoid debt due to accumulated interest.
Keep track of your recurring expenses, like monthly bills, and cut expenses as you build your savings. Subtract expenses and see your potential monthly savings.
There are plenty of apps like My Expense Tracker, Mint, Toshi Finance, and Visual Budget, that allow you to set a goal and help you plan towards achieving that money goal. It’s extremely important to develop the discipline to stick to this plan.