The first logical thing that most homebuyers do before making that commitment in buying their dream homes is to consult with a mortgage calculator. It is actually a smart idea, because P5,000 a month amortization is not really just P5,000 in real life.
Although some mortgage calculators accurately compute your financial capability, it still does not factor in the other expenses in your life that you think are not essential, but really, you can’t live without.
It pays to be honest with what you spend to determine what you can really afford. So grab a pen, paper, and your trusty calculator to determine how much you can COMFORTABLY afford.
Home Buying Budgeting Rules of Thumb
- Generally, your total debt payments per month should not exceed 36% of your gross monthly income. According to lenders, this is the debt level borrowers are comfortable paying.
- Only consider items that have documentation of proof to arrive at a realistic budget. This is because lenders (specifically banks) require such documents to determine your capacity to pay a large debt.
Let’s Compute!
1. What is your income?
Aside from your take-home pay, you may have other sources of income that you may have not realized.
If you are financially-savvy way before reading this article, you may have earned income from your savings account or from your financial investments. If you have been selling chichirya to your officemates at work or do freelancing on the side, that could count as income too.
Income items to consider:
a. Take-Home Pay after tax and salary deductions
b. Pension Payments
c. Interest earned from financial investments (i.e. savings)
d. Extra income from business/freelance/sideline/property rental
2. What’s your monthly gastos (expenses)?
As you assess your monthly expenses, you’ll quickly realize how exhausting this mental exercise would be, especially if you are high maintenance or have a big family (including pets). You will also identify by now what expenses you can REALLY live without or give up if you already have a specific property in mind and would need to reach a certain budget in order to buy it.
Outgoings you should consider:
a. Household Expenses
- Electricity
- Gas
- Water
- Cable
- Internet
- Help/Cleaning Services
- Telephone
- Groceries
- Others (HOA fees, Security, Garbage Collection)
b. Finance Expenses
- Rent/Mortgage (if you are buying your second home)
- Credit Card/s
- Loan payments
- Savings/Investments
- Life Insurance
- Car Insurance
- Health Insurance
- Pet Insurance
- Transport (Commute)
c. Child Care Expenses
- Nanny/Babysitting
- Child Maintenance (Checkups)
- Education/Daycare Fees
- Extracurricular School Expenses
- Food (milk supplement, baby food)
d. Pet Care
- Nanny/Babysitting
- Pet Maintenance (Checkups, Vitamins, Boosters)
- Training
- Food
- Grooming
e. Leisure/Shopping Expenses
- Gym/Sports membership
- Club/group/trade membership
- Donations
- App subscriptions
- Call and text subscriptions
- Mobile internet and data subscriptions
- Holidays/eat-outs
- Entertainment (movies, karaoke, etc.)
- Clothes
- Beauty/hair care
If you feel that you have listed all of your outgoings, you may want to give them a run-through before adding the following that could be applicable to you:
f. Closing costs
Some of the costs, like the homeowner’s association fees and real property tax.
g. Potential increase in household expenses
You can never be too sure whether your new home will incur the same utility and common area maintenance costs as you do in your old home.
h. Increase in transport expenses
Leave some padding on your pamasahe budget if you’ll choose your next home for factors other than its accessibility to your workplace.
Got your homebuying budget? Let’s start the hunt for properties for sale here.
