Home ownership: The 30/3 guide and how to follow it
A house or condo is one of the biggest investments you will ever make for yourself or your household. As you grow older, the need to set down roots and live in your own house can lead you to consider saving or taking up housing loans to find a place to settle down.
There is no definite timeline or schedule to knowing when you should be ready to purchase a home. Rather than judging it based on somebody else’s calendar, a better gauge would be looking internally at what you have. Take a look and examine if you’re financially stable enough to purchase a home. A good guide to understanding this is by using the 30/3 guide towards home ownership.
What is the 30/3 guide?
The 30/3 Guide is a way to determine if you or your household has the purchasing power to afford a house of a certain range.
There are two rules: first is that you should only spend a maximum of 30% of your gross income on a monthly mortgage payment. Second, the value of your home should not cost more than three times your household’s annual gross income.
So, let’s say you make P600,000 annually, and you live with two other people who also make the same amount–a total of P1.8 million in total household income. This means your maximum mortgage should be limited to P540,000 per year or P45,000 per month. This also means that your household should only buy a house valued no more than P5.4 million.
Determining your purchasing power
Knowing these limits, take a look at online real estate listings for properties in your preferred area and within your given house value.
If you find properties that meet your budget, your household already has the purchasing power to afford a house without sacrificing the ability to purchase basic needs.
If you can’t find properties within your budget, this either means you have to look at a different location with a lower real estate value average, or your household just doesn’t have the purchasing power to afford a home in the current real estate market.
Getting a bank loan
Once you’ve computed your purchasing power, it may be time to consider getting a home loan, as many Filipinos find it impossible to save up for a home without opting for a loan. There are various home loan packages in the market, so it’s important to consider your own finances and your 30/3 results to see how much mortgage you can pay back.
Advantages and disadvantages of following the 30/3 guide
Pros:
You buy what you can afford- Many homeowners struggle to pay their mortgage and other living expenses because they simply cannot afford the home they bought. If you find yourself unable to save or having to use your savings to make ends meet, it’s a sign that you’ve purchased a house that your household’s income cannot afford.
You’re setting your expectations- When you estimate your budget for a house with your own income or your pooled household income, you already get an idea of what properties you can afford. Many real estate companies entice buyers with low down payments only for people to struggle with the mortgage payments.
You know what loans to shop for- Now that you have a guide on how much you should be spending on mortgage payments, it should be easier to shop for home loans and determine whether or not you can afford to pay for it.
Cons
This can limit your options- If you’re strictly following this rule, you could be moved to look away from certain real estate locations. This could lead you to miss opportunities where property owners sell their properties below the average price.
It is not planned for contingencies- This guide doesn’t take into consideration contingencies that may affect your financial position. It’s important that, on top of your mortgage payments and living expenses, you still have savings that cushion your household in case of an emergency.
As a final note, just remember that this guide isn’t meant to be a hard rule for buying your first home. Think of it as a strategy to help you maintain your financial stability when it’s time for you to pay your mortgage.
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