Most of us, a house can easily be the most expensive purchase one can make in his life. It can really drain one’s savings, which is why a lot of aspiring homeowners prefer to take out a loan to make things easier on the pocket. Getting a loan, however, is no simple feat. You’ll need a lot of planning and foresight to ensure that you’re not biting off more than you can chew. Despite all the preparation, there are still many errors you can make during your housing loan application. Here’s what you should watch out for:
1. Using up all of your savings for the down payment
If you’re applying for a housing loan, you would most likely be required to pay at least 20 percent of the property’s price. If you’re looking at a place worth P5 million, you’d have to shoulder at least ₱1 million—a hefty amount for most Filipinos.
Don’t wipe out all your savings in one go. When you’ve taken out money for your down payment, you should still have ample savings left in your bank account, as well as enough money to shoulder expenses, emergencies, and investments.
2. Using too much of your monthly income to pay for your house loan
Earning ₱50,000 every month—the minimum monthly income allowed by most banks—does not immediately mean you could (or should) use ₱35,000 to pay off a housing loan. “Ideally, you can allot around 30% to 40% of your monthly income on home loan payments,” says Adele Cruz, Security Bank’s Home Loan Project Manager. “This will still leave more than enough for your other day to day expenses and savings.”
3. Not shopping around for the best loan
Any savvy shopper will tell you that it’s a must to look around for cheaper or better options first before spending your money on something you really like. You should go about your housing loan application in the same way. Before you even start looking at homes, do your research first to see which financing institution offers the best rates. Sure, you can always just go with the loan offered by your long-time bank, but you might be missing out on a better deal.
4. Focusing too much on a house’s cost and not realizing how expensive it can be to actually live in it
Buying a house is one thing. Actually living in it is a completely different thing. There are so many expenses you’ll have to consider, from annual property taxes, to the furniture you’ll have to fill your home with, to the repairs and upgrades that should be done regularly. The bigger your home and the older it is, the more you’ll have to shell out. Take note of these factors, and with additional research, calculate how much will be the actual cost of owning a home. You can also budget around 3% of your home’s purchase price for these expenses, just to be on the safe side.
5. Ignoring the importance of your credit score
If you’ve got other outstanding loans and a bad track record when it comes to your credit card payments, you might have a hard time getting your home loan approved. “Your credit score is a measure of how good your credit standing is, and is a key factor in getting approved for a housing loan,” explains Cruz. Check your credit report around a year before applying for a loan so you’ll still have time to work on improving your score.
6. Underestimating the percentage points of the interest rates
There doesn’t seem to be a big difference between 6% and 6.5%, but when we’re talking about a purchase worth several millions, those decimal digits can translate to a mind-boggling amount really quick. Make sure you’ve figured out exactly how much you’re supposed to shell out every month for your loan before signing the dotted line.
7. Seeking advice from the wrong people
Your broker means well, but if they are pushing you to invest in things that you know you can’t afford, it might be time to switch them up. While there’s nothing wrong with consulting your realtor aunt or your banker friend about home mortgage rates and the entire application process, you should also keep in mind that they have their own biases and might be only interested in getting you to apply with them. The best way to go about it? Consult with an independent property advisor or a buyer’s agent, they can help you choose the truly best deal.
8. Ignoring the other costs of getting a housing loan
The down payment and the interest rates aren’t the only figures you should be considering when applying for a loan. “Aside from the interest rates there are mortgage registration fees, mortgage redemption, and fire insurance premiums to consider,” says Cruz. “You must include this in your budget as well.”With so many selections available in the market, choosing the correct option can be a daunting task. It will be intimidating at first, so familiarize yourself well enough using this guide and make sure to consider all the possible pitfalls if you’re planning to apply for a housing loan. With proper research, saving, and planning, attaining your dream home will eventually be a reality for you.