Thursday, February 20, 2014
Buying a home is an important milestone for every individual, whether it’s your first home, a vacation home or a quiet place for retirement. Aquiring a home loan from a reputable bank has its own benefits. This buy-now, pay-later scheme is attractive because it enables borrowers to own their dream homes earlier. However, despite these obvious advantages, you should also be cautious of how much you can afford to borrow.
Income and savings
Philippine banks have set stringent application requirements and background checks to assess your financial situation and your capability to pay off the loan. The higher your annual income is, the better your chances of getting your home loan application approved. Most banks require a family gross income of at least Php 50 000 per month, but this may vary depending on which bank you’re applying with. Having a savings account will also provide good leverage in a loan application.
Debts and Debt Service Ratio (DSR)
Banks also factor in your outstanding debts and credit histories in approving home loan applications. If you have a history of not keeping up with payments and you have incurred a lot of debt in the form of car loans, credits cards and the like, your chances of getting approved may be slim. Another way of figuring out whether you can afford a home loan is by calculating your debt service ratio or DSR. The DSR can be calculated by dividing your monthly debt repayment obligations with your monthly income. The Bangko Sentral ng Pilipinas (BSP) has set the acceptable ratio at 50 percent.
Upon qualification for a home loan, Philippine banks usually allow borrowing up to 80 percent of your property’s value. Consider your financial needs, monthly income and debt service ratio when figuring out how much to borrow. While these are great rules of thumb to follow, it is always best not to borrow more than you can afford. This will help you avoid serious debt.