So you’ve done your research and have decided that you are ready to buy a property. Before you proceed any further, it’s important that you ask yourself this: “How much can I afford?”. It’s always vital to put your financial standing into perspective before you shop for a property.
Why? Because once you commit to purchasing a property, you could be tied to a home loan that you have to repay every month for up to 35 years, considering that you don’t sell off the property before the end of your home loan tenure. Many property buyers fail to determine what they can afford before they hop on the bandwagon, which may lead to financial struggles further down the road.
By taking a good look at your current financial standing, you’ll also be able to significantly reduce your scope in searching for the right property that meets your budget. To determine your budget, you’ll have to first start by assessing your disposable income. A rule of thumb is to ensure that your monthly loan instalments should not exceed one-third of your total gross household monthly income. However, this is merely a guideline as you should also take into consideration of other debt obligations such as car loans and personal loans.
When it comes to assessing what and how much you can afford, the three most important aspects to consider are:
- Monthly gross income
- Loan eligibility
- Your available cash for down payment and additional fees (such as legal fees and stamp duties)
At the end of the day, it’s better to buy within your means so you won’t be burdened with a heavy home loan for the next few decades.
This is an excerpt from the A To Z Property Buying Guide by iProperty.com, to be published in December 2015. Keep a look out for more sneak previews here on iProperty Focus.