The many beautiful homes and touching stories that we read on groups like Home Buddies has us feeling inspired to save up for our own homes. Whether it’s a posh apartment, a container home for tiny living, or a mansion - our dream houses come in very different shapes and sizes.
But owning a home is a hefty investment (though a worthy one). While developers and banks offer many flexible loan payment options available, how do you determine if you’re ready to take on such a commitment?
Check out these considerations.
You have a stable income
Only think about buying a house or condominium unit when you have stable income. That means you’ve had steady cash flow in the past months and you don’t see that financial set-up changing anytime soon.
Remember, banks ask for proof of a steady income (permanent employment) to approve any loan.
You have an emergency fund
Another thing you must have before investing in a home is an emergency fund. An emergency fund is a form of savings, but you should never dip into it unless it’s an emergency (job loss, illness, etc.)
Having this fund reduces your chances of using the money you’ve allotted for housing for emergencies.
The rule of thumb for this fund is to save 3, 6, 9, or 12 months worth of your salary or enough to cover your monthly expenses for that time period.
You have the money for the downpayment
While banks allow you to borrow a huge sum of money for the house, they won’t shoulder the total contract price. Hence, you need to prepare the money for the downpayment.
Having at least 10% of the total contract price is a good start, although some banks would require you 20%. If the down payment is by installment, preparing the money for the next 3 or so months is a good benchmark.
You have leeway to add one (or two) more items to your expenses
Can you afford to shell out the monthly amortization for the next few years or even decade? If your income no longer has room for amortization, then think twice about buying a house.
Perhaps wait until you’ve finished paying for other expenses (car, insurance, etc.) and saving up just a little more in order that you don’t stretch your finances too thin.
Here’s another tip, experts say the monthly amortization SHOULD NOT exceed 30% of your income. If it does, then you’ll be in a tight spot.
You shouldn’t be in further debt
This one is non-negotiable. If you’re going to be in further debt because of the house purchase, you might as well not push through with it.
Sure, buying a house probably already means you took out loans. But if you need to borrow money for your other expenses to be able to buy a house, then it’s better to rethink your decision.
You don’t plan to spend huge sums of money in the coming years
Only buy a house if you don’t plan on spending big on anything in the coming years. If you plan on studying, getting a car, or getting married, see first if you’ll still be able to sustain paying for the amortization.
Read the fine print and never buy a house you haven’t inspected
You probably heard of horror stories from new homeowners where their dream house turned into a nightmare of repairs due to low-quality materials or construction.
If you plan to buy a house, you must be willing and ready to inspect the property as well as the documents.
You’re set on the location
And finally, buy a house only if you plan on residing in it for at least 5 years. If you have doubts about the location, are worried about transportation and amenities, or generally don’t feel good about the neighborhood, pause your plans.