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Why do so many Filipinos drown in debt? It's mostly because they fail to plan ahead and purchase investments within their means.
For example, some married couples jump ahead and secure a home loan without first breaking down and itemizing their expenses to see if they can afford to add the mortgage. Some individuals purchase homes that are not within their means, which only ends up with them being unable to pay their debt and for the property to be foreclosed and taken by the bank.
To help you plan your investment, here's how to compute the amount you can afford to pay for a house:
Step 1: Fill out this list.
a. Current income - Your income annually, after taxes.
b. Existing payments/debts - Other monthly payments or dues that you need are already included in your monthly budget
c. Downpayment - The required amount you need to pay before you can move-in.
d. Interest rate - Consult the bank on current interest rates for home loans.
e. Loan term - How long do you want to pay off the mortgage?
f. Taxes and insurance - Find out how much you have to pay for taxes and insurance for your home.
g. Association Dues - Find out how much you need to pay for your condo or house's association dues.
Step 2: Find out how much money you can set aside for mortgage.
Subtract the amount of recurring bills and debts from your current income. Make sure you leave room for emergencies, retirement, and other non-negotiable expenses.
Step 3: Find out how much mortgage you can get.
You can use mortgage calculators online to estimate the monthly payment you can get at certain interest rates. Zillow's affordability calculator allows you to get the price range of the condo or house to buy. Just click on the Advanced button to customize the data used.
And there you have it. Make sure you plan ahead and perform your own computations to make sure that you're really getting the amount that matches your income. Apply for a loan only when you are sure that you are capable of paying the mortgage for the next 20 to 30 years.